By Ken Yee
“Do I Need To Sell My Existing House Before I Buy My Next Dream House?” This is a very common question we get asked a lot. There are no requirements that you have to sell your existing home first, before buying another one. Although every individual’s circumstances are different, there are things that you should consider before deciding on the best strategy.
If you are planning to sell your home first, then it should be a straight forward process. You sell, move to a temporary housing and then buy your next dream house. However, where this becomes a problem for many people is with the temporary housing. Many people do not know when they will be able to purchase a house after selling their existing house. It could be as soon as 60 days or it could drag on for a year.
Usually, landlords do not like to rent to short term tenants, so the difficulty of finding a short term rentals can also be a challenge. In addition, short term rentals are usually more expensive. If you are going with this approach of selling first, our recommendation is to first research on the opportunity of temporary housing. In fact, you may want to consider securing the temporary housing first and move out of your existing home before listing it.
The key benefit of doing this is you will be listing a vacant property, which in our opinion will greatly help in selling your home. Of note, it will be at least 30 to 45 days before your house is sold in a normal transaction. The timeline may be longer depending on the response level of your listing. In our opinion, this strategy is not the most cost feasible strategy due to the cost of the temporary housing, but it is the best strategy if you are sure about selling your home but are undecided about where you want your next dream home to be.
If you are planning to buy a house first before selling your existing house, then the key thing to keep in mind is affordability. We usually advise our Clients to first talk to a loan officer. A loan officer will need to determine your income to debt ratio before your affordability can be determined. It may be a situation where your existing mortgage payment may limit the loan amount on your planned purchase of the next house, due to the overlapping mortgage payments. So please consider talking to your loan officer first to eliminate any affordability surprises.
Despite that, the key benefits of buying first are that it eliminates the need for temporary housing and the stress of schedule uncertainty with getting a new house. In addition to that, you will also be listing a vacant house which will be easier to market for sale, as noted earlier. In our opinion, this strategy is the least stressful and safest strategy if your debt to income ratio is not an issue and you are pretty much decided on the area where you want your next dream house to be.
Some real estate agents may advise their clients to list their existing home first while the client hunts for their dream house. This is also known as the ‘Contingent Upon Sale’ strategy. The ideal situation here is to time the buying part of the process to happen right after the sale of the existing home.
Although this is not impossible, it can be very stressful if either the buying or the selling falls apart in the middle of the process. The key benefit with this strategy is that if the timing works out, you will just move from your existing house to your dream house without the need to pay for 2 mortgages or temporary accommodation. However, there are 2 major challenges with this strategy. The first being finding your dream house where the Seller is willing to accept the ‘Contingent Upon Sale’ clause. Not many Sellers are willing to accept that in a Seller’s market. The second challenge is to ensure the Buyer of your existing home will not back out in the middle of the process, especially during the due diligence and the appraisal stage. In our opinion, this strategy is the most cost feasible strategy, but also the riskiest strategy due to the many uncertainties with the process.
Hopefully, you are able to determine a direction that fits you the best based on the 3 different strategies discussed above.
My name is Ken and my wife is Bee. I’m a Civil Engineer turned real estate investor and my wife is an IT Professional turned Realtor. Feel free to drop us your real estate questions at email@example.com.
DISCLAIMER: This article is written based on our personal and professional opinions. We are not certified financial advisors and are not qualified to provide financial or legal advice.