Your house was perfect for you and your family when you bought it — years ago. But you’ve all grown, and now it’s time to find something that’s a better fit. Unfortunately (because this experience usually isn’t fun!), it’s time to buy a new house while selling your current one.
Buying or selling a property can be stressful, no matter the circumstances. But if you need to do both simultaneously, it can escalate from “stressful” to an extremely daunting experience. You want to find the best offer for your current home while ensuring you have enough of a down payment for your new property. All the while, the timelines need to match up so you’re not left without a roof over your head.
Sound intimidating? That’s ok! We’ve talked to veteran real estate agents to build an end-to-end guide on how to buy a house while selling your own. So, instead of stressing your way through two sales, you can set yourself up for success and have your bags packed for your new home in no time.
The most important thing is to make sure you are partnered with someone who knows and understands all of your options.
First: Do your research
Before you begin choosing the best way to buy a house while selling your own, talk to a real estate agent who can explain and break down all of your options.
“The most important thing is to make sure you are partnered with someone who knows and understands all of your options,” says Beth Nordaune, a top real estate agent with the Enclave Team in Rochester, Minnesota.
Before you make any decisions, a real estate agent can give you a sense of what your house could list for right now and how fast it’s likely to sell. They’ll also get a gauge for your timeline and build a step-by-step process that makes the most sense for you.
Here are some factors they’ll consider as they walk you through the first few steps:
- Your current financial situation: The biggest challenge you’ll likely face is coming up with a down payment for your new home while your equity and investment are still tied up in your current house. Your agent will likely ask for the budget you could have available to put down if you were to buy a home today. They’ll also introduce you to options, such as a bridge loan or home equity line of credit, to assist in your sale if needed.
- The condition of the house you own: This will factor into how fast your home will sell in the current market and if you might encounter any issues as you list your home.
- Your timeline: Do you have any flexibility around moving and closing dates? Do you have a limited amount of time to complete both sales? These are all questions your agent will consider. There will likely be some overlap between sales, so preparing an easy-to-follow timeline will make things a bit less stressful.
- Equity of your current house: This ties back to your current financial situation, but it will give your agent more information in helping you decide if you should sell first or buy. If you sell your home first, your equity can assist in a down payment for your new property.
Next: Understand the timeline
A real estate transaction can be a complex process by itself. But if you decide to buy and sell at the same time, even more steps are added that can disrupt or delay either sale.
Let’s take a look at a standard timeline for buying and selling your home, assuming there are no issues or hiccups.
- Prepare your home for sale (4 to 6 weeks): Your agent will help you price your listing and assist in staging your home if needed. During this time, take a look at your home’s condition to see if there are any potential issues.
- Shop for a new home (8 weeks): Once you comb through the market and find your ideal home, it’s time to create the perfect offer. Your agent might suggest adding a sales contingency, which states your purchase is dependent on you selling your current home first. If your offer is accepted, your agent may also recommend a longer closing time, so you’re able to sell your home and use your equity for the down payment if possible.
- List your house for sale
- Accept an offer (2 to 3 weeks): The average number of days it takes for a listing to go under contract in today’s seller’s market is 18 days, as of October 2021.
- Get to the closing table (4 to 6 weeks): This is most likely where you will see some overlap between selling and buying your home. As you finalize the sale on your property with a home inspection, appraisal, and all other necessary steps, you will most likely be doing the same for your new home.
- Close on your new home (4 to 8 weeks): The exact timeline for your closing will vary, depending on what contingencies you have and if there are any delays with financing. Ideally, you are hoping to close on your new home at roughly the same time as your current house, so your moving van can go straight from your old home to your new home.
Buying before selling
The first approach to buying while selling is simply purchasing a new house before letting go of your old home.
According to Utah real estate agent Susan Boyer, the most significant advantage here is that it relieves some moving stress. Instead of finding temporary housing or paying for a short-term rental, you can stay in your current home and move at your own pace.
“At that point, you can move in [to your new home], and it allows your agent to market your current home that you were living in more effectively,” says Boyer, who has over a decade of experience.
The danger, of course, is that you may be responsible for two mortgages and could get stretched or sunk financially if something doesn’t go according to plan. And because you’re waiting to sell your current home, you typically can’t use your equity to pay for the down payment on the new property (at least, not without taking out an additional loan).
