At first glance, selling your current home while buying a new one might seem like something of a magic trick. Both those transactions have so many moving pieces already – how could you possibly spin all those plates in the air without breaking them, or make your old house vanish as your new one appears?
- 1. Should you buy first or sell first?
- 2. Assess the Real Estate Market
- 3. Get Your Financial House in Order
- 4. iBuyer Companies
- 5. Find the Right Listing Agent
- 6. Find the Right Buyer’s Agent
- 7. Consider the Contingencies
- 8. Get Your House Ready to Sell
- 9. Plan for the Worst
- 10. Final Thoughts
The good news is – as with magic tricks – selling your home while buying a new one is far from impossible, and doesn’t require any magic. All you need is a little practice, and knowledge of how the trick works, and before you know it, you’ll be wowing the crowd with your amazing achievement.
1. Should you buy first or sell first?
This is a common question for anyone looking to buy and sell a home at the same time . If you sell your house first, you won’t be saddled with two mortgages, and will have money ready for your next down payment.
But if you don’t find a new home in time, you also risk having no place to live, and will have to set up a temporary situation that could include a lot of hassle and expense.
On the other hand, if you find your new home first, you may find it difficult to actually purchase that home, if you were
counting on proceeds from the sale of your current home to make a down payment. And even if you do come up with a payment, you could find yourself paying two mortgages for as long as it takes to find a buyer.
Unfortunately, there’s no simple answer as to which risk is more palatable for you, as that largely comes down to your individual circumstances.
Neither circumstance is ideal, but they’re also not the end of the world. With strategies and a bit of luck, you may be able to avoid this kind of limbo entirely – and if you can’t, you’ll have options to get through it.
2. Assess the Real Estate Market
A number of factors go into the decision of when to buy and when to sell, some of which are out of your control. But a big one to consider is the simple question of where you are – specifically whether you find yourself in a buyer’s market, a seller’s market, or both.
Strictly in terms of sale proceeds, selling your current home first makes the most financial sense in a buyer’s market, and buying your new home first will pay off more in a seller’s market.
If you’re not moving far away, then you’ll be dealing with the same market environment on both ends. If you’re moving from one to the other, you’d ideally be selling your home in a seller’s market, and moving to a buyer’s market — so that you get the highest possible price for your current home, and pay the least for your new one.
Of course, that’s not always how things work, and you may have a multitude of reasons, for making your move in the reverse order, or staying in the same area. If you find yourself in a truly challenging market environment for the transaction you want, you might want to consider delaying your move to a more opportune time, if you have that option.
If you find yourself in a truly challenging market environment for the transaction you want, you might want to consider delaying your move to a more opportune time, if you have that option.
3. Get Your Financial House in Order
Figuring out the funding side will likely be the trickiest piece of the process – especially if, like so many homebuyers, you’re depending on proceeds from the sale of your current house for the down payment on your next one. It would be wonderful if you could close on your current home in the morning and close on your new one in the afternoon – which does happen, but it often isn’t that simple.
Even for homebuyers who don’t have a current home they need to sell, it’s always wise to speak with a lender and get preapproved for a mortgage before you begin house-hunting in earnest. It’s hard to know which homes you might realistically make offers on if you don’t know what kind of mortgage you’ll get – tools like our mortgage calculator can help you get a rough idea of what to expect, but you’ll never truly know until you talk directly with a lender and submit an application for preapproval.
When it comes to mortgages, it’s certainly possible to buy a new home while you’re paying a mortgage on your current home, if you can afford it. When applying for a mortgage on your new home, you could make the case to a lender that you can afford two mortgages at once, and simply apply for a new mortgage while listing your current mortgage as one of your current debts – but that will likely lead to quite a steep debt-to-income ratio, an important factor in what kind of an interest rate you can get, and whether you’re approved at all.
If you don’t have the option to comfortably afford two mortgages (and the majority of homebuyers don’t), don’t panic. You have the option to apply for a loan that’s contingent on the sale of your current home – meaning your lender won’t count your current mortgage as a debt, because they won’t be releasing your new mortgage funds until you’ve sold it. (We’ll get into this more below, when we discuss contingencies.)
That said, there’s still the question of the down payment on a new home, and the Proof of Funds letter that will be part of your mortgage application. If you don’t have savings to dip into, you will need to show a certain amount of money in the bank to get a good mortgage, and a blank space for future sale proceeds won’t count. That’s where outside financing comes in. Let’s look at two of the most common options for homebuyers who find themselves between buying and selling.
Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (HELOC) is a loan you can take out using your current home as the collateral – so that even if you haven’t sold it yet, a lender can look at what the home is worth, and lend you some funds on the assumption that you’ll soon be able to sell it.
