If you have owned your home for more than a year, you have probably realized its value has increased substantially and the idea of selling your home to cash in on that increased value has most certainly crossed your mind. You have gone online to check the automated “estimate” of your home or called your trusted real estate advisor to get a (better, more accurate) valuation on your home. And what a nice surprise that was! You have a large amount of equity built in, so you say, “Let’s sell it and move!” But should you sell or buy first?
Allow me to show you a few possible scenarios so you can decide how to go about selling and moving in a way that fits your financial situation and your family best.
You’ve got the cash and don’t want to be rushed
If you have the funds readily available for a down payment or to pay for the new house in full, you can buy your next home before selling the current one. In fact, buying before selling allows you to go home shopping with less pressure. You can take your time to find the right home, close on it, move in and then list your previous home for sale. If you will be financing the purchase, check with your lender to ensure you can carry both properties’ costs for the period of time estimated to sell your first home.
Cash for the purchase is tied to your current home
If you are like most homeowners, your home is the largest asset you own; and you might need the equity built into your home to pay for the next one. In this case, selling your current home first is the evident solution — yet not the only one (more on that later). There are a few ways to go about doing this:
Contingent to sale of buyers’ home
After putting your house in the market and receiving an agreeable offer, you can make an offer on a home to purchase contingent upon the sale of your current home. This contingency ties both transactions in a way, and if your home sale were to fail within the stipulated time frame, you can walk out of the purchase without penalty. Current market conditions in our area make this strategy challenging, as this added contingency decreases your offer’s competitiveness in the eyes of the sellers. They can most likely get other potential buyers to make good offers with less strings attached.
Post Occupancy requirement
A more realistic alternative for this seller’s market is to request a post-occupancy period as a condition on the sale of your current home. This allows you to close on the sale of your home and collect the proceeds but remain living in the sold home for a few more weeks. With money in your pocket, you can put a strong offer on your next home.
If a post-occupancy is not an option on the offer you accept to sell your property, you will need to find a temporary home for your family from the day of closing on your former home until you complete the purchase on the new one. A short-term rental of a furnished place, moving in with relatives or renting an unfurnished home for a full year are some of the viable options. Your family situation and budget will determine the best course of action.
There are some additional options with added complexity and creativity that allow you to get the cash out of your current home to purchase the new one without selling first. Tapping into your home’s equity by way of a home equity line of credit — or even a refinance with cash out — could be an option for you. Check your particular situation with your preferred lender.
For a more personalized assessment of your options, contact a trusted real estate advisor.