Back-to-back real estate transactions may sound stressful, but they’re not unusual. Here’s how to streamline the process.
To a certain extent, real estate transactions are known for their complexity. From the logistics of moving to the volume of paperwork, there are a lot of moving parts to keep track of when you’re selling your home. Yet the reality is that, in many cases, you won’t just be selling your home, you’ll be buying one at the same time.
Managing two sides of a transaction adds another layer of paperwork, negotiation, and financial strategy to the expectations you have for a real estate deal. It means you may be juggling funds, closing dates, and mover estimates while also dealing with the emotional factors involved in a move. It’s a lot to contend with, so doing your research, considering your options, planning ahead of time, and working with a truly exceptional real estate agent is essential.
Can you buy a house before you sell yours?
The short answer is, yes, you absolutely can. The question is should you do so and how will you do it?
Buying a house before you sell your old home involves more complex logistics than waiting until you’ve closed on your home sale. You’ll need to consider how you’ll qualify for financing if you’re planning to apply for a mortgage before your house has sold. Consider how you’ll manage the logistics of choosing a new home and preparing for a move while you’re also showing your current home to prospective buyers.
If you’re selling your current house during an active seller’s market, like the one we’re currently experiencing, you may be able to field offers for your current home even if buyers are viewing it with boxes stacked everywhere or if it’s vacant. If you don’t like that idea, you may want to consider waiting until you’ve moved into your new home then staging your current home so that it shows its best and potentially increases the property value.
If you have small children or pets, buying your new home and moving before you sell your existing house can offer a much easier sales process for your current home. It keeps you from having to clean up constantly and having to crate or board your pets for private showings or open houses.
Is it better to buy a house before selling a house?
Depending on how long it takes to sell your house and if it’s financially possible, buying a house before selling your own house can be an excellent option. It gives you a great deal of peace of mind, allowing you to settle into your new home without feeling the pressure of a back-to-back home sale.
In the current low inventory seller's market, there’s an even more compelling reason to buy before you sell. In some particularly desirable markets, buyer demand results in multiple offers for almost every new listing that becomes available. That may mean buyers are making offers on several homes before they are accepted. Thus, being able to buy before you sell gives you some extra time in case you are unable to secure a new home right away.
In addition, fewer sellers are negotiating for home repairs prior to closing. That means that you may be buying a home that needs a new roof or a new HVAC system installation. You don’t want to move in and have that work completed while you’re trying to get settled. Instead, buy the home, make the repairs, then close on the sale of your current home.
Similarly, if you buy a home that needs some cosmetic updates – new lighting, new flooring, new countertops, or some bathroom upgrades – you can complete these before you move in. These types of improvements are much easier to make before all of your furniture is in place.
Can you buy and sell a house at the same time? Sales contingencies
You may have heard of a home sale contingency and wondered if it would be helpful in your situation. This addition to your potential buyer offer asks the sellers to make your purchase contingent on the sale of your home. That would give you time to sell without worrying about losing out on the home you’re hoping to purchase.
In a real estate market with plenty of home inventory, home sale contingencies can be a valuable perk for buyers, especially if the sellers have plenty of time built into their closing process. However, in a strong seller's market, especially if there are multiple offers on the table, a seller contingency is unlikely to be accepted.
If you’re selling in a strong seller's market with low inventory, you may want to consider asking for a rent-back from the prospective buyer of your home to give you some extra time on the purchase side. This will give you the convenience of an easier transition on the stronger side of the transaction.
How does financing work when I buy another house if I already have one? Bridge loans and other financing options
If you’re trying to make the numbers work on a pre-sale home purchase, you have a variety of options. Remember, however, that if you’re still paying off your current home, you’ll be taking the risk of ending up with two mortgage payments at the same time. Don’t make a financial decision, especially when it comes to a mortgage payment, that you’re not prepared for out of the desire to simplify the real estate transaction.
Here are some options for making financial sense of your purchase:
A bridge loan uses the equity in your current home to “bridge” the financial gap between the purchase of a new home and the sale of your current home. The interest rate is generally higher than on a traditional home mortgage, but it can buy you some extra time until you find the home you want.
Home equity loan or line of credit
If you have plenty of equity in your current home, you may be able to apply for a home equity loan or line of credit to fund the cash purchase of your new home. Once you’re in, you can sell your existing property and pay off the home equity loan from the proceeds.
Borrowing from investment funds
If you have enough money in your retirement account, you may be able to tap into it in order to pay the down payment or the cost of your new home, then replace it with the proceeds from the sale of your current home.
Keep in mind, however, that you may incur additional penalties for early withdrawal along with the loss of interest you’ll experience during the time the money is out of your account. Find out whether you may be able to borrow against the value of your investment account instead, in order to avoid this.
Renting out your current home
As home values rise and with lower home inventory in many market conditions, your home may be worth a great deal as a rental property. You may want to consider short-term rentals for maximum flexibility or a buy-and-hold investment strategy that allows you to pay the mortgage and property management fees from the proceeds of the rent.
Keep in mind that holding multiple mortgages may make it more difficult to qualify for the home loan on your new property, may change the type of mortgage you can obtain, or may result in a higher interest rate and changes to your tax plan. Talk with your financial advisor to determine the overall effect of this strategy on your finances.
Logistics of buying a house while selling a house
Of course, home buying and selling is about more than dollars and cents. It’s also about the transition itself – packing, moving, unpacking, and settling in. Here’s how to make the whole process more seamless:
- If you’re relocating to a new city, start thinking through the most urgent decisions you’ll need to make: preferred schools, medical providers, insurance coverage, pet care, and more. You don’t want to be navigating these important issues when everything you own is in the back of a moving truck.
- If possible, look for ways to outsource some of the tasks that you’ll need to do during your move. Find out what grocery stores deliver to your new address so you’ll have a fully stocked fridge and pantry on your first night. Figure out where the nearest coffee shop is for the first morning when your coffee maker may still be packed away. Have a dog walker take your furry friend for a leisurely stroll while you’re unpacking your china cabinet.
- Similarly, talk to your moving company about some of the options they offer that can make your move more manageable. You may not know that they can not only pack your home – they can unpack it as well then haul away the packing materials. That may make a huge difference if you’re trying to get settled within a limited timeframe.
- Talk to your real estate agent about making your sale and purchase as user-friendly as possible in terms of the timeline. You may need a couple of extra days on either side of the closing table to handle the move. If you make that decision ahead of time, you can negotiate for it when you’re fielding offers on your sale and making an offer on your purchase.
- Don’t pack everything away in moving boxes. Think about some of those comfort items that will make the first night in a new place feel better – favorite stuffed animals and books for the kids, your favorite robe and slippers, your pet’s favorite toys. Familiar, much-loved items can help overcome that feeling of newness and make your house truly feel like home.
Your Dwellful listing agent is the professional resource you need when you’re dealing with the complexities of a two-sided sale and purchase. Our agent finder makes it easy to identify and connect with a real estate agent who can handle both sides of the deal if you’re staying in the area, or with a listing agent in your current housing market and a buyer agent in the area where you’re relocating.