Many homeowners ask if they should buy a new house before they sell their current home. Most people can’t afford to own two homes at once, but there are many variables – such as your financial situation and housing needs – that can affect this answer.
Q: I’m wondering if I should buy a new house before I sell mine? Is this ever a good idea?
A: That’s a loaded question given the lack of information you’ve shared with us, but we’ll try to give you some guidance.
As a general rule, you’d rather know that you have a buyer in hand to purchase your home before you go out a buy another house. Most people can’t afford to own two homes at the same time. You might not have enough cash on hand to put down the money needed to buy the second home or you might need lender financing to buy your new house and your lender will require that you to sell or payoff the first home’s mortgage to get a new loan.
With all of this issues, let’s take it one step at a time. If you own a home and can afford to buy a second home, get financing on the second home and pay for all of the expenses of having two homes, you can go ahead and own two homes at the same time. Presumably, you can move from the first home to the second one and, when ready, sell the first home. Again, only people that have the means to carry two homes would want to do this. And, if you don’t have the means, it could be a recipe for disaster.
If you can’t sell your original home once you purchased the new house, you could be in for some trouble. Not only will you have expenses on two homes, but those extra costs could eat at your savings, retirement accounts and other financial lifelines that you have. It can be a risky proposition and not for the faint of heart.
There are times that the purchase and sale dates might not match up perfectly. In this situation, you might close on your purchase – if you can and your lender lets you – and then several days later close on the sale of your original home.
But, we don’t think that is what you are getting at. What you are basically asking is whether you should sign a contract to buy a house when you don’t have a contract for the sale of your existing home.
Here are some suggestions you might find useful. One solution is to put a home sale contingency in your offer to purchase the new home. That is to say, you offer to buy a house and that offer is subject to your ability to get a buyer for your house. Many form contracts have this language in them while others have attachments you can add to the contract to set this up.
If you create this contingency, you buy yourself some time to get the home you want and find a buyer for your home. If your buyer does not materialize after 30 or 60 days, the contract to buy the new home could be cancelled. You’ll need to make sure that you abide by the dates in the contingency. Failing to abide with the dates and notice provisions of the home sale contingency could cost you your earnest money, so if the contingency says you must notify the seller as to whether you have a buyer for your home by a certain date, you better do that. And, if the contract says that you must notify the seller that you have not found a buyer, you must do that as well and you had better do that in writing and on or before the date stated in the contract.
For all these reasons, your short question can have a multitude of answers and variations. Many of these variations will hinge on your financial situation, housing needs, as well as many other variables.
Ilyce Glink is the Publisher of ThinkGlink.com and the Founder/CEO of Best Money Moves. Sam Tamkin is a Chicago-based real estate attorney. This column is syndicated by Tribune Content Agency. ©2017 by Ilyce Glink and Samuel J. Tamkin.