Do you buy first or sell?

Buy or sell? Which comes first?

I get asked that question often and the answer varies, depending on your own situation and the market conditions in your area. 

Before you decide, you should know whether it is a buyer’s or a seller’s market.

Here are some possible financing solutions for you to consider for both of these scenarios.

Buy first

You have found and bought your dream home before you've sold your current home and you are faced with carrying two mortgages for a while. What will you do?

Access equity for down payment:

• You may qualify and be able to afford to carry and own both homes. If the down payment for your new home is tied up in the equity in your existing home, then there are options to get access to that right away.
• A home equity line of credit, which has no penalties for paying it off, can be arranged to access your equity in your current home for the down payment.
• The payments are interest only, so while you own two homes at once, the payments are low. Once you have sold your existing home, you can then pay off the line of credit you used for the down payment in full. 

Rent:

• You could consider renting your existing home on a month-to-month lease. While it is still on the market, you could be receiving an income to assist with the mortgage payments.

Refinance: 

• Perhaps the payments are going to be too high to carry two mortgages. It might be possible to re-write your current mortgage to lower the payments or ensure that the mortgage payments for your new home start off very low.

Bridge financing:

• If your existing home has sold, but there is a two or three-week period when you own both homes, you can take possession of your new home while you still own your existing home with bridge financing. 
• The lender for the mortgage on your new home will also advance the balance of the down payment ahead of your sale completing. The cost is usually around $250-$300 for set-up and administration and then you pay a daily interest rate based on prime plus four per cent to 6.25 per cent.

Sell first

You have a buyer and offer for your existing home before you've found your next home, and you may find yourself living with family, friends, or in a hotel. This might occur if you haven’t found your new home or if convenient closing dates cannot be negotiated – is it worth it?

This scenario can be a little more challenging and some possible solutions include the following:

• You could ensure the offer includes a clause that the sale is conditional on you purchasing a new home.
• You might request a longer closing date to give you time to find a new home.
• There are some instances when the purchaser of your home might not need to move in the exact day that you are planning to close the purchase. In this particular case you might be able to buy some time by simple “renting” from the new owners. This is useful if you have found your dream home but you are not moving in for a few days or weeks. Alternatively, of course there are some great all service hotels and furnished accommodation that might be suitable for a short stay rather than imposing on family and friends.
• Bridge financing: Just as above.

There are a number of different options and your own personal situation will determine which option works best for yourself. I’d be happy to discuss these with you so give me a call at 888-561-2679 or email [email protected].

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.