Mortgage Wise
To buy first or sell first: what to consider when moving
JoAnn Jones
2005/07/28

For homeowners planning to move, timing is everything. Whether it's selling their home first and being caught without a place to live, or buying a new home first and being caught with mortgages on two properties, there are real pitfalls to avoid when planning a move.
When deciding if you should buy another home first and then sell your current residence, or sell first and then buy, it's best to be informed about your options and the consequences of each decision:

Buy first, then sell.

With this strategy you can search for the home you want before having to first sell your current home. However, you won't know the final selling price of your home and if it is slow to sell you could end up making payments on two residences. Many turn to interim financing, a short-term loan to finance the purchase of the new home that is repaid (with interest and costs) when the sale of the original home is completed. When buying a home, you can make an offer to purchase conditional on the sale of your current home. Yet in an active market, sellers may not be overly keen to consider such a proposal. In any case, it is wise to request a late closing date on the purchase of your new home to maximize your selling window.
Another factor to consider if your current home doesn't sell as quickly as anticipated is that your financing on the new home may well be conditional upon you having sold your original residence. If that is the case, you may have difficulty closing on the purchase as lenders do not advance funds until all of the conditions are met.

Buy first, then rent.

A twist on the first strategy is to buy a second home and rent out your original residence, which is a viable arrangement if the rent received covers the mortgage and upkeep on the rental property. Keep in mind that this type of investment is a major commitment and is certainly not for everyone. Ask yourself if you are willing to be a landlord. Not everyone is cut out to rigorously screen tenants, track down overdue rents and field repair calls. Get up-to-date information about your local rental and real estate markets so you can make an accurate estimate of how much you can charge for rent. Your real estate agent has expertise on local conditions and can provide solid guidance in this area. An accountant can explain the details of the tax consequences of such an investment.

Sell first, then buy.

With this strategy you'll know exactly how much money you have before beginning your house hunt and will be free to make an offer on your next home that is not subject to the sale of your original home. This makes sense if you're in a rising market where you're likely to encounter a bidding war over prime real estate. Yet, if you take longer than expected to find a suitable new home - which can happen in a strong market - you may have to rent in the interim. And if you've sold your current house and have agreed to vacate on a set date, you might be under pressure to settle for a house that falls short of your ideal. If you sell first, you can try negotiating a longer period until closing or see if the buyers would consider you as a renter for another month or two after closing, until you find your perfect home.
Which approach is right for you can depend on current market conditions in your area - in a rising market, buying first can be advantageous as your old home will be increasing in value, while in a declining market many will consider selling first. Talk to a mortgage agent for expert advice on the best approach for you.
-The opinions and ideas expresses are solely those of the author and not necessarily those of the Calgary Real Estate News. Invis (www.invis.ca) mortgage agents work with prospective homeowners across Canada to provide valuable advice before and during the home buying process. You can speak to an Invis mortgage agent directly by calling 1-866-84-INVIS.