How to Buy a House (While Selling Your Other One)
In today’s competitive housing market, if you’re looking to buy a new home but have a current home to sell, figuring out how to make it all work can feel overwhelming.
If you want or need to buy a house while you have a current home to sell, you have to think strategically. And you may end up having two mortgages, or no mortgages, for a period of time.
There are a few different ways to go about purchasing a home while selling your other home, but none are entirely smooth and free of stress. Also, the method you use isn't always within your control, as other buyers and sellers are also involved in the process.
While the situation may be a little stressful, people do it all the time. Most likely, you too can make it work. First, take time to understand your options and then determine your next steps.
1. Sell first, then buy
If you're like most homeowners, you need to get the equity out of your current home to help make a down payment on your next home, and you don't want to pay for two mortgages as you wait for your current home to sell. That's why selling your home first is a good idea. However, if you sell your home before you're able to purchase and close on a new home, you'll have to find somewhere to live in the meantime. There are a few options to consider, such as:
- Closing date negotiation—Finding a buyer for your current home is good news. But if the buyer has requested closing or occupancy on a date that won't allow you time to purchase your new home, try to negotiate for a later date. If you already have a contract to purchase another home, you may be able to negotiate both closings to occur on the same day if your buyer is flexible.
- Rent-back agreement—If your existing home sells quickly before you've had a chance to close on a new home, you may be able to negotiate with the buyer to allow you to remain in the home for a specified amount of time (no more than two or three months in most cases). In return for allowing you to stay in the home longer, you can pay rent to the buyers or possibly negotiate a lower selling price.
- Stay with family or friends—Sometimes, the buyer of your current home may need to move in immediately or may not be willing to allow you to stay. In that case, you may need to ask friends or family members if you can stay with them until you're able to find or complete the purchase of a new home. In hot real estate markets with low inventory, finding a friend or family member who will allow you to live at their house temporarily will save you a lot of headaches.
- Pay for temporary housing—When there are no other options, you may have to rent at an apartment, condo, extended-stay hotel or short-term vacation home between closing on your former home and closing on your new home. In that case, the costs can accumulate quickly. In competitive markets, it may be difficult to find accommodations that will be available during the needed dates. Be prepared to be flexible, such as moving between two or more locations during your in-between time. Remember, the hassle will be worth it when you're able to complete the sale of one home before closing on your new home.
- Use portable storage containers—Consider using a combination storage/moving service so your furniture can be stored while you're in limbo and then delivered to you when you move into your new home. Keep in mind that what can start out as a temporary solution can easily turn into a long-term problem. Choose wisely, and give yourself a time buffer for transitions between housing.
2. Buy first, then sell
Sometimes, you must find a new house quickly to relocate for a new job, or you may just find your dream home and want to make an offer before it gets away. If you're trying to purchase in today's competitive real estate market, you may have to buy a house before selling your current house just to beat other offers.
When you buy a new home before selling your current home, you may need to think about minimizing your financial burden and decreasing your risk. Here are some common options:
- Contract contingency—If you want to make an offer on a new house, but you don't want to purchase it until your existing home has sold, you can request that the new house purchase be dependent — also known as contingent — on the sale of your home. In a competitive real estate market, where there are plenty of other motivated buyers, a seller may not accept such a contingency. But if the seller doesn't have a lot of interested buyers, he or she may be willing to accept that arrangement. If you do sign a contract to purchase contingent on the sale of your current home, it will usually include a caveat: If another buyer makes an offer, you'll have a chance to remove the contingency and buy the house, but if you can't do that, the seller will be able to move forward with the other buyer. In most cases, that caveat, sometimes called “first right of refusal," will provide you 24 hours to decide whether to remove your contingency and move forward with purchasing the home without selling yours or to simply let the new home go. In that case, you may be able to walk away with your earnest money.
- Maximize financial capacity—If you have the financial wherewithal to carry two mortgages at once, you may choose to go ahead and purchase the new home before selling your current home. In that case, you'll likely need to stick to a stricter budget than usual, as you'll be responsible for paying mortgage payments as well as insurance and property taxes on both properties, along with any necessary maintenance and repairs. If you're not able to sell the old home quickly, you might consider renting it to help cover the costs.
- Bridge loan—If your finances don't allow you to make a down payment on a second house before selling your current home, you might consider a bridge loan. A bridge loan, which is available from many mortgage lenders and financial institutions, functions as a short-term loan and is intended to be repaid upon the sale of your current home. The bridge loan is ideal if you were hoping to use the equity from your current home to make a down payment on your new home. It allows you to borrow the money for a down payment on your new house so that you can go ahead and purchase it even if you haven't sold your old home yet. The catch is that if you hold mortgages on both properties, you will be responsible for paying both mortgage payments until your original home is sold. Purchasing a new home and selling a current home isn't always an easy process as it depends on other buyers and sellers, as well as market conditions and timing. However, with a variety of options available for orchestrating a purchase and a sale at the same time, homeowners regularly manage both — and you can too.
- Tap into savings—Most people don't have the money for a second down payment on a home just lying around. But if you find yourself in a competitive market and the home you've found will go quickly, you may be able to justify tapping into an emergency fund or other savings to make your purchase possible. Ordinarily, withdrawing emergency savings or investments to make a down payment on a second home wouldn't be advisable. But if you expect your current home to sell quickly as well, you should be able to replace the funds as soon as you close on the sale of your current home.
Understanding how to buy a house while selling your own can be challenging. So much depends on other people and market conditions, but there are many options you can leverage. Make sure you ask questions and discuss options with your mortgage lender and real estate agent so you can find the best solution for you and your family.