Mistake _2. Buying a Home Before You’ve Sold Your Current One

If you own a home and want to move up, signing a purchase contract can be risky and cost you big bucks if your present home is not sold. Too many homeowners who want to move up write an offer or sign a construction contract before putting their home on the market. Sometimes, these homeowners feel their home will sell quickly because it’s the nicest one in the neighborhood, or they don’t stop to consider what the consequences will be if their home doesn’t sell.
These mindsets can have the following consequences:

1. It can be expensive if you sign a construction contract and want to wait two or three months to sell so that you don’t have a double move. You might find that the market has changed, your home may not sell, and you could end up in a squeeze play. You discount the house to sell and then find the money you planned on for your new home is much less.
2. Your home doesn’t sell and you end up renting it or working out a creative financing deal with risky buyers. Usually, these pressure cooker deals have a 90 percent chance of ending up in default.
3. You make an offer subject to your home being sold. If the sellers are on the ball, they will require a clause that if a buyer comes along, you have three days or less to perform. If you can’t, the offer is void and your time and energy are for nothing.

Sometimes, the timing will work out and you can pull it off. People win the lottery, too. But for most homebuyers, the risks outweigh the rewards.
Robert and Andrea found this out when they waited until their new home was 60 days from completion before they put their old home on the market. They hoped to sell and move into their new home and avoid a double move.
Unfortunately, their old home needed some work to make it saleable, and Robert and Andrea weren’t willing to put time or money into it because they were focused on their new home. When their new home was finished and ready to close, the old home hadn’t sold or even had an offer. So they refinanced it for the maximum possible to get money to close on the new home. Without any other options, they rented out the old house to cover the payment. After a year, the rental is still costing Robert and Andrea about $210 a month because the rent doesn’t cover the mortgage payment. The home is going downhill fast because there’s no money or desire to do the deferred maintenance, and the loan is about $20,000 more than current market value.
The best way to avoid this kind of situation is to sell your home first. Put everything you don’t immediately need into storage and rent an apartment or stay with relatives until your new home is finished or you find your dream home. In a hot seller’s market, you may not have to worry about timing as much, but in a normal or slow market, you’ll need to get your ducks in a row before you make your move.