HELOCs generally offer competitive interest rates, often far lower than what you’d see with a source of unsecured borrowing, like a personal loan or credit card, or even with a secured home equity loan. But they can still function like a credit card, in that rather than a lump sum, you’ll have a set amount of credit available to you (based on the amount of your home), and then you can periodically draw as much as you need from that pool. Once you sell your home, you use the proceeds to pay back however much you’ve taken out against your HELOC.
A big plus of the HELOC is that you can often wait as long as 10 years before you have to start repaying the amount you withdraw, and only make payments on the interest in the interim – but you’ll want to try to start repaying sooner than that, and take out as little as possible, so that you’re paying less interest, and have less principal to pay back.
Of course, this type of borrowing carries its own risks –most notably, the lender will put a lien on your home (presumably a second lien, if you already have a mortgage on the home), which gives them the right to seize the home if you’re unable to make payments.
Another option is a bridge loan, which is typically used for exactly this situation. As the name suggests, these kinds of loans are meant to bridge the gap between selling your current home and paying for your new one, should you find yourself stuck in between. Bridge loans generally also require your current home equity as collateral, but unlike the HELOC, the funds come in a lump sum. This can be helpful if you know you’re going to need a large cash infusion all at once, rather than periodically borrow more as you need it.
Because they’re short-term loans (typically six months to a year), interest rates on bridge loans tend to be 2-3% higher than on longer-term mortgages, with up to another 4% on top of that for fees and administrative expenses. Unlike HELOCs, which require you to start making interest payments as soon as you draw any credit, bridge loans won’t require any repayment until you sell your home (as long as that’s within the loan period). But you’ll also find yourself with a much steeper bill to foot, and much sooner, than with a HELOC.
With both these options – as with all loans – the sooner you’re able to pay them back, the less you end up paying in interest, and the more financial sense they make.
4. iBuyer Companies
It’s worth noting that in recent years, there’s also been a growth of iBuyer companies – including Zillow Offers, Redfin Now, and real estate startups like Opendoor or Homeward – which can finance your down payment on your next home (among other things), even if you haven’t closed a sale on your existing home yet. They typically do this by making an all-cash offer on your home, sometimes within as little as 24 hours of you first submitting a request – which can get you the cash you need for a down payment fast, without the stress of finding a buyer.
That said, no option is without its downsides. iBuyer companies offer a lot of speed and convenience, but they’re for-profit companies like any other, and will generally make a lower offer than you’d get from an individual buyer. They can also charge high fees and balk on repairs to the home (so that you end up paying more for repairs than you might have working with a real estate agent), so it’s wisest not to go this route unless you’re an experienced seller who can keep an eye out for red flags.
One factor that’s easy to overlook is that iBuyers also eliminate the emotional element of finding a buyer yourself. For many homeowners, especially those who’ve lived in their home for a long time, finding someone who loves the home, learning about their plans for it, and moving out knowing that they’ve left your home in good hands, is an important part of the process.
5. Find the Right Listing Agent
Assuming you do decide to work with a real estate agent (or agents), you’ll want to choose them carefully. Many of the criteria for finding a good listing agent and a good buyer’s agent are the same – and come down to more factors than simply choosing whichever agent charges the lowest commission.
It’s always a good idea to ask around with friends and family for referrals, to see who’s had a good experience – but also worth remembering that anecdotal information isn’t the end-all-be-all. You’ll find that many agents have websites with their professional background and even personal bios, though you won’t just take their word for it; you’ll definitely want to check public records in your state, to make sure that they have a current valid professional license. (This is an easy process, as those records are generally online and easy to access.)
Here are some other key things to look for:
- knowledge of the local market
- solid experience
- a history of profitable sales
- professional reputation
Don’t be afraid to ask for references, and interview potential agents as well! In fact, it’s a good idea. In the case of a listing agent, some good questions to ask include:
- What’s your estimate of my home price, and why?
- What are some similar listings in my area?
- How can I improve my home, so it fetches the highest price?
- What’s your marketing strategy for my home?
- How long do you anticipate it will take to sell?
Of course, not even the best real estate agent has a crystal ball, and it’s impossible to predict with 100% certainty how long it will take to sell a home, but the more reasons they have behind their estimate – and the more those reasons are based on experience – the better.
There’s also no underestimating the importance of personal rapport, and how well you get along with an agent – not only because it makes the process more pleasant for you, but because a real estate agent who’s not only savvy, but affable, has a better chance at striking deals and getting a great result for their client.
6. Find the Right Buyer’s Agent
Most of what we’ve said above applies to finding a buyer’s agent, too. When interviewing potential candidates, here are some questions more tailored for a buyer’s agent:
- How can you help me negotiate with sellers?
- How can you help me find the best homes in my price range, and to meet my needs?
- What’s your plan for helping me make competitive offers?
- What are the upsides, and downsides, of buying in the current market? Which issues might I come up against, and how would you address them?
