What to do when your sale blows up!

By JUNE FLETCHER

Q. I have been transferred, and want to buy a home soon in our new location. I thought my old home was sold, but the deal blew up when the buyer didn't qualify for a loan. Now I'm stuck. Should I continue to try to sell the house, or should I rent it out?
--San Francisco
A. There are upsides and downsides to each scenario. Let's consider each.
The best argument for selling now is that many people aren't, because they are waiting for prices to improve. That's been damping down inventory levels across the country—at seven months, they're at their lowest level since May 2005, according to Hanley Wood Market Intelligence. But you can bet that supply will rise once the housing market shows steady signs of improvement, perhaps as early as this spring.
Moreover, you apparently already have hit a sweet spot when it comes to pricing your property. Since you attracted one buyer, you will likely attract others. By re-listing immediately, you could motivate prospective buyers who had been considering your house—and then "missed their chance"—to make an offer.
On the other hand, you will have to make mortgage payments on a vacant house. And, as you point out, you may also be selling for less than you might get in a year or two when prices are expected to rebound (though by the time that happens mortgage interest rates could also be on the upswing, reducing the size of the buyer pool).
Now let's look at renting. The best reason to lease your home is to offset your mortgage costs. Depending on how long you've lived there, as well as your expenses, you might even have positive cash flow. Or you might find a tenant who wants to lease-to-own, which would save you a broker's commission.
But renting also has disadvantages. Among them are the fact that you will have to handle maintenance and repair from afar, unless you hire a property manager; and you'll have to honor the terms of the lease when you decide to sell.
Renting out your old home may also complicate your efforts to get a loan for a new one. Lenders want to protect themselves from the chance that you tire of being a landlord and walk away from your rental. So they may require that you have enough money on hand to meet the mortgages for both homes for at least six months, in addition to a down payment.
Considering your eagerness to buy another home soon, I'd say that it makes the most sense to try to sell for a few more months, if you can afford it. Renting is always a fallback. But if you do decide to re-up your listing, take the hardest look at offers from buyers who are pre-approved for loans (that is, a lender has processed the buyer's application and approved it for a specific amount), not just unofficially pre-qualified. Large deposits and down payments are also signs that buyers have the means to seal the deal, so you can move on.