If you are not a first time home buyer, then you will need to consider the factors involved with selling one home and then buying another home. The easiest way to make a smooth transition from one property to another is to sell first, and then buy. However, this is often not the case. Many buyers might see a great deal, or a perfect home and make an offer to purchase before selling their current home. All of a sudden they own two homes!

Perfect Timing

Once you have a firm offer to purchase on another home, you should put your old home up for sale as soon as possible. For example, if you have a 90 day closing on your new property, it means you have about 30 days to sell your home (assuming a 60 day closing). The average days to sell a home in Canada is about 45 days. Remember, this is the average. That means that some homes sold in a week and others sold in 90 days. What happens if it takes you 90 days to sell your home and then you have a 90 day closing? That’s 180 days. You will still own two homes for 90 days.

Bridge Loans

A bridge loan is designed to finance owners when the closing date of the home that they are buying does not match the selling date of their old home. Most bridge loans can only be a maximum length of 30 days. The interest rates on bridge loans are usually prime + 3 - 5%. This means that they are quite expensive.

If your closing date is longer than 30 days, then you need to take out a brand new mortgage on the new property. You need to qualify for this new mortgage as well (ie be qualified to carry two mortgages). Some banks are no longer providing bridge loans and they expect owners to take out a new mortgage on the new property anyways. If the interest rates are higher on the new mortgage, then buying before you sell is costing you even more! And if you need to close your original mortgage when you eventually sell, there could be a large pre-payment fee (sometimes $10,000-$20,000)!

Costs to Carry Two Homes

So you have bought the new home and are trying to sell your old home, but it’s just not selling at the price you want. You know it’s worth $400,000 (the one up the street just sold for $390,000 and yours is better!). A potential buyer offered $390,000 for your home, but you turned it down. Did you examine the costs of making that decision?

Monthly mortgage interest costs = $1,000
Property Taxes = $300
Utilities = $300

The monthly costs of carrying two homes can be approximately $1,500. So every month that you don’t sell your home, it is costing you money.

Getting Desperate - “I’ll sell for any price”

Dealing with two mortgages and two homes can be a very stressful event. Sometimes people have bought their new home at a high price because they assumed that they could easily sell their old home for a high price. But if they over estimated what their old home is worth, then they can enter a situation where they become desperate. The stress and hassle can make an owner say “I’ll sell for any price, I just want to get rid of it”. This, of course, is not a good situation to be in, and it will also result in taking home less money for your home.

Is the Market Going Up or Down?

Knowing the market that you are buying and selling in is very important. If you have bought and then need to sell in a healthy real estate market, where prices are rising, then you do not have too much to worry about. But buying first and then trying to sell in a poor real estate market can result in very negative consequences. You might not be able to sell your home at all . Right now, the Canadian real estate market is healthy.

There are many factors to consider when buying and selling. The least risky, least costly, and least stressful way is to sell first and then buy. However, as stated above, perhaps that perfect home for you just popped up for sale and you had to act fast! Or perhaps you bought a new home from a builder that closes in 12 months. Both situations happen all the time, just don’t wait too long to sell your old home. Having two mortgages might not be that pleasant.