But don’t worry. There are reasonable ways to go about this route. Here’s an overview:
Option 1: Buy a new house and cross your fingers
In today’s hot seller’s market, homes are going fast. You might be able to get away with buying your new house and counting on the market to ensure your current one sells right away.
But that option can be scary, especially if you don’t feel confident your existing home will fly off the market. In many cases, “buying a second home isn’t as easy as buying your first home,” says Nordaune. If you’re willing to take a calculated risk, however, this might be a good option for you.
Option 2: Buy with a sales contingency
When you buy with a sales contingency, it means that a contingency in your offer states that if your current home doesn’t sell by a certain date, you can back out of the purchase contract without penalties. When it comes to sellers looking at offers to accept, “this isn’t preferred,” says Nordaune.
Still, there are situations when a seller might consider a contingent offer. One is when your agent can explain to the seller’s agent that your current home will likely sell quickly.
In that case, the sellers “may take a chance and accept it,” explains Nordaune — who adds that if the home you want to sell isn’t in a price range with lots of demand, “it’s really tough” to make this option work.
Option 3: Buy with a bridge loan
Because many sellers use the money they make from selling their home to finance the purchase of their new house, they can often find themselves in a situation where closing dates don’t align. In that case, the money they need from their current home’s equity isn’t quite available yet. That’s where a bridge loan comes in.
A bridge loan is a relatively high-interest loan — often secured by your current home — that can be used to fund the down payment on your new house and cover expenses if you’re juggling two mortgages. The loan is then repaid after selling your current home, usually within six months.
“That doesn’t mean the goal is to own two homes for a long time,” says Nordaune, “but a bridge loan allows you to purchase a new home and then go back and market and sell your current home.”
Nordaune says that most people who take out a bridge loan put their house on the market as soon as they find a new home to purchase. “Ultimately, they try to line up the closing dates as close as possible,” she explains, in order to reduce the amount of time their bridge loan is open.
Option 4: Use a home equity loan or line of credit to buy
A home equity loan is a loan in which the borrower uses the equity in their current home as collateral. The loan creates a lien against the borrower’s house — and it also reduces the actual equity the homeowner has in their home.
Nordaune says she doesn’t see buyers go this route very often, since it can affect their ability to qualify for a mortgage on the new home.
A home equity line of credit (HELOC) is slightly different. While a HELOC also uses your home as security, you don’t receive your money all at once. Instead, you can draw on your line of credit as needed — similar to a credit card — until you reach your determined limit. HELOCs usually carry lower interest rates, but those rates are variable, increasing and decreasing depending on certain factors.
If you have a lot of equity built up in your current house, especially if you are trading down, buying with a home equity loan or line of credit might be a viable option.
Option 5: Borrow from your investment funds
You can use your 401(k) and other retirement funds to fund your purchase, either through a 401(k) loan or a withdrawal. But it can be a riskier option.
If you withdraw from your retirement account — either a 401(k) or an IRA — before you hit 59 ½ years old, you’ll have to pay a hefty fee. Typically, the IRS will charge a 10% penalty and require you to pay income taxes on your withdrawal.
However, there is an exception for individual retirement accounts (IRA) if you are a “first-time homeowner,” meaning you haven’t owned a property in the past two years. If you qualify, you can withdraw up to $10,000 without penalty. But it’s important to note this only applies to IRA accounts, and a 401(k) withdrawal will still have a penalty if you’re a first-time buyer.
A 401(k) loan, where you borrow from your own retirement account, won’t have a penalty fee or require taxes. But you will have to pay yourself back with interest within a certain amount of time (typically five years). And if you default, it will be considered a withdrawal, and you’ll face those same penalties.
So, while borrowing from your retirement accounts may be a suitable option if you’ve exhausted all other possibilities, it does come with serious risks. Not only do you risk the penalty if you withdraw the money permanently or don’t pay back the loan, but you could also be losing out on significant future investment gains.
For example, if you have $25,000 in your 401(k) at the moment, you can expect that to reach $175,000 in 40 years, given a 5% annual return (and no additional contributions). But if you withdraw just $5,000 for a down payment, that number drops to $140,000. So it’s worth considering your long-term plans if you decide to explore this option.