In some areas, you may have the option of a full-service agent, also known as a dual agent, who represents both the buyer and seller in a transaction – which can cut down on real estate agent fees, but also raises questions of conflicts of interest. For this reason and others, dual agency is illegal in some states.
7. Consider the Contingencies
Perhaps your greatest tools in trying to avoid getting stuck between a rock and a hard place are contingencies. Many homebuyers trying to sell an old home and buy a new one at the same time will simply insert a contingency into their offer on a new home, which states that they can’t close on the home they want until they’ve sold their current one.
On the reverse side, sellers can also insert a contingency stating that they won’t move out of their current home until they’ve found their next one. (These are just a couple of common contingencies you’ll need to be aware of; see our recent post on contingencies for more.)
Both of these approaches make sense, but they come with risk. Especially in a competitive market, one way for potential buyers to make their offers stand out is to include as few contingencies as possible – even, in some cases, no contingencies at all. If you make an offer on your dream home that comes with strings attached, and someone else makes an offer with fewer strings – or none — you may well find yourself missing out on your first choice. You’ll likely have the option to remove any of your contingencies if getting the house matters more to you than anything, but this poses a different kind of risk, since you now could find yourself with two mortgages to pay.
8. Get Your House Ready to Sell
Before getting your home to look picture-perfect for photos, the best place to start is getting a good understanding of your home’s actual value. Especially if you’ve lived in it for a long time, a home can seem priceless to you – or at least appear to be worth a lot more than it is – when it won’t to an outside buyer. If your asking price is too high right out of the gate, this can not only hamper your chances of selling the home, but cause you to look for homes at a price point you won’t actually be able to afford. Speaking with a local real estate agent is a great way to get a sense of how much your home could actually sell for.
Staging Your Home
A key part of getting ready to sell your home is staging: setting the stage for your home to look its best to potential buyers, both in terms of photos for listings and brochures, and in terms of showings, when you’re ready to have interested buyers walk through the home.
At its earliest steps, the staging process includes going through your possessions, decluttering, and tossing out anything that doesn’t seem worth the trouble to move. It will be important for your home to ultimately look as empty, spacious, and impersonal as possible – even if you’re still living there – because potential buyers want to be able to picture themselves in a new space, rather than be confronted with the family photos of the people who’ve been living in it before them.
Here are some key steps to the staging process:
- Remove personal items, unnecessary appliances, toys etc. (these can always just be put away and put back in place once potential buyers leave)
- Moving extra boxes and furniture into storage, if possible
- Deep cleaning, including getting rid of any odors
- Removing any individual interior stylings, as much as possible, i.e., taking away distinctive decorative items and repaint colorful walls to a more neutral shade
This stage of the process isn’t just about decluttering and tidying. If there’s any maintenance or repairs you’ve been putting off, now’s a good time to do it; some sellers will even pay for a home inspection of their own before undertaking this stage, to get ahead of potential problems that the seller might object to.
On the more minor side, you should take the time to touch up your home’s paint job (both interior and exterior), replace old appliances, and consider installing new fixtures and lighting. You want your home to look its absolute best.
Of course, if there are more major repairs to do – say, if the roof needs more than minor attention, or if you never got around to having the A/C repaired – you may want to consider asking the buyer to take on these repairs as part of the contract, and likely lowering your asking price as a result.
9. Plan for the Worst
Hopefully you won’t find yourself living any particularly dire scenario, but it’s always possible, and good to be prepared for.
If there’s any chance that you could sell your current home without having a new one to move into, try to make a plan in advance. Could you add a rent-back contingency to your contract? Do you have friends and family you might stay with in the interim? If so, for how long? Would you need to put your items in storage? Plan ahead to establish who you’d stay with, or where that storage space would be.
If you think you might need a short-term rental – which isn’t ideal, since it involves two sets of moving expenses, but certainly common – try to find someplace month-to-month, or where you can leave with one month’s notice (hopefully without paying hefty penalties for breaking the lease).
And if you could find yourself with a new home ready to go but an old home still to pay for, do what you can to have that money set aside, or make a solid plan for where it will come from. Look into what kind of loan or line of credit you would need, whether there are savings you can draw from, or whether you have friends or family who would be willing to spot you the cash.
If you think you’d need a loan, do what you can to get preapproved for it before you’d actually need it (and hopefully you won’t).
If a loan isn’t right for you and you really need the proceeds of your old home ASAP, consider whether you’d be willing to lower the asking price to find a buyer more quickly, or turn to an iBuyer company who might make an offer on the low end. These are all questions to answer before you’re actually in this kind of situation, when you may be too stressed to think as clearly.
10. Final Thoughts
Anyone who’s ever considered buying or selling a home can agree that the process is never going to be simple – and if you find yourself trying to do both at once, there’s no point pretending it will be effortless. But with a little strategy and planning – resources that will take you a long way, no matter where you are in the process – you can definitely end up in the right place.
Last Updated on December 15, 2022