If you thought that buying that first house was scary, wait until you gear up to buy the second.
It doesn't matter whether it is a buyers' market or a sellers' market a homeowner who needs to relocate or wants to "trade up" is never in the catbird seat. And so the huge question looms: does one buy the new house first? Or sell the old one?
A first time homeowner does not have this problem. Maybe there is an apartment lease to consider or timing issues involving kids and school, but first time buyers are relatively footloose and fancy free. Not so the second-or third-time buyer. There is the matter of an existing house, ongoing mortgage payments, and the cash needed for the down payment needed to close on the new house. You have the money of course, there is real equity in your current home, but until that home is sold that cash is locked up securely in your current mortgage bank's vault.
So, what we have is a conundrum. What comes first, the chicken or the egg? Sell first, and, particularly in a sellers' market, there is always the possibility of not finding that right place in a highly competitive market but the risks of becoming homeless, moving in with the in-laws, friends or get into short-term rentals are very low.
Or, buy first, one finds the perfect home but in some cases the buyer is unable to make a confident offer because their current house or condo has not been listed yet nor do they know the final selling figures and how long it might take to find a buyer and actually close on the sale?
If the market is tough enough, maybe the owner of your next house will be willing to work with you. If the market is strong enough, maybe selling your existing home is only a weekend away. But who knows? And how courageous must you be to bet the ranch on either scenario?
As a Realtor, I've worked with a lot of clients who froze in place because of the buy first or sell first decision.There are options.
Do your homework. This is the same drill you went through when you bought your first house. Get pre-approved for a mortgage, line up a hardworking and responsive real estate agent to help you find the new house and, if geographically appropriate, to list your current home.
Get your house ready to sell. Clean out the closets, paint the front door, pick up the yard, and fix the furnace if it needs it. Talk with a real estate agent, get an approximate listing price and discuss timing the listing, how long might a sale really take at each of several price points.
Pick your poison. As stated above, none of your options are perfect, but is your financial and emotional situation better able to handle owning two houses for a (hopefully) brief period, or moving into short term housing should your old house sell before you are able to locate and secure a new one.
If you opt for the possibility of owning two homes, get your financial situation in order. Look into a bridge loan (which will give you the funds for the new down payment and maybe even enough to subsidize a second mortgage for a while) or arrange for a home equity loan.
The bottom line: since the real estate market is seldom in equilibrium - when there is a balance between the number of active buyers and the number of homes available to them - you are probably going to encounter the chicken and egg decision any time you want to buy or sell. Just don't freeze (or sit on the nest). Recognize the situation, evaluate your options and get moving in one direction or the other.
