Which should come first: buying or selling?

If you own a home now but want to move, it’s critical to figure out financial options first.

Chris and Joanne Black had been casually house-hunting for about six months, looking for a bigger home with room for their three young children, when they unexpectedly found their dream home.

“It was in a neighbourhood that we really liked, and it was exactly what we were looking for,” Black said.

They hadn’t placed the house they owned on the market, so they made an offer contingent upon the sale of their current home. The offer was refused because of the contingency. After discussing the matter further, the Blacks decided to drop the contingency and make the offer regardless of what happened with their current home.

The offer was accepted, and the Blacks rushed to get their home on the market. Fortunately, their home sold quickly. Within 28 days, they were in their new home. They had two settlements in one day, selling their house in the morning and settling on the new house in the afternoon.

“Are you prepared if the new loan needs to be settled before you sell your other house?”

The Blacks had their financing worked out ahead of time. If their home didn’t sell before the settlement date, they planned to go into bridging finance. Paying two mortgages at once was possible, but it was something the Blacks wanted to avoid.

The transactions went without a hitch, and the Blacks are thrilled with their new house. The process, however, was nerve-wracking. If he had to do it again, Black said, he’d definitely put his house on the market before looking for a new house.

“We really didn’t think we were going to find anything so quickly. And my wife was afraid that if we put our house on the market and it sold, then we’d just settle for a house and not wait for the right house,” he said. “Then we looked at this house and within 24 hours we were in scramble mode. We were fortunate that some of the first people to look at our house made an offer, but I was sweating bullets there for a few days.”

What’s the best way to buy a house when you already own one? Do you put your house on the market and hope you find a new one before your house sells?

Wait to find a new house and make an offer contingent upon the sale of your home? Or, do you do what the Blacks did, make the offer and work out special financing in case your current home doesn’t sell quickly?

FIGURE OUT FINANCING FIRST

Mortgage and real-estate professionals say what you should do depends upon your financial situation and what you’re comfortable with. Before you start house-hunting, your first step should be to talk to a mortgage broker to figure out your options. Get pre-approval for a loan amount and figure out whether you want to sell your house first, and, if not, what kind of financing will work best for you if you need to pay two mortgages at once.

The Black family are a good example of a customer who did exactly what he was supposed to do.

He called his mortgage broker, prior to putting his house on the market and prior to looking for a new home. They decided what the best- and worst-case scenarios were based upon whether his home did or did not sell by going over his situation.

For those who qualify, there are different loan programs that enable customers to buy a new home before they sell their current home.

Some homeowners take out a home-equity line of credit on their home. It is possible to get up to 80 percent of a home’s value this way. These funds can be used for a deposit a new home, and the loan can be paid off once the old home sells.

If the homeowners are trying to keep the loan payments on the new house as low as possible while they are paying two mortgages, they can opt for an interest-only mortgage. Once the old house is sold, the homeowners can refinance to a fixed-rate mortgage. There is the risk that interest rates may rise in the meantime, however.

BUYER’S COMFORT LEVEL

It is critically important for buyers to know their financial options, but it’s equally important for them to figure out their comfort level.

Just because you can qualify for a certain loan amount doesn’t mean you should take out the loan.

You need to take a good look at the numbers and make sure you’re comfortable with them. If you’re uncomfortable with the idea of paying two mortgages, you may want to consider putting your house on the market before you start looking, he said. He pointed out that putting your house on the market does not mean you have to sell it, even if you get a full-price offer.

Buyers should be aware that many sellers prefer a lower offer with no contingency over a full-price offer with a contingency.

Trying to sell a home when you have another under contract may affect your ability to bargain. If you’re in that situation where you have a house under contract, will you take less of an offer on your house?

The bottom line is that it’s important to do some planning because you never know when the perfect house will come along. When you find the house of your dreams, you want to be ready to buy it.

James Howitt

www.reachhomeloans.com.au

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