Things to consider when selling a house

A lot people selling a home are buying another one at the same time. This creates an interesting dilemma: Should you sell the old place first, thus ensuring that you’ll have the money to afford a new house, but taking the chance that someone else will come along and buy the house you want while you’re waiting for your old one to sell? Or should you go ahead and put a contract on a new place before you sell the old one, thus taking the chance that when the time comes to settle you won’t have the money to close the deal?

The obvious way out of such a predicament is to write a contract making the purchase of the new place contingent on your sale of the old one. But contingency contracts tilt the deal in favor of the buyer, and in this case you’re also a seller. Contingencies work best in sluggish markets, when a seller has no other offer and no prospect of another offer in the immediate future. Otherwise, why take your home off the market for 30 to 60 days for what amounts to a definite maybe?

Clearly, selling first makes you a more attractive buyer. But selling means you’ve agreed to move out of the old place on a particular date, and the closer you get to that date, the greater the pressure to find a new place to buy (or rent). After all, you have to live somewhere.

One thing you can do is try to get your buyers to agree on a settlement date that’s more distant than usual—perhaps 90 days away rather than the 45 or 60 days commonly written into a purchase contract. You could also ask the buyers to consider renting the place back to you for a short time after closing. You’ll have to offer enough rent to cover the new owners’ mortgage, taxes and insurance, plus a security deposit to reassure them about possible damage to the property while you’re living there.

If you choose to buy before you sell and can’t get a contingency contract, you may have trouble qualifying for the mortgage. What the lender sees is someone who might have to make payments on two houses at once, not to mention come up with a down payment on the new one before selling the old one.

You might be able to use a home-equity line of credit on the old house to get the cash for a down payment on the new one. In that case, the lender sees someone at risk of owing payments on three loans: the mortgage on the old house, the mortgage on the new house and the equity loan on the old house. Unless you’ve got a hefty income to draw on, you probably won’t get the new mortgage.