Should You Sell Your Current Home Or Buy A New Home First?

I frequently receive a question from potential home buyers who also have a home to sell asking if they should buy first or sell first.

If you are financially capable of buying your new home without selling, then you have options. You can buy first, move into the new house, and then sell your old one. Or you can sell first.

However, if you need the equity from your current home to use as a down payment for the new place, then you should probably sell first.

Here is the preferred scenario. Put your current house on the market. When an offer comes in, negotiate to have an escrow period a little longer than normal, say 45-60 days. This gives you time to find and purchase your new home and to coordinate the closings so you move door to door. Of course, you would want make your purchase offer contingent upon close of escrow in case the sale of your current house falls apart but that is not usually a problem.

So, what do you do if you find your dream home before you put your current home on the market? There are two options that might work - a contingent offer and a bridge loan.

You can make an offer to purchase a home that has a contingency clause on the sale of your current home. Many sellers will not consider a contingent offer unless the buyer's home is already in escrow. But, some sellers may accept a contingency for a limited time if the price you offer is high enough. In most cases, a contingent offer costs you money because you may have to pay more for the house you are buying and you will be under pressure to sell quickly so you may get less for your current property.

If you have substantial equity in your current house, you may qualify for a bridge loan. This is a short term loan (6-12 months) that allows you to get equity out of your current home now so you can purchase the new home without a contingency. Then you can sell your current property and pay off the bridge loan. There are several drawbacks to bridge loans. You must qualify to make payments on the bridge loan, the new home loan, and any existing loans or your current property. Bridge loans tend to be quite expensive. And, if your current property does not sell quickly, you are faced with owning and making payments on two properties.

Bottom Line: For most people, it makes more sense to sell first. And the good news is the inventory of properties on the market is pretty high so, when your current house sells, you should have lots of nice properties to choose from for your next home.