Option 6: Consider your alternatives
Do you need to sell your home to buy a new one? If you live in an area where rent is relatively high, and you can make it work financially, perhaps you can arrange to rent your house.
Renting your house as a vacation home, entering into a rent-to-own scenario, or renting your house the traditional way are all options.
However, Nordaune points out that rental income from your home isn’t the same thing from the bank’s perspective as if you’d sold the property, especially when the lender considers your debt-to-income ratio.
“You can’t just say, ‘hey, my mortgage payment is $3,000 a month, and I found someone to rent my house for $3,000 a month, so we should be good,’” she says. “It’s not a one-for-one,” but it could help.
Selling before buying
If you want to play it safe, you can always sell your home before buying a new one. When you go this route, you don’t have to worry about the challenges of temporarily financing two homes or buying with a contingency, says Boyer, our Utah real estate agent. It also gives you some financial flexibility since you can likely use the equity in your current home to fund your purchase.
“You have more buying power because you don’t already have a current mortgage,” Boyer says. “It kind of clears the road for you negotiation-wise on your new home, and oftentimes you have the ability to move more quickly.”
On the flip side, if you sell your home first and cannot find a new house, you may be left stranded. One option, in that case, might be moving into a temporary rental home or bunking up with a relative until you’re able to find a new property, and that may cost you more money down the line.
For example, if you decide to store all of your belongings while you’re on your friend’s couch, the cost of a large storage unit is roughly $300 per month. If you decide to opt for an Airbnb for the time being, the average nightly price in North America is $161. That means being left in temporary housing for only a month could cost you an extra $5,000.
“A lot of markets are competitive, and it’s scary. Buyers are afraid that if they sell their house, they won’t find another, and they’ll be homeless,” says Nordaune.
But, again, don’t fret. You have several options that can make selling before buying an attractive route.
Option 7: Sell and cross your fingers
If you live in an area with a hot buyer’s market, meaning buyers have more power, this could be a good option for you. In this situation, the market will likely help you find the right place, and you won’t have to wait too long to buy a new house after yours sells.
But, as we mentioned already, selling your home before buying a new one is not without danger. If you’re in the middle of a seller’s market, which is likely in 2022, you might be left with little inventory to choose from and high prices attached to those homes. You might not find a house you like after yours sells — or, if the market is extremely hot, more competitive offers might beat you out.
Option 8: Stretch out the closing process
You can close on a house in about a month… but you don’t have to. As the seller, you can ask the buyer for a longer closing period, which will give you more time to find a new place to live.
While some buyers won’t agree to an extended closing period, others might find it advantageous as well — especially if they’re moving up and also have a home to sell.
Here are some other benefits of an extended closing:
- More time to resolve any issues with the home appraisal
- A longer period for the buyer to secure financing
- More time to make any repairs or concessions found in the home inspection
- Less stress in packing and organizing for your move!
Option 9: Ask for a rent-back clause
If you sell your home and can’t find a new one to buy right away, consider asking for a rent-back clause in the sales contract. In this scenario, you’ll be able to rent your home back from the new owner for a certain period of time after the sale closes — let’s say three months — enabling you extra time to search for a new home while keeping a roof over your head.
Option 10: HomeLight Trade-In
If you’re looking for a low-risk way to buy a home while selling your current one, check out the HomeLight Trade-In program, part of HomeLight’s Cash Close.
Here’s how it works:
- Get HomeLight’s purchase price: After you apply for the program, HomeLight will make an offer on your current house and help you figure out what you can afford to buy next.
- Make an offer on your new home: When your offer is accepted, HomeLight will buy your current house for the agreed-upon price, so you’ll have the funds you need to close without having to take out a bridge loan or jump through any of the other hoops outlined above.
- Move in on your own timeline: HomeLight’s purchase of your property can be completed in a matter of days. That way, you can have the funds to move into your new house and do so on your own schedule.
- Get full market value for your home: When HomeLight lists and sells your home, it collects any costs and program fees from the home’s sale price. But any upside that remains will be delivered back to you as the original homeowner.
We know that buying a house while selling your current one can be a challenge, but hopefully there’s an option here that will be a great fit for you. If you’re unsure which would be the best fit for you, a qualified real estate agent can help you figure it out!
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