Should I buy a new house first, or sell my old house first?
July 8, 2020 12:46 PM   Subscribe

I own one home. I will be buying a new home. I'm fortunate to have cash on hand for a down payment. I can't decide whether I should buy first or sell first.

I own a condo in a desirable urban area (Home A). I want to buy a larger home in the suburbs (Home B). Due to an inheritance, I now have money on hand to put down a good down payment (20-30%) on a new place before I've even sold my own place. I'm a little stumped as to the order of operations here.

Pro of selling A before buying B:
-Can hold out for top dollar on A (this isn't super important to me, really. I will definitely make a decent profit, maybe very good profit, no matter what)
-Don't have to get a big mortgage to buy B, since I will have lots more cash on hand? Honestly I don't know how it works otherwise (if you buy B first, then get a chunk of cash from selling A. Do you just get a really big mortgage and immediately pay like 60% of it off?)
-Not stuck with two mortgages for any amount of time

Cons of selling A before buying B:
-Possibly needing to move out of A before I have settled on B. I'm familiar with renting back from the new owners, so I would ideally arrange to do that for a few months but hard to know exactly how long to plan for. I REALLY don't want to move into a rental and then into my "real" home, and I REALLY don't want to feel pressured to buy something I don't love just to avoid moving twice.

I have two little kids, so convenience is a factor for me. Due to this inheritance I've got some financial cushioning so a couple months of double mortgage (if that even happened) wouldn't be terrible.

Thoughts? What have you done in a similar situation?
posted by Bebo to Shopping (16 answers total) 2 users marked this as a favorite
I've done it both ways, and selling FIRST was hugely easier; when I sold second I ended up having to carry the place for a fair while longer than expected (a full year longer), which sucked.

It's not so much being able to hold out for top dollar, it's about not getting stuck carrying two mortgages because something unexpected happened.
posted by aramaic at 12:56 PM on July 8, 2020 [5 favorites]

Have you talked to a real estate agent about the current market in your area? You can certainly engage with one before putting Home A up for sale. A decent agent will advise you on what they think A is worth and how quickly it will sell.
posted by JoeZydeco at 12:58 PM on July 8, 2020 [2 favorites]

Another consideration is the logistics of showing your current place during a pandemic. Someone I know opted to buy and move first so that they didn’t have to deal with figuring out how to work from home while vacating for a showing, or cleaning after multiple strangers have traipsed through.

Depending on where you are and what restrictions are in place there, this might be more or less of an issue. Another thing that would be good to discuss with an agent, probably.
posted by Kriesa at 1:06 PM on July 8, 2020 [5 favorites]

For me, if financial considerations were not in play, it would depend on staging the old house. If you're an immaculately neat person w/ tasteful (but not too interesting) decor, I would definitely put the old house up for sale as you start to look for a new place, then let nature take its course.

If, on the other hand, you're like most people and your house is, like, lived in (and with two kids, y'know...), I would buy a new place, leave some very minimal staging-type furniture items in the old place, and move on before selling.

This is assuming a seller's market, which it sounds like is the case where you are.

You should definitely be able to pay a huge chunk of your new mortgage when you sell. Just read your paperwork carefully and be sure there's no penalty for this.
posted by nosila at 1:07 PM on July 8, 2020 [1 favorite]

What's the rental market like in your area? Could you plan to rent property A out after you buy and move in to B? If it is a healthy market, finding someone to move in against a closing of a property may be much easier than trying to get a sale organised. This may allow you to rent out that property to pay mortgage/maintenance fees and create a buffer to allow you to sell it in a less pandemic-y environment.

Of course, if another shut down occurs and people struggle to make ends meet you may get hosed, there, so it's not risk free.
posted by Brockles at 1:11 PM on July 8, 2020

To me, the headaches of dealing with showings (unless you're confident that it will sell the first weekend it's listed or whatever), even without covid, means I'd rather buy a new place, move into it, and let the real estate agents stage the old place however they like. With covid going on, I'd personally absolutely move before showing.

