If you want to move, you might be buying a new home while at the same time selling your old home. But the reality of paying two mortgages at once can make this a complex task.
The good news is that it’s possible to buy and sell homes at the same time. We will explore how to navigate this process for a smooth transition into your new home.
How To Sell Your House And Buy A New One At The Same Time
Just because buying and selling at the same time can sometimes be difficult doesn’t mean it’s impossible. Follow these simple steps to boost your odds of success.
1. Understand The Real Estate Market
Work with your real estate agent to learn as much as you can about the market where you are selling your home as well as the neighborhood where you want to buy a home. It’s critical to understand if the markets you are moving in are favoring buyers or sellers.
If you are looking to buy a home in a buyer’s market, that’s great news for your search. Sellers might not be getting too much interest in their properties, which often means they are more open to working with you on the specifics of the sale. For example, a seller might be more willing to accept an offer that’s contingent on you selling your current home.
If you are looking to buy in a seller’s market, that can make your search for a new home more difficult. But the good news is that selling your current home quickly shouldn’t be a problem.
2. Review Your Finances
Studying your finances is a key step in buying and selling at the same time. Do you already have enough cash saved for a down payment on a new house? Do you have enough savings to cover the closing costs on your next home purchase?
If you’re on firm financial ground, you might be able to buy a new house before you close the sale on your current one. If not, or if you can’t handle two mortgage payments in the same month, you might need to sell your house and close that sale before you buy your new home.
One option is to delay selling in order to build up a cash reserve to cover your buying costs. Or you can consider financing that will allow you to buy and sell your home at the same time.
3. Look At Alternative Financing Options
If you’re like most buyers, you’ll need a mortgage to finance the purchase of your new home even if you sell your current residence before buying your new property.
If you can’t sell your current home before buying a new one, you might not have the funds necessary to cover your closing costs and down payment for that new residence.
Fortunately, there are options for financial relief when you’re buying and selling at the same time. We cover some of these funding solutions later in the article.
4. Find A Good Real Estate Agent
Working with a real estate agent can guide you through the process of buying a new home and selling your old one.
An experienced real estate agent can help prepare your current home for sale and find potential buyers for it while also showing you new homes in your desired location. Real estate agents can also help you find temporary housing between your moves, if needed.
Your real estate agent will help you with a marketing plan for your home and will make suggestions on how to stage your home for open houses so it looks enticing to buyers. If you’re buying and selling a home, working with a local real estate professional will boost the odds that your current home sells as quickly as possible.
5. Include Contingencies In Your Offer
A common approach to buying under these circumstances is to make a contingent offer while trying to sell your current residence. Typically, your offer will state that you can’t close on the new home until your old home sells. This type of contingent offer is a tool that buyers use when they want to minimize their financial risk in case they struggle to sell their current home.
With a contingent offer, you don’t have to produce a down payment or closing costs until your current home sells and you won’t need to worry about getting stuck with two mortgages.
The drawback of making a contingent offer is that the seller can reject it or make a counteroffer that negates the contingency. Your contingent offer could also get passed over for an offer without one, which is especially common in a seller’s market. In a hot real estate market, homeowners will receive plenty of offers that come with no contingencies. So, sellers are less motivated to accept a contingent offer that could fall through.
6. Be Ready To Close Quickly
If your offer is accepted on a new home, being prepared can help you finalize your purchase quickly. While it often takes weeks or even months to close, providing your mortgage company with the information they need about your finances quickly can dramatically shorten your timeline.
In terms of selling your own home, being upfront with prospective buyers about potential issues can help you avoid delays. For example, being forthcoming about any issues that might come up during the home inspection allows prospective buyers to know what they are getting into. Remember, most buyers include an inspection contingency, which means they can back out of the sale if they find something they aren’t comfortable with.
Try to communicate efficiently on both sides of the sale to expedite the closing process.
7. Have A Backup Plan
Even if you do your best to time the buying and selling processes perfectly, there’s always the chance that the purchase of your new home will fall through or be postponed. If this happens, you might be left without a place to stay for a few weeks or months. While this is annoying, a purchase falling through should be an inconvenience rather than a crisis.
Some potential backup plans include negotiating with the buyers to allow you to stay at the home after closing for an agreed period or opting for short-term lodging through a site like Airbnb or Vrbo. Your realtor might also be able to help you find a short-term lease, or you could crash with family and friends for a bit.
Depending on why the sale fell through, you might need to go back to the drawing board and look for a different home to purchase.
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What Are The Pros And Cons Of Selling A Home Before Buying A New Home?
As with any real estate decision, selling your current home before buying a new one comes with both challenges and benefits. Let’s take a look at the pros and cons of each situation.
Pros Of Selling A Home Before Buying A New Home
- One mortgage: A mortgage is often one of the biggest expenses in your budget. Selling your home before buying a new one helps you avoid carrying two mortgages for any period of time.
