Question about Buying and Selling a House at the Same Time

[Anonymous]

We currently have about 250K equity in our house, and are thinking of selling it in a few years for new house in the 650K-850K range. Suppose that we have signed a contract to sell our current house, and are in the process of making an offer for the new place. Is the equity in the house we're selling, plus earnest money, enough to make us look like strong buyers? Or does it help substantially to have extra cash available too? (And, if so, how much?)

TIA for your advice. We are trying to decide whether it would be smartest in the next few years to funnel our savings into paying down more of our mortgage (at 4.875% interest), or putting it in the bank, where it will be available but hardly earning any interest.

[Anonymous]

The issue isn't so much the amount of equity as the fact that you may make your purchase conditional on the sale of your house - that is what weakens your bid. Whether you have 250 of equity and 50 cash or 300 of equity is neither here nor there.

Personally I would pay down the house.

[Anonymous]

You said nothing about your income etc. Maybe you would be able to qualify to purchase without having a sale of existing home contingency? That's what we did, we got a HELOC and pulled out equity for the downpayment on the new place, then sold our house.

[Anonymous]

The question is more "is having 20 percent cash a good thing regardless of how much equity you have built?" or "if you have enough equity to buy the next house outright, do you even need cash?"

[Anonymous]

If you can save enough to put down 20 percent without even selling your house, that will enable you to make an offer without a home sale contingency, which is a huge advantage. Even in this economy, a great house in a high-demand area like North Arlington or Falls Church City will have multiple bidders, and it's quite likely at least one will have no contingency. (We have lost out on 2 houses in Arlington this way, even though we offered full asking price.) With a contract on your house you're still more attractive than someone without one, but not as attractive as someone who doesn't need another deal to finalize in order to have the money for the new house.

If you're talking about a smaller amount of money, it probably doesn't make much difference as long as you have enough liquid to fund the earnest money and any other miscellaneous selling costs like remediation to your house, home inspections, etc.

[Anonymous]

OP here. Thanks PPs. 13:41 does a great job of rephrasing my question. In other words, if I've got 20% cash (or something close) available to hand over even if the sale of my home falls through, does this make me a stronger buyer than if I've got more equity but little cash?

[Anonymous]

OP. Thanks 13:51 -- that's exactly what I needed to know.

[Anonymous]

They don't care about the equity that you have in your house. As long as the finaicials of your offer come through that's all they care about. The sellers will be more concerned with the clause that your current house has to sell in order for your purchase of their home to follow through. If the sellers haven't gotten offers in a while and your financials come through they will be more willing to take your offer with the current home sale clause (as opposed to a house that is newly on the market).