Sell Your House BEFORE Buying a New One

If you’re thinking of buying a new home in the near future, there’s something you need to think about first. Before you even sign a purchase offer to buy a new home, you first need to sell your house – as in the one you own now.

During the brighter days of the real estate market—the 1980s, 1990s and even the early 2000s—people got very accustomed to the high degree of liquidity in the market. It was possible, and even common, for a buyer to schedule “back-to-back closings”—the closing on the new home and the closing on the old home, one right after the other. Often, both closings would happen in the same office. It doesn’t get any better than that right?

I saw a lot of this during my many years in the mortgage business; people often confidently bragged of their ability to sell their old homes in between the time of the contract signing and closing on the new one.

But a few things have changed since the good-old days. Engineering a simultaneous close in this market is an entirely different undertaking.

The mortgage lending game has changed

Sell Your House BEFORE Buying a New One
Sell Your House BEFORE Buying a New One

Even if you’ve carried two house payments in the past—or even if you’ve done it more than once—don’t be so sure you’re lender will be willing to do it again.

One of the biggest reasons people end up in foreclosure is carrying two house payments, and lenders are well aware of this. It’s not that they didn’t know about it in the past—they did—but low default rates and the near religious reliance on automated loan approvals and credit scoring models caused them to turn a blind eye. There were always really high credit scores or miracle bridge loans to enable borrowers to get around the sticky little problem of a double house payment.

The housing meltdown changed all of that. People who were sure they could sell their old houses in a matter of weeks, or no more than a couple of months, suddenly found that they still had it a year or more after closing on the new home.

Something totally predictable happens when you carry two house payments for too many months: you run out of money! Suddenly, owning two homes was no longer a closing convenience, but a trap—one that many homeowners are in right now.

My point: you can no longer count on your lender being as willing to work with your optimistic assumptions on how quickly you’ll be able to sell your old home after closing. They’ve been burned and the rules have changed.

The real estate market has changed

If you’ve been paying even a little bit of attention to the news media you’re well aware of the troubles in the housing market. Now add to this knowledge the fact that it’s always been much harder to sell a home than it is to buy one, even in a strong market. This is because as a buyer, timing is within your control; as a seller, timing is within the buyer’s control. In addition, a real estate transaction is actually a fairly complex event where any of a number of details can cause a sale to come unhinged.

All of those issues are magnified in the current housing market. It now takes months to sell a house, and sometimes a lot longer. In this kind of real estate market, timing is rarely on the side of the property seller.

The consequences when you don’t sell your house first

How important is it to sell your home before you put an offer on a new one? Let’s consider the ways if you don’t.

  1. You may be turned down by a lender for a mortgage loan in today’s lending environment
  2. The seller of the house you want to buy may decline your offer or include a provision to accept back-up offers if you’re offer is contingent on the sale of your home
  3. You may not get as much on the sale of your old home as you expect, setting off a last minute scramble to raise cash—I’ve been to enough closings to know that that’s the LAST thing you want to be doing
  4. If you try to set up a simultaneous closing on both the old home and the new one, the sale of your old home could fall apart at the last minute for reasons you never thought of
  5. Instead of enjoying your new home, you’ll be consumed with selling the old one, and that will get more uncomfortable as the months pass
  6. If you’re house takes too long to sell you could be forced into becoming a landlord—and then you’ll be facing a whole new set of problems

Feel free to look at homes you might want to buy, but be sure to sell and close on your old home before you buy the new one. Then you can present a contingency free offer—and a known down payment—to the seller of the home you want to buy and the entire transaction will be as close to stress free as the home buying experience can get.

Still another option is to sell your current home, then move into a short-term rental. There are companies who provide short-term rentals to people for exactly this purpose.

The idea is to make a clean break by selling your current home first – this removes a major obstacle from the buying process, including the mortgage on your new home. Free from the  burden of selling your current home, you’ll be better prepared to buy a new one. And here’s a bonus: You will be a stronger buyer if you don’t have a house you need to sell. That can give you more room to negotiate on your new home.

In the past 5-6 years have you been in a position where you had a house to sell in order to buy a new one? How did you handle it? Older stories don’t count—everything has changed in just a few short years!

