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Should I Buy a New Home or Sell the Old One First?  


Is it better to buy first or sell first?


            This is the dilemma faced by most move up buyers at some point.  Should you sell your home first and then buy a new one?  Or would it be better to buy first and then sell?

           If you decided to sell first, are you confident that you'll be able to find the right home to buy later?  Are you willing to move into a rented house or apartment if you find a buyer for your home before you find another home for yourself?  Will you feel pressured to buy a house that may not be everything you want?

           On the other hand, what happens if you buy before selling your current home?  Buying first allows you to know exactly what the cost will be, where you're moving and when, and if you need to take along your refrigerator or not, etc.  However, as great as it sounds, buying first may be a real gamble.           

No Price Guarantee

            Buying first can be risky because once you sign a contract with a seller, you are locked into paying a certain price no matter what you end up selling your home for.  Since there are no guarantees, what you think you can sell your home for may not actually be what a buyer is willing to pay for it.  If your home sells for less than you anticipate, do you have the additional cash (often thousands of dollars) you'll need to close the sale on the new house?

            Real estate markets are notoriously fickle.  If you buy in an up market, you may be unpleasantly surprised to find that in the time it takes to prepare your home for sale, the market has taken a downward turn.  This may mean that it will take longer for your home to sell, and you may have to accept a lower price just to get it sold.  It's unlikely that the sellers of the home you're buying will take less just because you miscalculated your net. 

Can You Afford to Buy First?

            Another consideration is, what happens if your existing house doesn't sell before you close escrow on the new house.  If your down payment is coming from the equity in your present home, you might have to borrow in order to close escrow on the new house.  You could end up with two or three housing payments, making it extremely difficult to qualify for the loan on the new home.

            One solution to this problem is to make the purchase of the new house "subject to" the sale of your present home.  This is called a contingent sale.  In your contract to purchase the new house, have your agent include a clause making the contract subject to the sale of your present home.  However, be aware that sellers may be less inclined to accept a contingent offer.  If you can afford it, another option is to ask the sellers to consider carrying back a second mortgage.  This allows you to use their equity until your home sells.           

A Conservative Approach

            In his book, Sonny Bloch's Inside Real Estate, author Sonny Bloch advocates taking the most conservative approach to buying and selling at the same time.  He says, "Sell your house first, but have a clause in your contract that does not give possession of the house to your buyer for as long as it takes YOU to find your next house."  This "seller rent-back" would require you to pay the buyers a prorated, per diem cost.  However, it eliminates your risk by allowing you to continue to live in the property for an agreed-upon time frame after it's sold.  You'll know exactly how much cash you'll have available for your new purchase, giving you greater negotiating power and you won't be stuck with an extra mortgage payment.  

Cherry Creek Mortgage
7950 Dublin Blvd. #104
Dublin, Ca. 94568
800-325-2062
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