In an earlier blog, we looked at the dilemma that most homeowners encounter when they decide to move: Should you Buy or Sell First? In that blog, we looked at:
The Reasons to Buy Before Selling:
- Greater property selection – if the clock isn’t ticking, you can literally spend months or years searching for your dream home
- More comfort with interest rates – in the event that rates go up between the time you buy and sell, you’ll be locked into the lower rates
- Time for renovations – having the luxury to replace the electrical and kitchen while you aren’t living in your new home can be a godsend, especially if you have young children
The Reasons to Sell Before Buying:
- Know exactly how much money you have to spend – once your property is sold, you know exactly how much money you have for the downpayment on the new house.
- Avoid the stress and costs of your house or condo NOT selling – most banks will require you to have a firm Agreement of Purchase in place for your current property before they will advance you a mortgage on your new property
- Avoid bridge financing costs – this is the money the bank lends you to cover the equity in your house when you close on your purchase before the sale, i.e. the extra cost of carrying two mortgages temporarily.
Today I want to take it one step further and talk about some of the important questions you need to ask yourself when deciding whether to buy or sell first:
1. Where will you live? If you sell your house or condo first and can’t find your new dream house? Get a short-term rental? Move back in with mom and dad? Stay in a hotel?
2. What will you do with your stuff if you don’t close on your sale and your new purchase on the same day? There are lots of storage options out there, but they cost time and money. Make sure to factor it into your budget.
3. Where will you put your money? If you close on the sale of your house or condo before the purchase of your new home, all the equity you have in your existing home will need to find a home too. Don’t make the mistake of gambling it for a quick buck – a nice, safe place where you’re guaranteed NOT to lose money is much better than buying Facebook stock.
4. Will you encounter any mortgage penalties? Check the current terms of your mortgage–most mortgages can be ported, meaning that the outstanding balance can be brought with you to your new property and any additional mortgage funds needed can be added to it at the current interest rate. But be aware of any time limits to port your mortgage. Many mortgages are only portable for 90 days, so if you don’t close on your new property within 90 days of selling your old home, you may encounter some stiff penalties.
5. What is your worst case scenario? If you buy a home first and your current house or condo doesn’t sell, what will happen? Can you afford to carry both properties? To lose the deposit on your new place and possibly get sued if you can’t close? How much flexibility do you have with the price of your current property (everything sells for the right price)? Will your lender let you rent out your current home and still close on the new one if you really can’t sell it? Worst case scenarios are never any fun to deal with, but it’s better to be prepared than not.
6. How much uncertainty can you emotionally handle? Long before I started working in real estate, I bought before selling. I would have traded the stress and uncertainty of those 30 days for just about anything.
7. What is happening in the markets you are buying and selling in? There are different real estate micro-markets happening in Toronto: the condo market is acting differently than the house market which is acting differently than the new construction market, and the hotness factor varies greatly depending on the neighbourhood. If you’re moving from a less hot market to a hotter real estate market, you probably want to sell first. If you’re moving from a red-hot market to a more stagnant market, then buying first might make more sense. Of course, real estate markets change over time and it’s impossible to predict what will happen. In an ideal world, we’d all sell in a hot market and buy in a lower market, but rarely does it ever play out that way.
If you’re thinking of buying and selling, we’d be happy to talk through your options and help you decide if you should buy or sell first! Contact us at firstname.lastname@example.org.We’ll buy the beer (or coffee!)