Wednesday, February 21, 2007

Buying a new house before selling the old one

The Digerati Life has an interesting post on buying a new house. The dilemma many people face (myself included) is whether to buy the house you want and then sell your old home or sell your home first and then buy the new house.

For us this is a big issue. My wife dislikes our present house (which I purchased before we were married) very much and spends hours each week looking for another house. We have looked for a new house in our school district for over 1.5 years (we can't really change schools due to personal situation). The homes are scarce and ones that fit our needs as well as appeal to us are very limited. We have found only 2 homes in the past year that fit our criteria (location, price,#of BR and baths) and one was priced $45k over the appraised value (we can't buy at a high price in the Buffalo market because there is very little appreciation and we would never recover that $45K). We finally found one last Sunday that seems to fit all our needs and is at the right price.

Our current house I purchased a well below market value but it needs some work to get the money out of it that would allow us to buy a higher priced house. Right now we are putting all of our cash into our real estate investments, so we have little time and cash to improve our current home. There is an excellent demand for homes in our area and I am sure I could lease our current home at a rent above our PITI payment. However, the bank will only consider 75% of the rent as income when looking at whether we could afford a new mortgage. And our cash flow will be quite negative for the next few months.

I can live anywhere quite frankly, but to my wife, her home is the most important thing.

So what do we do? Pass this house up and wait? Or finagle our finances? My heart says one thing and my head the other.


Living Almost Large said...

What happens if you buy the house and the old one doesn't sell?

Paul said...

I feel I can rent my existing house very easily for more than my monthy payment. There is a high demand for houses and very rarely do any get advertised for rent. Main problem is qualifying for a loan. The bank would only count 75% of the rental as income and so show a negative cash flow (even though it is positive). And the PITI would be higher on the new house.