Want to Upgrade to a New Home? Buy First; Then Sell

Many buyers think they need to sell their current place before they upgrade to a new home. While this is the traditional model, it is not advantageous in all markets. Depending on the circumstances of the current market, it may actually make more sense to go ahead and purchase your new home prior to selling your existing property. There are several reasons to pursue this alternative path.

Capitalize on a Buyer's Market

When real estate prices are low, it is truly a buyer's market. This is problematic for any buyer who is also a seller. The discounted prices on a new property will be offset by losses on an existing property. Only first-time home buyers truly benefit in a buyer's market. However, even existing homeowners can benefit if they buy before selling. For example, if you purchased your property for $500,000, you could likely get a much nicer upgrade in a buyer's market for the same price. By buying first, this is possible. You can then wait to sell your home until it regains its value. In the meantime, you can rent the property out to cover the mortgage. 

Alleviate Seller's Remorse

Sellers often have a harder time finalizing a home sale than buyers. Buyers approach the situation with a budget in mind; typically, this budget is recommended by a mortgage pre-approval process. Sellers, though, often lack a budget. They know what they would need to cover the outstanding mortgage balance on a home. Beyond this figure, though, sellers can become confused about a fair price. They may additionally be pressured by a pending purchase of a new home, causing them to take an offer they would not otherwise take. When you have already purchased the next property you will live in, there is less pressure to take an offer. 

Avoid Contingencies and Rentals

Home sale contracts become more complicated if you have to use a contingency. Typically, a seller can choose to place a contingency in the contract that the home sale will only go through if the seller finds and closes on a new home in time. This can be a hassle for the borrower and may even result in a missed opportunity for the right sale. One way to avoid this is by moving into a rental property. However, money spent in rent does not build equity, and money will even be wasted in the moving process. Moving into a new home before selling the existing property can eliminate any contingency rules or rental expenses.

Use Home Equity Down Payment Options

Perhaps the biggest question looming is how a buyer can afford a second home before selling the first property. One option is using a home equity loan for the down payment. Though this is not traditional, it can be very successful to many borrowers wanting to capitalize on market conditions. Once you sell your current residence, you can pay off the mortgage and home equity loan with the sale profits. Do not place your home on the market before seeking the home equity loan.