If you own a home and are planning a move, the prospect of buying another house while you are selling your first one can seem pretty daunting. Do you sell your home first and live in limbo while looking for another, or do you buy now and foot the bill for two mortgage payments until you are able to sell? Can you time it perfectly and do both at once?
In a perfect world, this transition would take place in one day. You would simply sell your old one, then go on to closing on the new one. However, in the real world, it is not typically that simple. If you are wondering how to buy a house while also selling your current house, extensive knowledge of the process is important, and empowering yourself with the information you need can save you a great deal of headache.
So, you may be wondering, can I buy another house while simultaneously selling mine? The answer to that is, yes, you can. But the bigger question is whether you will want to once you understand the entire process.
Consider this key information on how to buy and sell a house at the same time.
Know the Local Market First
Before you start seriously searching for a new home or putting your current home on the market, make sure you have a thorough understanding of the housing market in your area.
Ask your real estate agent if the market is leaning toward buyers or sellers. In real estate, your best plan of action may depend whether sellers or buyers are in the more powerful position. This is known as a Buyer’s Market or a Seller’s Market.
What is a Buyer’s Market?
In a buyer’s market, there are more homes available than people looking to buy. In a buyer’s market, you will likely have an easier time finding your new home than you will with selling your old home. Sellers may be willing to accept a contingent offer, which means you agree to purchase their home contingent on selling yours first.
What is a Seller’s Market?
In a seller’s market, there are more buyers in the marketplace than there are homes available. In a seller’s market, your current home will likely sell more quickly than you will be able to find a new home. Consider asking your buyers to do a rent-back after closing to allow you time to find your new place.
Buying a House Before Selling
There are a lot of advantages to buying your new home first, before selling your old one. Primarily, it makes the move easier since you are able to take your time, move your belongings to the new place on any schedule you like, and avoid living in limbo while you wait for your current house to sell.
On the financial side, buying your new home first takes serious financial resources. Not only will you still have your existing mortgage payment, but you will have the new one as well, plus closing costs, down payment, moving expenses and upkeep and maintenance on both properties. It can be a lot to handle, especially if you are on a tight budget or limited income.
Buying first may also make getting a mortgage harder since you still have the existing mortgage debt to your name, your debt-to-income ratio could be much higher. That could mean a lower available loan balance for your new purchase, higher interest rates, or even not qualifying for a loan at all.
If you choose to buy a second home before selling your current home, here are some ways to make it happen:
- Rent out your old property: Once you have moved into your new house, consider renting or leasing out your old house. You could also list it on Airbnb or another short-term rental platform. This will allow you to generate income to maintain the home and pay its mortgage while you look for a permanent buyer.
- Consider a contingency clause: A home sale contingency clause is an agreement written into the contract that says if you are unable to sell your current home by a certain date — making it financially possible for you to purchase the new home — then you can walk away from the contract, and your earnest money will be returned. Not every seller will agree to these terms, but if the market is slow there is a chance they will consider it.
- Consider a home equity loan or bridge loan: If you have equity in your current home, you could free up cash to cover your down payment, closing costs, and additional expenses while maintaining both properties. A bridge loan makes it possible to finance a new house before selling your current home. Both options may have high interest rates, so take a closer look with a financial advisor before going these routes.
Pros: The Benefits of Buying Before Selling
- The process of house hunting can be less stressful and more enjoyable
- You are less rushed into buying a house in a hurry
- You can move straight into your new home, so you expensive storage fees or doubled moving expenses can be avoided
- If the deal falls through during the process of purchasing the new home, you still have your old home to stay in
Cons: The Negative Aspects of Buying Before Selling
- Your cash will be tied up in the investment in your current home, giving you less opportunity for larger down payment or high offer for the new home
- You might be pressured to accept a lower offer on your house if you are in a rush to sell
- You may end up paying for two residences at once until you sell your home
- You will also be responsible for two sets of taxes
- You may not qualify for a new mortgage when you have your existing one
Selling a House Before Buying
Many people choose to sell their existing house first. This reduces the financial stress and allows you to use the proceeds from the sale when searching for that dream home. It is a more simple, straightforward and easy strategy to budget for.
The biggest downside to this approach is that it leaves you needing a place to stay until you purchase a new house. This can be particularly difficult for families with small children, a family, pets or lots of belongings.
If you have decided to sell your current home first, here are some steps you can take to make the process a bit smoother.
- Arrange temporary housing: Before you list your home, make sure you have a temporary place to live once the property sells. This could mean living with a friend or family member, or it might mean renting a hotel room for a few months while you look for a new house. Whichever option you choose, have a plan (and financial resources) in place to make it happen.
- Know what you are looking for in a new house: Start narrowing down your list of must-haves, and research potential neighborhoods and communities. As soon as you have accepted an offer on your existing house and know exactly what your budget is, you should start hunting for your new property right away to minimize your time in limbo.
- Be ready to buy: Get preapproved for your loan once you choose a mortgage lender. You should also set your budget, preferences and timeline, so you can start viewing relevant properties as soon as your old house sells.
- Consider a lease-back: You may be able to negotiate a lease-back if the buyer of your old house is not on a tight timeline. This allows you to “rent” the property from the new owner for a certain amount of time while you look for a new home. You may need to make payments to the buyer in order to do this, or it might mean reducing the sales price.
Pros – The Benefits of Selling Before Buying:
- You are not paying for two mortgages at the same time
- Cash will be easily accessible for a down payment for your new property
- You will have a more exact budget for buying the new property.
- You may not qualify to carry two mortgages, so this option can be ideal for those with less-than-stellar credit
- You will not have the pressure to reduce your asking price to sell your home quickly
Cons – The Negative Aspects of Selling Before Buying:
- Finding a temporary place to live before settling in a new home can be stressful
- You will have to move twice and pay for storage and additional moving costs for two moves
- Your investment will temporarily be out of the real estate market
Buying and Selling at the Same Time
Finally, you have a third option: you can buy and sell at the same time. There is no way to make the process of buying or selling a home totally predictable, but thinking through your preferred strategy will help you navigate the ups and downs a little bit more easily. You will have to time your two transactions perfectly, negotiating with the buyer for a later closing date and pushing your lender to work fast to prevent any lag time between sales.
When buying a new home and selling an old one at the same time, one transaction always goes first. Sometimes one happens first due to personal preference, while other times, it is a matter of finding the perfect home before you are ready to sell. Each of these moves should be considered carefully and a qualified real estate agent can help strategize based on local market conditions.
For people who need the proceeds from one sale to move forward with an offer on a new house, that’s where an offer contingency comes in. It essentially means the homebuyer has a set amount of time to sell their current home to help finance the new home purchase.
You could also request an extended closing. While most buyers want to move into their new home right away, you still need time to sell yours. As part of your purchase offer, request an extended closing of 60 days to have extra time to find a buyer.
Find the Right Agent
Buying your house should be a fun and fulfilling experience. If you have done your research and evaluated what you can afford and what you truly need, finding a new home can be exciting. Learning more about the purchase process eliminates the fear of the unknown and lets you search for a home with peace of mind.
Windermere’s community of real estate professionals is our greatest asset. We have experts in all areas of real estate, from your typical starter home to condos, luxury properties, and new construction. While residential real estate is the mainstay of our business, Windermere also has offices and associates who specialize in property management, commercial real estate, and relocation services. To further facilitate the home buying process, Windermere has affiliated partners in certain regions to provide mortgage, title, and escrow services.
Call us today with any questions or concerns. Our professional Real Estate Agents will help you through this exciting process. (951) 369-8002