Complete Guide to Buying a House Before Selling Your Current Home
If you have the down payment and qualify for financing, you can buy a house while you own another.
Whether you buy or sell, any home transaction is a major decision involving risk. In 2022, nearly half of U.S. home buyer-sellers reported plans to buy before listing their home. Choosing to buy before you sell can be convenient but also challenging. Below are a few of the questions this complete guide to buying before you sell will answer:
- How can I qualify for a second mortgage?
- Can I put down less than 20 percent?
- Can I buy and sell and house on the same day?
Can you put in an offer on a new home before you’ve sold your old one?
The only thing preventing you from making an offer on a new home before you’ve sold your old one is affordability. Typically, homeowners depend on funds from their home’s sale to guarantee their offer on a new home, so you’ll need to be able to afford a second mortgage, at least temporarily, to buy your new home first.
Pros and Cons of Buying Before Selling
Step by step: How to buy your new home before you sell
Follow these steps to buy before you sell, and avoid surprises along the way:
Step 1: See if you qualify for a second mortgage
The first hurdle in buying a second home is financing. Aside from equity and long-term savings, few homeowners have cash on hand to cover a purchase of this size. Taking a temporary second mortgage is the common solution—but it’s risky. Here’s what you will need:
- Sufficient home equity (15-20 percent)
- Stable value in your current home
- A satisfactory credit score (at least 600)
- Ability to pay two mortgages for a limited time
- A debt-to-income (DTI) ratio of less than 45 percent
- A down payment of at least 10-20%
Your second mortgage doesn’t have to be with your current lender, so be sure to shop around to find the best available rate. It’s important to be wary of predators, but seek out a lender willing to offer you favorable terms.
Step 2: Consider Your Options when Buying Before Selling
Homeowners who buy before they sell have options to help the process go more smoothly. Here are a few to consider:
Option A: Buy a new house and hope your old one sells quickly.
Buying first carries risk that selling first does not. Research your home’s value and the current market so you can time your home listing to sell quickly.
Option B: Ask for a delayed closing.
Requesting a delayed closing on your second home’s purchase can give you more time to raise or borrow money.
Option C: Buy with a sales contingency.
Sales contingencies — meaning you agree to complete your purchase on the condition that you sell your current home — can reduce risk, but they’re often an unattractive option for sellers, and your offer may not be accepted.
Option D: Buy with a bridge loan.
With shorter terms and faster approvals, bridge loans are designed to provide funds for homebuyers who still have yet to sell their current home.
Option E: Buy with a home equity loan or line of credit (HELOC).
If you have built equity in your home, you can use it to your advantage when financing a new one.
Option F: Borrow from your investment funds.
If you invest with a broker, you can borrow against the value of your assets, usually up to 50 percent toward the purchase of your second home.
How to get a down payment when buying before selling
The down payment for your new home can be paid in cash, with an equity loan or line of credit—or with a bridge loan.
Using home equity on your home or the new house for the down payment.
The more equity you’ve built in your home, the better chance you have of obtaining a loan or line of credit to cover your down payment. In most cases, these options should be no more than 85 percent of your equity.
Using a sale-leaseback contingency
Sometimes a home’s seller needs to stay in their home for a period after the closing date. A sale-leaseback contingency allows them to “rent” their former home for this period, with potential to cover your down payment.
Putting down less than 20%
Down payments for second homes are typically higher than for the first. Buyers who plan to live in their second home will need at least 10 percent, while investment purchases require at least 15 percent.
Alternatives to buying a house before selling yours
Sell your home first
If you happen to have a damaged or outdated home, Sundae can help you obtain and compare as-is offers from online buyers.
Rent out your old home
You can rent your old home to cover the cost of your first mortgage, but the added responsibility of managing that property adds risk. Renters tend to have lower income than homeowners, which can add uncertainty to your situation.
Sell to a real estate brokerage
A broker may agree to buy your house, and some even encourage agents to consider buying homes they’re showing in order to ensure a sale.
Frequently Asked Questions
Below are a few remaining questions facing homeowners considering the best order for buying and selling:
Can you sell your house and buy a new one at the same time?
Unfortunately not. Each transaction must be closed separately.
Can I buy and sell a house on the same day?
While your purchase and sale can’t happen simultaneously, they can occur in a span of about 1-2 days, in what is called a concurrent closing. Usually, in this case, your home sale occurs first.
Can I use my equity to buy another house?
Yes, but how much a lender will allow you to borrow against your equity often depends on whether you are buying an investment property or a second home.
Is it risky to buy a new house before selling my current one?
On top of the usual risks in real estate, buying before selling involves the added challenge of securing additional financing and paying two mortgages—possibly for longer than expected, if your home doesn’t sell as quickly as you hoped. The uncertainty of buying a home first also can be a warning sign to sellers, and they might consider you a less desirable choice as a buyer.