The Answer is, technically, Yes.
This question, “Can I Build My New Home Before I Sell My Old Home?” is typically asked when someone starts to think about building a new home. It is primarily driven by the desire not to have to move twice. After all, that means packing up everything, finding a rental home or apartment, unpacking enough to live for X amount of time, storing what you don’t have room for, and then doing it all again as your new home is completed and you move again. Just reading what you have to do is enough to exhaust most would be buyers. That is when they stumble on the idea of just staying in their old home until their new home is complete. Moving once has to be better than going through all of that extra work… or is it?
The Chicken or Egg Conundrum
When you start to think about building your new home before you sell your old home, you think the pressure is off. However, with new home construction things happen. Weather delays, permit delays, inspection delays, and zoning variances – they can all happen during a build and the one thing you can count on is that they will never shorten the length of time it takes to build a new home. Using modular construction can reduce your timeframe but you may still be impacted by other onsite activities. So, how do you time the selling of your old home so that you can seamlessly move out of it and right into your new home?
By the way, don’t forget all of the decisions you will be making during the construction of your new home. They mount up. Building a new home for many can be stressful. Now add the balancing act of trying to perfectly time the sale of an existing home. One of the first things you should be doing when building is getting pre-approved for a construction loan. Your lender may play a big role in this decision. Depending on your finances and your credit, they may require you to sell your old home first. Decision made! However, if you still think you can make it work and you want to try, keep reading.
6 Reasons You Should Sell Your Home Before Building Your New One
- What Day Will Your Old Home Sell? – When do you put your old home up for sale? The day you break ground? The day you close your construction loan? Or, the day your real estate agent tells you to? What day will it close? Now, imagine that you can’t do the final closing on your newly built home until you close on your old home. Think S-T-R-E-S-S.
- It’s Easier to Buy a Home than to Sell a Home – Ask any real estate agent, in almost any market, it is easier to buy a home than to sell a home. You are in much more control when buying than when selling. In 2016 47% of homes sold within a month of being listed. That sounds great! But what if you’re not in that 47%?
- You May Be Pressured to Reduce Your Selling Price More Easily. – If your old home hasn’t sold and your new home is almost ready, you may need to sell quickly. This pressure will motivate you to take the next offer that can get you out of your existing home quickly. This can cost you thousands of dollars that you didn’t count on.
- How Much Money Do You Need to Bring to Settlement? – If you need to sell your home before you can close on your new home, how much money will you need? In today’s world, many lenders require 20%. If you had change orders or other costs added to the new home price, do you have enough cash to do it? See reason #3.
- What if You Can’t Sell Your Old Home? – If your home doesn’t sell before you have to close on your new home there can be options. You may have just become an unwilling landlord to make the transaction close. Now you get to maintain two homes and have all the paperwork and responsibilities of a landlord that you never planned to have when all you wanted was to build a new home.
- Doing Two Things at Once – Building a custom home is hard. Selling an existing home is hard. Doing them simultaneously can cross the line into insanity. There is a lot of stress in both transactions. When one is dependent on the other, compromises get made. When you are pressured to close on your newly built home you may have to do things in one or both transactions that will cost you thousands of dollars.
Is There Ever A Situation Where You Can Buy Before You Sell?
The answer is a resounding yes. Many times if you own your home without a mortgage, you are in a perfect situation to build before you sell. It may actually be a great option. We see couples at the stage of downsizing and they have lots of equity in their home or may not even have a mortgage. As part of their investment strategy they may even want to have a rental property for income. This is a perfect example of living in your home, taking out a home equity loan on it, and then building your new home. In this example, it is a stress reliever, not creator.
What is the Right Answer to Buying Before Selling?
Well, there is no rule as to what the right answer is for everyone. Each situation is case-by-case for each person building a new home. It is a lot of work to have to make two moves when building a new home. However much work there is, the effort is managed, planned, and controlled. Stress can play a minimal role in the process. When you are trying to balance two of the largest transactions in your life, and at the same time balance your work and family, you are adding stress to what many find is already a stressful process. In the end you will be living in and enjoying your new custom home. How you get there with the least amount of stress is up to you. Using modular construction can also help reduce the stress when building your new home.