Should I Buy A New Home Before Selling My Old One?
Before we can answer this question together we need to answer the first question that should be asked – am I able to buy a new home without selling my current home? The most crucial aspect of your ability to get a mortgage is your debt to income ratio. Now, I’m not a mortgage expert but I did stay at a Holiday Inn Hotel last night…. Not funny? I’m not sure if those commercials are relevant anymore or not.
Regardless, your debt to income ratio is relatively simple. You just have to answer two questions: How much money do I have coming in every month? And how much do I have going out?
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The Maroon Group Podcast
So, for example, let’s say you bring in $5000 a month and you have a current mortgage of $1500/month, a car loan of $500/month and school loans at $500/month. Your incidentals like groceries, restaurants, cell phone, etc… are not factored in. In this scenario, you have a total of $2500/month in debt. That means you have a 50% debt to income ratio because half of your income is being spent on debt every month.
Why does that matter? Well, let’s say you had the scenario above and you wanted to purchase a new home before you sold your current home. No mortgage lender would give you a second loan without selling your current home because your debt to income ratio is too high. It’s not super common for a mortgage lender to loan you money if your debt to income is above 50%. So you may not even be able to purchase without selling first. That’s a conversation for your mortgage lender. Don’t have one? We have many wonderful lenders we can connect you with.
Now, if you CAN purchase without selling then I do believe that’s a good decision. It takes a little of the urgency and stress off of the whole process. You have some more freedom to make a decision, and you can be a little more levelheaded with the sale of your current place since you do not feel the pressure to sell fast in order to move forward on your new home purchase.
One word of caution though, if you are going to buy without selling first, make sure you give yourself as long of a runway as possible to sell before you have a double mortgage payment. One good trick is to try to close on your new home early in a month, say October 7th, since your first mortgage payment on the new home will not be due until December 1st. This buffer gives you almost two full months to sell your old home and avoid a double mortgage payment.
Once again, having the right real estate agent on your side is crucial to making this happen and making it happen in the best way possible to protect you. If you are in Southeast Virginia or know someone in Southeast Virginia, we would love to help. Reach out to us today.