(if you buy B first, then get a chunk of cash from selling A. Do you just get a really big mortgage and immediately pay like 60% of it off?)

Mortgage rates are really, really, really low right now. Unless you really love the idea of having a paid off dwelling, you're far better off pumping up your tax sheltered retirement savings with it. (Or to a lesser extent, post-tax long term stock investments.) Long term investments in the stock market will pay off two the three times what current mortgage interest rates are.
posted by Candleman at 1:17 PM on July 8, 2020 [7 favorites]

I purchased a first condo in April (closed in May) in a desirable urban area. Every single place I looked at was empty and had been empty for at least two weeks and there were no open houses only private scheduled showings for serious buyers who took digital tours first. I would not have considered looking at a place that was occupied unless it was about to be vacant and I could see it vacant before it went under contract. Aside from the obvious COVID risk I just didn't want to look at other's furniture, I wanted to look at the blank canvas so I could really see just how much repair I was signing up for and mentally project my style onto it. YMMV but probably most real estate agents are going to tell you to sell first for all these same reasons.
posted by slow graffiti at 1:23 PM on July 8, 2020 [1 favorite]

If you buy first you can have any repairs/cleaning/upgrades done while you're not living there. Then you can move in to new place, then clean/repair/stage the old place.

Fewer headaches and stress, but possibly more months of double mortgage payments.
posted by H21 at 1:42 PM on July 8, 2020 [1 favorite]

-Don't have to get a big mortgage to buy B, since I will have lots more cash on hand? Honestly I don't know how it works otherwise (if you buy B first, then get a chunk of cash from selling A. Do you just get a really big mortgage and immediately pay like 60% of it off?)
Sometimes there are special circumstances where what I'm about to say is not true, but generally speaking: there is no financial advantage to putting more than 20% down, and there is no financial advantage to paying off any faster than the bank asks you to. There is almost always something better you can do with excess cash than put more money down or make voluntary payments on a mortgage. Not only is there no financial advantage to doing this: it literally costs you money in lost opportunity.

The most common legitimate reason to ignore this advice and put more than 20% down is that you're forced to by the seller, e.g. you're in a bidding war with a cash-rich buyer, or the condo association requires it. To be honest, if the seller will let you, and the bank will write the mortgage without raising rates, you should consider putting less than 20% down.

There are less common legitimate reasons you might voluntarily take more home equity (either downpayment or early payments) that relate to tax or impending inheritances, but you should talk to an accountant or other professional to find out if they apply to you.

From a purely financial point of view: "I want the feeling of 'owning' a larger fraction of my home" is not a good reason IMO. You might find it emotionally rewarding, but it will literally cost you money to have that feeling, so run the numbers and think carefully before you do it. It might be worth it! But you should find out the cost before you make the decision.

Anyway, back to the question: assuming you follow the advice above: you already have the downpayment, so it makes no financial difference whether you sell or buy first because you should not put the money from the sale into the equity on the purchase. This is therefore a purely logistical question.
posted by caek at 1:55 PM on July 8, 2020 [7 favorites]

I will speak purely from a logistics perspective: I tried to buy B first, while staying in A as I renovated B. Renovations on B dragged on for over a year due to delays in approvals, resulting in me having to list A when the market went slightly lower in my area, and move into a rental. Moving twice was exactly the scenario I was trying to avoid, and I still had to do it. It sucked.

If I had to do it over again, I'd list A while simultaneously shopping for B, or sell A and move into a rental for a year or so and give myself time to shop for the perfect place in a leisurely fashion.
posted by bedhead at 2:09 PM on July 8, 2020

We were in a similar situation to you and bought our new home in the suburbs with savings as the downpayment FIRST. Then we listed our townhouse in a desirable neighborhood, we went away for a weekend, held two open houses over a Saturday and a Sunday, and had an offer on Monday. It was that fast. We actually got several offers, but one of them was for full asking price, and a stipulation to not tell the other offers that we had their offer (presumably to prevent a bidding war. ) We took the full price offer. I didn't believe it would happen that way, but it happened.

We closed on our new house and moved in about 30 days, and the next week, the old one closed with the new buyers.