( Photo from Flickr by bluegrass@bardstown.com )

9 Responses to Sell Your House BEFORE Buying a New One

  1. I completely agree with the headline! A few weeks ago I closed a listing in which the buyers were moving from Mississippi. They had intended on selling their home and initially submitted their offer as contingent upon the sale of their home. Turned out, when the appraisal for the buyer of their Mississippi property came in, the bank wouldn’t lend. The property was a home/shop, and, well here’s an except from an email: “The issue here is the shop that has been highly improved since Noel is into a sophisticated shop and has a very nice office. This structure used to be a guest house and now is converted to a shop, something done regularly in this part of the country. The value placed on this secondary structure is above what State Bank would like to see.”

    At the end of the day, the sellers in Mississippi (the buyers of our California listing), bought our listing without selling their Miss. property. Last I heard, the buyers of the Miss. property bailed and the property is back on the market.

    Crazy market.

  2. Hi Kevin–I saw that situation too many times in the mortgage business and that was when the market was on a roll. What makes it worse is that when a contingent sale blows up it usually happens at the last minute–like closing day or the day before. Wow, talk about stress! Trying to do that in this market is even worse.

    Buying one home and selling another are two separate transactions. Take care of one–selling the old home–then take on the second. Double move? Sure, but a lot worse things could happen. Move in with family for a month or two, go to an extended stay hotel, or get a 30-60 rent back on your old home–you can always work out something.

    There’s too much optimism when people are buying and selling homes; a little bit of pessimism–and adequate preparation based on those assumptions–would make more transactions cleaner and less stressful. I wonder if John and Jane Q. Homebuyer realize how much stronger their positions would be going into a purchase with no old home to sell??? I think that’s the point that needs to be stressed.

  3. For now our home is underwater as much as I wanted to buy a new one I still cant because the current house has dropped its value from the time we bought it way back 2008.

  4. Hi Jasmin–There’s not much choice other than staying where you are. Maybe you can work on paying off your mortgage. It may take a long time to get out from under by doing that but at least you’ll be moving in a positive direction. But can I ask why would you want to buy a new house after just four years?

  5. Two months ago I sold my mortgage free townhouse due to two stories, master on second level. It took a long time o sell. I took a $10k loss due to paying buyer’s closing costs and realtor fees. I had lived there 8 years mortgage free so notbbad at all. The place had been refurbrished so no major repair but at least $1k per yr for painting, carpet cleaning, minor repairs.

    In spite of my realtor pushing me to buy again i have choosen to rent an apt for $700/mo. I did mnot want to buy into this market until after fall out at the beginming of 2013. I plan to buy in using VA mortgage (have certificate, never used)to avoid closing costs with little down. I again will be looking for i plan to buy a newer or redone place so that roof, water heater, etc will not be an issue, probably not even in my lifetime. Apt renting is psychologically negative for me.

    Most other renters seem not to care about their places and are transient. It takes away my need for stability. It takes away really getting to know your neighbors.

    Property taxes are today (it could change by law) not an issue for me. As a widow of 100% military service related disabilty I am tax exempt in SC. Also note that most states offer lower property taxes for age 65+. That may change. Anythiimg could happen in 2013. So I wait but so not so long as to miss lower sales rates and much lower interest rates.

    The next place will be my last as VA require I live in it(cannot rent) and if family inherits it would need refinancing, thus i am puttimg nothing down. Enough said. It will be like renting only a nicer place for less money. Plus it will not smell like an apt and if i want a decent kitchen faucet i can put one in without giving it to the owner. Apts and rental houses are really not very nice with low-grade everything. Rents will be going up here soon. $700 a month is already high for what I have.

    I can beat that with a small newer patio house (lawn care $30/mo). But i will wait until after Feb 2013. In the meantime the equity from my other place earns point nine percent. Really. .90%

    It is always a good idea to sell, rent, think, plan, shop before buying again. It is an important decision worth the short term moving expenses.

  6. Hi Lynn–Your situation sounds very similar to so many others trying to sell their homes. But you had one advantage with not having a mortgage. That’s huge! Imagine going through the same process only having a large mortgage on the property? Much tougher.