If you’re looking to move, you may have stumbled upon this question: Should I buy a new home or sell my current one first? The truth is that many different factors go into this answer and it is really based on your own personal finances and living wants and needs. Fortunately, Devon Thorsby for U.S. News & World Report has put together five questions that you should ask yourself when making this tough decision.
For a better understanding of how you can ensure the timing of your next sale and purchase are a success, ask yourself these five questions:
Can you handle two loans at once?
Look at your income and determine whether you’ll be able to make monthly payments on two mortgages at the same time. If you can’t, a lender will tell you to sell first.
“If there’s an overlap for one day, you have to qualify for full payment [of both loans],” says Anslie Stokes, a Realtor with McEnearney Associates.
You may qualify for a bridge loan, which is a short-term loan meant to give you more flexibility in the interim between buying one home and selling another (typically six months to a year). However, not all lending institutions offer bridge loans.
You also need to know where your down payment will come from. Do you have that money on hand, or is it in the form of equity in your current home? Depending on the type of loan you qualify for, that may not be a problem, explains Kevin Parker, assistant vice president of field mortgages at Navy Federal Credit Union.
“We have 100 percent conventional [loans] and we offer [Veterans Affairs] financing. We have the benefit of, in a lot of cases, allowing members to do 100 percent financing,” Parker says, adding that homeowners then don’t have to worry about pulling equity out of their current home to purchase the next one.
How quickly do you need to move?
Your biggest motivation for changing homes can also have an impact on what you do first. If you’re relocating across the country for a new job, for example, Stokes says putting your home on the market right away might be necessary as you visit your new city to go house hunting. The faster you can sell your current home, the easier it will be to fully relocate.
On the flip side, if you’re looking for a new home as a step up – whether you’re seeking more bedrooms for your growing family or additional property to fit your desired lifestyle – it may be beneficial to hold off on selling until you find the right home.
In that case, Stokes recommends working with your real estate agent to prepare to sell your home, but waiting until your desired home in your must-have neighborhood goes on the market.
Have you factored in new regulations?
In October 2015, the TILA-RESPA Integrated Disclosure rules went into effect nationwide, requiring lenders to provide two forms laying out the details of a mortgage to borrowers, one at the beginning – the Loan Estimate – and one at the end of the loan approval process.
The second form, the Closing Disclosure, must be given to the borrower at least three days before the real estate closing. If you need to sell your home to be approved for a new mortgage, you can’t close on the sale one morning and close on your purchase in the afternoon of the same day – a lending practice Parker recalls being fairly common previously.
“Post-TRID, that presents a challenge because we have the three days that we have to deliver the Closing Disclosure, which means we basically have to have everything finalized and approved before that three-day period,” Parker says.
As a result, the process of selling one home and buying another can be more uncertain, with the possibility of delays in closing. To reduce the chances of federal regulations causing problems, be sure you’re working with an agent and loan officer who know the ins and outs of the process, says Kevin Strong, a Realtor in Salt Lake City.
“It’s very important for a good, seasoned agent to counsel their buyers and their sellers on this process – how TRID has changed things with redisclosure, where it will slow things down,” Strong says.
[Read the full article: Buying and Selling Your Home: Which Comes First When You’re Looking to Move?]
