Selling your home and buying a new home can be a very exciting idea. The promise of a more comfortable home that better matches your lifestyle can be an intoxicating one. But if you’re seriously considering selling, it’s important that you’re well informed as to what the process involves.
LET'S DIVE IN
WHY DO YOU WANT TO SELL?
Stop for a second and really think about the reasons you wish to sell. Do you want to upsize? Downsize? Relocate? Whatever the reason, consider it carefully as you begin the search for a new home.
WHAT TO LOOK FOR IN A NEW HOME
Before you start looking at new homes, talk with your spouse, children (and any family members that are moving with you) about what features you will need in your new home.
Make a list of those features (such as a larger garage, a yard, no maintenance), and include the number of bedrooms and bathrooms and approximate square footage you want.
Next, make a list of neighborhoods or areas in your city you would be interested in. Is there a particular neighborhood you like because of its convenient location to schools, malls, parks, and other amenities? Are you willing to move to the suburbs, where you can find better home prices, or would you rather be closer to the action, even if it costs more?
Knowing what you need (or want) in a new home will make the home hunting process a lot more efficient, and will help your real estate agent find the right property for you.
Once you know what you need in your new home, share that info with your real estate agent. The more specific your list, the better, because it will narrow down the list of potential homes to see.
FIND AN AGENT
A trusted real estate agent or real estate team is essential for your success in selling your home and buying a new home. A great real estate agent can help you go into the process more confidently through the ups and downs you will inevitably encounter.
Your real estate agent might even be able to help you find suitable accommodations while you transition from one home to the next, or even put together a rental agreement with the new home owners so that you have a place to live until you move to your new home.
DETERMINE HOW MUCH HOME YOU CAN AFFORD
While part of the excitement of buying a new home is seeing what’s the best home you could technically purchase, it’s essential that you slow down and crunch the numbers before making a decision.
How much home you can afford should not be determined by the maximum amount of financing you can get. You should NEVER live “house poor.” In other words, living in a situation in which you’re just barely able to pay off your monthly mortgage payments.
Life is uncertain, and if you live house poor, even a small economic difficulty or sickness could threaten your ability to pay off your mortgage.
An even in the unlikely situation were you would be able to successfully pay off your new mortgage without any economic downturn, living house poor would inevitably lead you to sacrifice many life comforts.
You would have a hard time saving money for retirement, you might have to cancel vacations, etc. Getting those comforts back would require you to find a way to significantly increase your household income.
A good rule of thumb is the 28/36 rule, a rule often used by mortgage lenders and creditors to gauge their borrower’s debt repayment capacity. This rule states that a household should spend a maximum of 28% of its gross monthly income on total housing expenses, and no more than 36% on total debt repayments.
For example, if your household monthly income is $6,000, your household expenses (including your mortgage) should not exceed $1,680, and you total debt repayment (including credit cards, student loans, car loans, etc.) should not exceed $2,160.
In fact, mortgage lenders and other creditors often use this rule to gauge their borrower’s debt repayment capacity.
SHOULD YOU BUY YOUR NEW HOME FIRST, OR SELL YOUR OLD HOME FIRST?
You may have already found your dream home, and fell in love with it. You may be inclined to buy that home before you sell yours.
Typically, it’s better to sell your old home before you buy a new one. By doing so, you’ll have the funds from your sale already, you’ll be able to make a larger down payment on your mortgage, and you’ll avoid spending time with two mortgages at the same time.
If you absolutely must buy a home before you sell yours, you should at the very least do the following:
1. Work with your real estate agent to get a market analysis of what you can expect your old home to sell for (do a conservative
estimate to be safe). Study the current market, and see how long it takes on average to sell homes comparable to yours.
2. Set up a clause that lets you list the day after your offer’s conditions on your offer are waived.
3. Get a 90 day closing, so that you have enough time to sell your home.
PREPARE YOUR HOME TO SELL
Declutter your home, and have all the interiors professionally cleaned. Do all the handyman work you’ve been putting off, and get an inspection so you know for sure if there are any hidden issues with your home.
If there are any issues, get them fixed as quickly as possible. Speak to your real estate agent for recommendations about how to stage your home. If possible, get your agent to hire a professional stager.
BE PREPARED TO TAKE ACTION
At this point, you should be getting ready to list your old home, and you also have a pretty good idea of the type of home you WANT to purchase and CAN purchase.
As mentioned earlier, the best case scenario is that you’re able to get your home purchase to coincide with your home sale. This is especially important when you want to use your home sale earnings to purchase your new home, or use them to make a substantial down payment.
Of course, getting the timing right can be tricky. There are many issues to be aware of, such as:
What kind of market are you in? If you’re in a seller’s market, there will be more buyers than homes for sale, and selling your home would be fairly easy and quick.
At the same time, that would mean a lot more competition when buying a home. You could easily lose to another buyer, or you would need to offer more money and fewer contingencies to get your next home.
Temporary housing. In case you do end up selling your home before you buy a new one, you have to consider where you would live in the meantime. Would you get short-term rental, stay with friends or family, stay at a hotel, or negotiating a rent-back with your home buyer?
Your possessions. Are you going to keep them in a storage facility, or at a friend’s home? Or would negotiate with your moving company so it can store your items for some time?
IN CONCLUSION
Selling your house with the anticipation of buying a new home can be a very exciting process. But it also needs to be approached with caution, and with plenty of knowledge about what to expect. Be sure to consult a trusted real estate agent that can guide you through the entire process as smoothly as possible.
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