When it comes to buying a new home, many clients find themselves in the predicament of needing to sell their current house first. Fortunately, there are three common scenarios they can consider: 1.) selling their current house first, 2.) making an offer on a new home with a contingency to sell the current house, or 3.) obtaining a bridge loan. I've highlighted the basic principles of each scenario below:
Scenario 1: Sell Your Current House First
Selling your current house before purchasing a new one is a traditional approach that ensures you have secured funds from the sale.
Pros:
1. Financial Security: By selling the current house first, clients have a clear understanding of their budget for the new home purchase, eliminating the risk of overextending themselves financially.
2. Negotiation Power: Buyers who have already sold their previous home are often seen as more attractive by sellers, as there are no contingencies involved. This advantage can potentially lead to more favorable negotiation terms.
Cons:
1. Temporary Housing: Clients might need to secure temporary housing during the transition period, which can involve additional costs and inconveniences.
2. Delayed Timing: The sale of the current house might take longer than initially anticipated, resulting in a potential delay in buying the new home.
Scenario 2: Write an Offer with a Contingency to Sell Your Current House
In this scenario, you can write an offer on a new house contingent upon the sale of your current house. Consider the following pros and cons:
Pros:
1. Seamless Transition: Clients can secure their new home without the need for temporary housing, providing a smoother transition between houses.
2. Reduced Financial Stress: Buyers have the peace of mind that they've secured a new home while waiting for their current house to sell.
Cons:
1. Potential Delays: Sellers may be less inclined to accept an offer with a contingency, especially in a competitive market. This situation could result in a delay or even the loss of the desired property.
2. Negotiation Challenges: With a contingency, buyers may have less negotiating leverage, as sellers may perceive the offer as less favorable than others without contingencies.
Scenario 3: Obtain a Bridge Loan
A bridge loan is a short-term loan that allows you to finance the purchase of a new home while waiting for your current house to sell. Let's examine the advantages and drawbacks of this scenario:
Pros:
1. Flexibility in Timing: With a bridge loan, clients can avoid the stress of rushing to sell their current house, giving them more flexibility in timing both transactions.
2. Avoid Temporary Housing: Similar to scenario two, a bridge loan eliminates the need for temporary housing, providing convenience and stability during the transition.
Cons:
1. Financial Burden: Bridge loans come with interest rates and fees, which can add financial strain without the immediate sale of the current house.
2. Qualification Challenges: Clients must be financially eligible for a bridge loan, meeting stringent criteria set by lenders.
As you navigate the journey of selling a current home to purchase a new one, understanding the pros and cons of different scenarios is crucial. Selling the current house first offers financial security, while making an offer with a contingency provides a smoother transition. Obtaining a bridge loan offers flexibility but comes with additional financial responsibility. Ultimately, the right approach depends on your specific circumstances and priorities. Consulting with a real estate professional can help guide you towards making an informed decision tailored to your unique needs.
