If you are a homeowner and you decide to enter the market, you’re faced with a difficult question, “Do you buy your next home before selling, or vice-versa?
We get asked this question all the time.
Each situation is unique, and several factors need to be looked at to determine the answer of that question. For example: What are the current market conditions? And are you financially capable of carrying two properties with ease?
The most common tactic is to sell first. By doing so, we are accomplishing the following:
- Taking the time to ensure the property is sold correctly; highest price & best terms.
- By clarifying the purchasing budget; finalizing a sale and concluding the profits to plan the next step
- Allowing for a competitive offer with fewer conditions
- Planning a suitable timeframe to find a home: Understanding the market dynamics – inventory levels for your neighborhood of choice & days on market. Following, we can offset the notarization and occupancy by a 3-6 month gap, depending on the market conditions and personal preference.
Uncomfortable with the no. 1 recommended strategy?
You have other options.
Can you afford to pay two mortgages at a time? Then you can buy first.
The 72 hour clause.
Faced with the prospect of taking on two mortgages, even if only for a short period of time, one option for the buyer would be to submit an offer to purchase that includes a 72-hour clause.
You can include a condition in the offer to purchase, specifying that you need to sell your home. This way, you don’t have to shoulder the financial burden of two mortgages at the same time.
It allows you to make an offer to purchase while putting your house up for sale. However, the seller retains the possibility of finding a new buyer. If this happens and the new buyer makes a higher offer than yours, they have 72 hours to react. After this time, their offer would no longer stand.
If the number of potential buyers exceeds the number of houses offered, the seller is likely to refuse the conditional offer with the 72-hour clause. Then, you may want to make a tempting proposal to make it worth their while, offer above the asking price?
We don’t want to risk missing the opportunity to buy our dream home? What can we do?
We have a few creative financial solutions to solve the problem. Bare in mind, they are more expensive (shoulder the cost of borrowing funds temporarily).
– Bridge loan: The equity from the first home is used to finance the down payment on the second. It’s a short-term loan, often for up to six months, that bridges the gap between the two real estate transactions. Available under various names, most financial institutions offer this type of product which provides peace of mind to those who are in a hurry to acquire a new home.
– Home Equity Line of Credit (HELOC): A homeowner could also apply for a line of credit by offering their home as collateral. The amount of the line of credit would serve as a down payment for the purchase of the new home.
These forms of short-term financing allow you to proceed with the acquisition of a new property, while saving time so that you don’t sell your home at a discount.
Ensure that you apply for a bridge loan or HELOC as early as possible before putting the house on the market.
Contact a real estate broker and mortgage specialist to understand the current market and to make the suitable decisions to get the transactions done in the right order. This is the way to ensure success!
“ Give me six hours to chop down a tree and I will spend the first four sharpening the ax.”
- Abraham Lincoln