Should you buy before you sell, or sell before you buy? This is a question many homeowners face when trying to handle both transactions at once.
There is no universal answer. It all depends on your situation and your priorities. What matters most is being well prepared. Buying a new home and selling your current one both deserve equal attention and planning.
So how do you manage buying and selling a home at the same time? Here are practical strategies and tips to help you navigate this process and keep the stress to a minimum.
In brief
- Buying and selling at the same time is a complex process, but it is entirely doable with the right preparation and a strategy suited to your situation.
- Selling your home before buying a new one is generally the simpler approach, provided you find your next property in time.
- Buying before you sell can make sense if your area is in high demand, but it is important to include a condition in your offer to make the purchase contingent on the sale of your current home.
- Several options exist for managing your mortgage during a simultaneous sale and purchase, including a bridge loan.
Is it possible to buy and sell at the same time?
Yes, it is. The process is complex, but it can be done. Buying or selling a property on its own is already a lengthy and demanding undertaking. Doing both at once can feel even more daunting.
Buying and selling simultaneously comes with significant challenges, including:
- Finding your next property;
- Listing and marketing your current home;
- Managing the many financial aspects involved, such as the down payment and mortgage.
That said, with careful preparation and the support of a real estate agent, the process becomes much more manageable. An agent can help you by:
- Understanding the specifics of the market;
- Streamlining your steps;
- Reducing the risks associated with this double transaction.
Analyzing the market: the key to a successful strategy
In an ideal world, a homeowner would be able to buy and sell at exactly the same time, with no gap between the two. In reality, that rarely happens, which is why having a solid strategy before you start is so important.
The first step is to assess the state of the real estate market in your area. This requires not only a good understanding of your own property, but also of the homes you are considering buying.
Two steps are essential to getting a complete picture of the situation:
- Get an estimate of your home’s value. This gives you a clear idea of what it is worth and helps you determine the right asking price.
- Browse real estate listings. Check whether homes that meet your criteria are currently available.
Having a thorough understanding of both sides will help you make an informed decision about the right sequence: sell first and then buy, or buy first and then sell.
Did you know?
Most real estate agents offer a free property estimate when you work with them to sell your home, which means you can avoid the fees typically associated with a formal appraisal. One more reason to work with a professional.
Selling before buying: advantages and disadvantages
If the market in your area is competitive, selling your home first can be a smart move. That said, this approach comes with both advantages and drawbacks.
Advantages
- Less pressure to sell. You have more time and flexibility to negotiate a favourable price for your property.
- Easier access to a new mortgage. Once the sale is complete, your financial capacity is clear.
- A stronger purchase offer. An offer that is not conditional on the sale of your current home is generally more attractive to sellers.
Disadvantages
- Risk of being left without a home. If you do not find a new property in time, you may need to consider a temporary solution such as renting.
- Potential storage costs. Without a new home lined up, you may need to store your belongings while you continue your search, which can add up.
When does it make sense to buy before selling?
If your area is in high demand and properties tend to sell quickly, conditions may be in your favour. In that case, buying a new home before selling your existing home could be a viable option. That said, it is important to proceed with caution.
Essential precautions
- Include a clause in your purchase offer to make the transaction conditional on the sale of your current home. This protects you financially if your property does not sell as planned.
- Also consult your lender to find out whether you qualify for temporary financing, such as a bridge loan, to cover your needs in the interim.
Keep in mind that if your home does not sell quickly, you could end up carrying two mortgages at the same time, which is a financially risky position.
Buying and selling at the same time: 4 tips for managing your mortgage
As a homeowner, you may be wondering what happens to your mortgage if you sell before it is fully paid off. The answer is yes, you can absolutely do so.
Very few people stay in the same home for the entire length of their mortgage, which typically spans 20 to 25 years. Many homeowners sell well before that period is up. Here are four options that may be available to you:
- Pay off the remaining balance on your mortgage;
- Transfer your mortgage to the new home;
- Use a bridge loan;
- Allow the buyer of your property to assume your mortgage.
1. Pay off your mortgage balance
This option depends on the equity you have built up since you started making mortgage payments, in other words, the portion of the home’s value that you actually own.
For example: your home is worth $350,000 and you have $20,000 left to pay. That means you have built up $330,000 in equity ($350,000 minus $20,000).
The more equity you have, the easier it is to negotiate an early payoff with your lender, since the remaining balance is relatively small.
To pay off your mortgage faster, you could:
- Increase the frequency of your payments;
- Increase the amount of your regular payments;
- Make use of prepayment options (check your mortgage contract for the applicable conditions).
A word of caution: if you are considering paying off your mortgage early but have little to no equity built up, it may be wiser to delay your plans. Early repayment penalties can be steep, and the costs may outweigh the benefits.
2. Transfer your mortgage to the new home
Some mortgage contracts include a portability option, which allows you to transfer your existing mortgage to your new property. A portable mortgage lets you carry the remaining balance over to a new home while keeping the same lender, the same interest rate, and the same remaining term, without triggering early repayment penalties. Some administrative and banking fees may still apply.
When transferring an existing loan, the loan-to-value ratio of the new property must meet the mortgage lender’s criteria. The lender may require an appraisal to confirm this. Note that most variable-rate mortgages are not portable.
3. Use a bridge loan
A bridge loan is a short-term financing solution designed to help you bridge the gap between purchasing a new property and selling your current one. It typically has a term of 120 days, though it can range from 90 days to 12 months depending on the situation.
This type of financing is particularly common in heated real estate markets where buyers need to act quickly.
A word of caution: if the sale of your home falls through, you could find yourself carrying both your original mortgage and the bridge loan at the same time. Make sure to carefully weigh the pros and cons before going this route.
4. Use a mortgage assumption
This is known as mortgage assumption. Your lender must approve both the transfer and the buyer taking on the mortgage. This option is relatively uncommon, but it can be advantageous in one of three situations:
- The seller needs to sell quickly and uses this as an added incentive to attract buyers.
- The seller is having difficulty finding a buyer and offers mortgage assumption to make the property more appealing.
- The seller does not want to lower the asking price and uses this benefit to motivate buyers to meet the listed price.
What are the risks of this type of financing?
Your lender may refuse the transfer if the buyer does not meet their requirements. Even if approved, legal and administrative fees may apply. It is also worth noting that you could remain liable for the mortgage if the buyer stops making payments.
Before offering this option to a buyer, make sure you will have no ongoing responsibility once the transfer is complete, and keep written proof of that agreement for your own protection.
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