Homebuying Strategies: When Does it Make Sense to Buy Before you Sell?

Baltimore Real Estate Podcast with Seth and Alyce Dailey

In my experience, if you’re a homeowner looking to move into a new home, selling your old home before buying a new one is probably the better way to go, and there are many reasons why this is what the majority of homeowners choose to do. Here’s a rundown of those reasons so that you can decide with confidence whether this move is right for you: 1. You might not want to risk carrying two mortgages. In a perfect world, you’d buy your new house, sell your old one, and the timelines would match up nicely with no fuss or risk. For most of us, however, things rarely go that smoothly. If you don’t have the savings to carry two mortgages for at least a few months, you’ll want to sell before you buy. It could also be that you’re in the position where you can’t qualify for two mortgages.To buy a home before you sell, you’ll either need to have the cash on hand or qualify for a second mortgage. Understand that lenders won’t consider your plans to sell your current home when reviewing your second mortgage application. Your debt-to-income ratio will need to fit the criteria of the loan requirements at the time of purchase; your lender assumes you will keep both homes, so your debt-to-income ratio needs to be able to support both mortgages. This means that your monthly debt payments should total less than about 36% of your monthly gross income. If you don’t think you meet those criteria, you might have an easier time selling your home before buying the new one. 2. You might just be in a competitive market. In some markets, people are practically climbing over one another or get their hands on desirable properties. Although this means that your house may sell faster, if you’re living in the same market that you’re buying in, you also need to be able to put in a competitive offer.If you haven’t already sold your home and you can’t afford two mortgages, you might need to put in an offer that’s contingent on selling your current home. This means that the seller has to wait for you to sell your current place before closing the sale, and understandably, that’s not the most appealing option for a seller. If the offers are contingent, they might not even be considered in the running for a house if there are multiple offers on it.Selling your home before buying a new one allows you to bid on a house without it being contingent on a sale. That’s super critical in a competitive market. “To buy a home before you sell, you’ll either need to have the cash on hand or qualify for a second mortgage.” 3. You might be in a sluggish market. If your present home is in an area that isn’t exactly selling like hotcakes, you might want to sell first, for two reasons: 1) It could simply take a long time, leaving you with two mortgages. 2) You might not get the sales price you want, which will affect your new home purchase. 4. You might not be ready to commit. Sometimes, it just doesn’t make sense to buy; you may want to get the feel of a neighborhood before living there permanently. Buying a home is a really big commitment, but if you want to take advantage of the schools or amenities of a new place, renting temporarily might just make sense. 5. Consider doing a leaseback contingency. If you’re selling your home before buying, but you want to avoid renting while between homes, consider adding in a leaseback contingency. We do this all the time, and it works best in a seller’s market where buyers are willing to wait to get into the new home. With a leaseback contingency, you sell the home to your buyers, but lease it back from them for a set term—this could be 30, 60, or sometimes even 90 days. This improves your chances of finding a new home before you have to move out.Another strategy is to enlist the help of an experienced agent. Follow your agent’s recommendations for getting your house ready to sell, and familiarize yourself with the market where you want to buy. As soon as you have a contract on your home, look for the new one. If all goes well, your agent can help you line up your closing dates so that you only have to move once. We’re happy to help you navigate these intricacies of the changing market and to recommend an agent in another part of the country who will have your best interests at heart. If you have any questions or would like a recommendation for an agent, feel free to reach out to us. The Dailey Group is here to help you move with confidence.