- Financial cushion: When selling a home, you might receive a fat check, after you pay off the remaining mortgage balance. This cash could provide the funds you need to cover a down payment, closing costs and moving expenses.
- Easier to qualify: Many buyers find it difficult to qualify for another mortgage when their current mortgage is still factored into their debt-to-income ratio. If you sell your current home, lenders might be more open to working with you.
Cons Of Selling A Home Before Buying A New Home
- Need temporary housing: If you need a place to stay between houses, the costs can add up. Also, moving an extra time can be a big inconvenience.
- Pressure to buy: If you are buying at an inopportune moment in the market, you might overpay for your new home.
What Are The Pros And Cons Of Buying A New Home Before Selling Your Current Home?
Of course, the flip side has advantages and disadvantages too. We explore those below.
Pros Of Buying A Home Before Selling Your Current Home
- Peace of mind: Buying a home before selling can offer peace of mind because you won’t need to worry about where you’ll head to next or changing home prices.
- A guaranteed place to live: If you buy a home before you sell your current home, you can move directly from house to house. You won’t have to deal with the inconvenience of temporary housing.
- More time to relocate: When you own both homes, you set the moving schedule. Depending on your situation, this could help you save on moving costs and reduce stress.
Cons Of Buying A Home Before Selling Your Current Home
- Higher short-term debt: The major downside is that you’ll have to cover two mortgage payments until you sell your old house. Carrying extra debt is usually not a comfortable situation.
- No financial cushion: When you buy before selling, you won’t have the financial cushion that might have come from the proceeds of the sale.
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How To Finance A New Home Before Selling Your Old Home
If you are buying and selling a home at the same time, the right financing can make all the difference.
Bridge Loan
Some homeowners take out a bridge loan to help keep them afloat until their current house is sold. A bridge loan is a short-term loan that, as its name suggests, is designed to bridge the gap between buying your new home and selling your current one.
You usually aren’t required to make payments on this type of loan immediately. If timed correctly, your payments won’t start until after you sell your current home. Then, you can use the proceeds from the sale of your current home to pay off your bridge loan.
Home Equity Loan
Another option is to apply for a home equity line of credit (HELOC) or home equity loan.
A home equity loan allows you to take a lump sum loan from the value of your current home. A
HELOC allows you to take out a line of credit to get cash quickly while using the value of your home as collateral for the loan.
Whether you pursue a HELOC or home equity loan, you can use the funds as a down payment on the new home and plan to repay it with the proceeds from your home sale.
Low-Down-Payment Mortgage
If producing the funds for a big down payment is your biggest challenge, you can always search for a mortgage loan that requires a smaller one.
Fortunately, there are several options you might consider for mortgages with low to no down payments, including government-backed loans and conventional loans:
- FHA loans: If you have a FICO® Score of 580 or higher, you could qualify for an FHA loan that requires a minimum down payment of just 3.5% of your new home’s final purchase price.
- VA loans: If you are a veteran, eligible active duty member, reservist, National Guard personnel or a qualifying surviving spouse, you might qualify for a VA loan that requires no down payment at all.
- USDA loans: Available in rural areas across the country, USDA loans can also offer a zero-down option for buyers.
- Conventional loans: Conventional loans are those not backed by a federal government agency. Depending on the situation, you might even qualify for a conventional mortgage loan that requires a down payment as low as 3% of your home’s purchase price.
It’s a misconception that you always need to pay 20% down on a home. Keep these options in mind when evaluating your loan options. Everyone is different, so you’ll need to assess if one of these loan types is right for your situation.
401(k) Loan
You might be able to borrow funds from your 401(k) plan to cover the costs associated with buying a home, including down payments. If your 401(k) plan allows this – and not all do – you won’t face any penalties, but you will have to repay what you borrowed with interest.
The big downside is that this money is supposed to be used for your retirement years. By borrowing from it, you are reducing the amount of money you would otherwise have saved for your after-work years. For example, it can interrupt contributions from your employer for the length of the loan. Because of this, borrowing from your 401(k) should be a last resort.
Cash Gift From Family Or Friends
If you have family members or friends who are generous enough to provide a cash gift, you could use the funds as a down payment on your next home.
When accepting funds from family or friends, make sure to ask for a gift letter to include with your mortgage application. Essentially, the gift letter states that the funds are a gift and the giver doesn’t expect any repayment of the funds.
The Bottom Line
The key to easing the stress of buying and selling a home at the same time is to develop a home buying and selling plan. That means researching the housing markets, making a financial plan, working with an experienced local real estate professional and – if all else fails – having a backup plan.
Whatever plan you develop, buying and financing your home doesn’t need to be stressful.
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Hanna Kielar
Hanna Kielar is a Staff Writer for Rocket Companies with a focus on personal finance, automotive and personal loans. She has a bachelor's degree in professional writing from Michigan State University.
