How to Sell a Home Before Buying a New One
Selling before you buy can be stressful, but it also can be smart—both financially and personally, especially if you’re not ready to commit. Here’s how to make it work for you.
Unless you’re a first-time home buyer, if you’re looking to buy a new home, you’re also going to be selling the home you’re in. That leads to the question, should you sell your home first, or buy a new one and then sell?
Should you buy or sell first?
Buying before selling
Some people enjoy the peace of mind that buying a new home before selling the old one brings. If you can get the financials approved, you can take your time house hunting and you don’t have to worry about finding a place to stay if your home sells before you close on the new one. The best time to do this is in a seller’s market—where the demand for housing exceeds supply—as you’re more likely to sell your old home quickly after moving into the new one.
Selling before buying
Selling a home before buying a new one helps out financially. Banks are more likely to pre-approve you for a mortgage if you’re not already carrying another mortgage, and you’ll have the money you earn from the sale of your house to use as a down payment on your new home.
Buying and selling at the same time
Buying and selling concurrently can be done, and in fact happens more often than people think. It helps shorten the amount of time you’re dealing with real estate issues, and avoids issues like carrying two mortgages or finding a place to live during a gap between houses.
5 reasons to sell your home before buying a new one
Wondering whether selling first is the right choice for you? We’ve compiled a few of the benefits of selling a home before buying a new one to help you weigh the pros and cons of your current situation.
Pay only one mortgage.
Selling your house before you buy frees you up from that mortgage payment. If you buy before selling, you’ll have to budget for two mortgages for an indeterminate amount of time, until your old house sells.
You can’t qualify for two mortgages.
Even if you feel like you could juggle two mortgage payments, it might be harder to qualify for a second mortgage while still holding onto the first. Loan officers won’t allow mortgage payments to total more than 28% of your annual income, and you’ll also need a credit score of 740 or higher to be considered for more than one mortgage.
You’re buying in a competitive market.
When houses are only on the market for a few weeks, or even days, you have to be able to move fast to get what you want. Selling your house first frees you up to jump on the home of your dreams as soon as it is listed.
You’re selling in a sluggish market.
On the flip side, selling your home first can also make sense in a market where houses are taking longer to sell. If your house will potentially be listed for weeks or months, you can avoid paying two mortgages while you wait for your house to sell by getting the sale out of the way first. Note that a slower market is also a good time to consider selling your home with Sundae. If you don’t want to—or can’t—wait out a slow market in the traditional real estate marketplace, Sundae can sell your home as-is within 10-60 days of listing, bringing you multiple cash offers from investors to review.
You’re just not ready to commit.
If you’ve decided to move to a new home because you’re outgrowing your current home, or maybe you want to relocate to a better school system, you want to take the time to do research and find the right place for you. Selling your house and renting somewhere temporarily gives you the freedom to take as much time as you need to find your next home.
How long do you have to buy a house after selling one?
Selling your home before buying frees up time to search for the perfect property, and these days you don’t have to worry about rushing to reinvest your profits into a new home. A few years back the tax codes changed to allow exemptions on profits from the sale of a primary residence. If you’ve lived in the home you’re selling for at least two years, you’re exempt on paying capital gains taxes for up to $250,000 of the income if you are single and up to $500,000 for those married and filing jointly.
What happens if you sell your house and don’t buy a new one?
You might decide that home ownership is not for you. There are no tax penalties to selling a home and not purchasing a new one with the profits from that sale, at least up to the numbers above. However, if you’re thinking about selling and not rolling those funds into a new property, consider talking with a financial advisor on the best way to invest your money.
Options for making the most of proceeds of a home sale
If you have decided not to purchase a new home, or you’re downsizing, there are a few smart choices you can make with the profits from the sale of your old home.
- Pay down your debt
- Put the money into a high-interest savings account, such as a money market fund or a CD
- Consider an annuity to supplement your retirement account savings
- Increase your investment portfolio
- Purchase a rental property
Other questions when selling before buying a new home
If my credit score is poor, can I sell my house and buy a new one?
Yes, however, it might be harder to qualify for a mortgage. You might qualify for an FHA loan, or consider having someone co-sign your loan. Bankrate.com has options for homeowners seeking a new mortgage with bad credit.
Can I sell a house immediately after buying it?
Yes. You can sell your home any time after purchasing it. However, you will be liable for capital gains taxes on any profit if you haven’t lived in the home for two years. Also, consider the fact you paid closing costs that you might not recoup if your house hasn’t appreciated in value.
Can I live in my home after it’s sold?
Sometimes. There are instances where a home buyer will consider a rent-back agreement to the former owner, allowing them the option to rent until a new home can be closed on.
Mistakes to avoid when selling your home first
Rushing the home sale.
If you’re selling your home first in order to free up money for a new home, you are probably eager to get on with the process of searching for and purchasing that next property. Don’t let your excitement of the next step make you rush the sell off your old home and risk taking a low offer from a buyer.
Not budgeting for temporary housing.
Whether you’re leasing back your old house from the buyer until you buy a new one or renting somewhere, you’ll most likely be paying to live somewhere in the gap between selling your home and buying a new one. Take time to research that and budget for the costs before you sell your home.
If you’re ready to sell your home, consider contacting our experts at Sundae. We can walk you through the process and help get your home sold quickly, freeing you up to start the search for your new home with ease.