It's a seller's market right now, there are more people looking to buy/move than there are people selling. Talk to a real estate agent, but I think buying before selling is the best move for you right now.
posted by juniperesque at 2:17 PM on July 8, 2020

Do you have a mortgage on your current place? If so, you will need to talk to your mortgage lender, because they may require you to sell first. Not only is it a bad idea for you to carry two mortgages at once, it's possible your lender won't allow it.
posted by dbx at 2:23 PM on July 8, 2020

One thing that might be different right now: I think a lot of showings are virtual right now, which might reduce the demand to show your house with little kids in it. So you could get it ready for a virtual showing and have the real estate agent get that online, and you might have fewer showings than you would during non-pandemic times.

Will you qualify for a new mortgage right now, even with the down payment? It may be that you have enough assets, but this is also dependent on your income.

You could buy a new home, sell your current home, and then refinance your mortgage and put more money into it. It not make financial sense to that, but mortgage rates will probably be low-ish for a while. But I wouldn't buy that second home unless you're very comfortable with the idea of carrying two mortgages for a while or renting your current home.
posted by bluedaisy at 3:19 PM on July 8, 2020

I bought and sold recently and the loan I got for the new place can be recast, meaning I can make a large payment towards the principle and the rate and payment schedule stays the same with the payment adjusted for the new lower loan amount.
posted by readery at 5:52 PM on July 8, 2020

I think you want to take into consideration your local market.
In my experience (Silicon Valley)
- larger homes hold their value better and go up faster than condos which drop more and come back more slowly.
- depending on the type of home, some are common floor plans where if you miss one, another is likely to come on the market while others are unique - when you find that you love, you have to be ready to move because you won't find another one with the same mix of features
- how hot is your market? We bought twice and then sold our home as soon as possible afterwards. In one case, we got an extended closing date (60 days) on the home we were buying and then sold our house with a 30 days close so they both closed at the same time. In the second case, we were rolling over a lot of equity so we could swing buying the second with savings and the replenishing the savings when the first house sold. In both cases, we were able to sell the original house in the first week it was on the market.

On the other hand, my brother bought a new house before he sold the old one and the market crashed so it took a year to get the old house sold at quite a bit less than he hoped.

What do you think is going to happen in the market over the next year? If you think we are heading into a recession, you will be better offer selling first (market not as far down and you know how much you are really going to get) and then buy later (price drifts down plus you know what you can afford.)
posted by metahawk at 9:31 PM on July 8, 2020

We've bought and sold homes many times and it is SO much easier from a logistics perspective to buy new place then sell old place if you can afford the down payment without selling your old house. We have kids and dogs, so getting things cleaned up for showings is a HUGE drag, as is moving, as is finding a place to rent short-term. Plus we usually have to do some work to the new place and that is much easier to do before we move in. If you don't have these things, maybe it makes a little more sense to try to sell first then buy. We tend to price aggressively, precisely because we don't want to carry two mortgages, so we've never had a place sit on the market for more than a few weeks. Given current volatility, if you are in a place that's been hit hard by corona-related economic impact (dependent on tourism, for instance) it might be less safe to assume you can do a fast sale and get out for the price you expect.

Don't do a huge down payment, just do a normal 20-25% down then save your cash in case you end up paying two mortgages for a while. Put the rest in the market or bonds. Interest rates on mortgages are low. Borrow as much as they'll let you and make money on the rest.

Whatever you do, if you don't absolutely need to make an offer contingent on your home sale, don't do it. It is a dealbreaker for so many sellers who do not want to wait on your house to sell.

Finally, if you do end up selling before you buy the next place, you could ask about a rent-back from the buyer and if the timing works out maybe you won't need to move. We ended up renting back our sold house for several months to renovate the new place the one time we did sell before we bought. Luckily they bought our house as a teardown so it worked out well as they knew they would need months to draw up plans and get permits. That said, often buyers want to move in straightaway and they won't sign up for a rent-back.
posted by potrzebie at 10:30 PM on July 8, 2020

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