How to buy and sell a house at the same time (and with less stress)
A question for the ages: Is it better to buy first, sell first, or do both at the same time?
While it’s not the most common puzzle to ponder, it’s certainly a difficult decision that many Canadian homeowners have to make — and we’re here to tell you: all of these options have their pros and cons.
Here are some key things you need to consider when making the big decision.
The challenges of selling first, then buying later
While it is possible — and obviously very ideal — for buyers to align the sale and the purchase on the same day, sometimes the real estate stars don't align. If you can’t manage a same-day scenario, you’ll need to sell first, and shop for a new home later.
And while this might seem like the more financially feel-good option, selling and then buying also comes with a long list of costs.
Unless you plan on embracing a life of temporary homes (AirBNB, anyone?), or crashing on the couches of generous friends or family, selling your home without having another means you’ll be left without a permanent roof over your head.
That’s why, in this case, you’ll need to lease an “in-between” space while you hunt for your dream home — which can be expensive, as the rent alone can end up costing as much as a monthly mortgage payment.
You’ll also have to move twice (at least) with this approach, so if we do the rough math, that’s double the moving costs for a truck, and for the labour. And unless you can find a big enough rental to house all of your worldly possessions, you’ll probably need to pay for storage costs while you search for your new home.
Plus: Don’t forget to factor in the emotional cost of added stress and pressure. You may feel rushed to purchase a new place, which may make you want to settle for something far less than perfect.
The challenges of buying first, and then selling
You’ve found your new home. Congratulations!
The biggest challenge of buying before selling is increased financial stress. First of all, you’re likely going to be straddling two mortgage payments — which isn’t an easy position to be in. Your income may not be able to cover the debts you’re incurring over an extended period of time.
And, with a higher income-to-debt ratio, you may have more difficulty even qualifying for a mortgage. If you do qualify, you have the potential for a higher mortgage rate, and a lower loan balance.
On top of this, you may have trouble coming up with an initial down payment, and a deposit, without the cash boost that sometimes comes with selling.
How to buy and sell your home at the same time — but with minimal stress
If you want to buy and sell your home at the same time, there are some creative strategies — and financial routes — you can take to ease the stress usually associated with the process. Let’s break down a few below.
If the sale of your existing home closes after the date you close on your new home, you may not have enough cash on hand for the down payment needed to seal the deal ( … that’s because your equity is still living in your existing home!).
Cue: Bridge loans. These are short-term loans that “bridge” the gap between when your current home is sold, and when your new home is bought. A bank will let you use the equity in your current home to pay for the down payment on your new home, even though you haven’t technically unlocked the equity yet. This means you can finance your new home before selling your current one.
Banks offer bridge loans, but nearly always with accompanying interest rates. Be sure to consult your trusty financial advisor to make sure you can afford to pay that particular loan back.
Buyers upgrading to bigger homes sometimes think that their current mortgage will suffice. To be sure, you should have a mortgage lender or broker in mind to help you understand your options, and help you get pre-approved.
You can get a pre-approved mortgage directly from lenders like a bank or credit union, or a broker that arranges the transactions for you. You provide either party with all the information they need, like assets, income, and debt. Then they tell you the amount you can borrow, and at what interest rate.
(Getting pre-approved means you know what you can afford, but it’s important to remember that nothing is guaranteed. You could get pre-approved, but the amount may not be final.)
Other creative tips
Rent your home after it sells
If you sell your home before buying a new one, sometimes the buyer won’t be looking to move in right after purchasing your home. You may be able to “rent back” your old place from them, which means you can keep living there until you find a new home. You still have to make payments to the new buyer, and they might ask for other concessions — like a lower price.
If you choose to buy and then sell, another option is renting out or AirBNB-ifying your home while it’s still on the market — even if just for short term rentals. Any little bit helps - but keep in mind that you’ll likely need to be on-call to help with any tenant issues that may arise.
Time everything to avoid contingencies
Like most things in life, buying and selling a home can often come down to good timing. The housing market changes frequently, with ups and downs that can work with or against your real estate plans.
That’s why it’s important to consider ways of protecting yourself. For instance, if you’re ready to make an offer on a new house, you could include a sales contingency. Sales contingencies mean that if your current home doesn’t sell in the time frame you indicate, then you can withdraw from the deal without penalty. If the market is slow, sellers may especially want to consider this.
This can be risky, since your old place has to sell. If it doesn’t, you just lost your new dream home. The seller might not want to wait for you. If you’re the seller, consider how competitive the market is and (we gently suggest) not accepting a contingency if you think you can get another offer.
Need some guidance? The experts are here to help
When it comes to buying and selling a home, there are many different routes you can take, but ultimately, every homeowner’s situation is unique and the decision you make will depend on your own personal and financial circumstances, the state of the market, and the timing that makes the most sense for you.
And if you’re not sure how to proceed: talk to us. Our team of experts can ask you the right questions, and help you make the choice that’s right for you in the future you.