How To Buy A Home Before Selling Yours | What you need to know

Thinking about buying a new home before selling your current one? Sounds a bit like trying to juggle while riding a unicycle, right? Yet, it’s a strategy more homeowners are diving into, especially when the perfect new house pops up and they don't want to miss it. If you're considering this buying-before-selling approach, there's a lot to unpack, but we’ve got you covered with the key strategies, tips, and everything you need to make this complex process feel like a breeze.

The Benefits of Securing Your New Home First

If you’ve been browsing and have your eyes on that new dream home, here’s the big question: should you lock it down now or wait until your current home sells? For many, buying first can be the ultimate power move, offering:

No Need for Temporary Housing

Move straight from your old house to your new one. No need for a stopover in a short-term rental or your in-laws’ basement, just smooth sailing from one front door to the next.

No Rush for Showings

Selling while living in your home means a whirlwind of showings, staging, and last-minute tidying up. Buying your new place first means you can move out, making your old home easier to stage and more appealing to buyers.

Get Ahead in a Competitive Market

In a hot market where dream homes disappear faster than donuts at an office party, waiting to sell could cost you. Buying first allows you to make strong offers without contingencies, which sellers love since it speeds up closing and eliminates the need for waiting on your home sale.

Negotiation Power

When you can put down an offer without it being “contingent” on selling your current home, you’re showing financial confidence. Non-contingent offers often look stronger to sellers and can even help you negotiate better terms.

But like any strategy, buying before selling has its challenges. Let’s break those down.

The Challenges of Buying a Home Before Selling

Buying your new home before selling the old one sounds great until you’re managing two mortgages and juggling extra payments. Here’s the not-so-fun side of the equation:

Finances and Affordability: You’ll likely need to pay two mortgages, cover additional closing costs, and potentially deal with other expenses like property taxes, maintenance, and utilities on both homes. Without a plan for cash flow, this setup could stretch your budget thin.

Carrying Two Mortgages: Paying two mortgages isn’t just a financial juggling act, it’s a big commitment. If your current home doesn’t sell quickly, that monthly financial burden could last longer than expected. It’s essential to have a plan for handling both loans if you’re considering this strategy.

Risk of Losing Leverage in Negotiations: Without a plan to secure funds, you may end up making a contingent offer on your new home. And in a competitive real estate market, contingent offers are often sidelined in favor of non-contingent ones.

Ready to take this strategy for a spin? Here are the most effective ways to finance and facilitate a smooth move to your new home before you sell the old one.

Smart Financing Strategies for Buying Before Selling

If you’re serious about buying a new home before selling, here are some tried-and-true financing strategies that can help you move confidently and avoid getting bogged down in double payments.

Tap into a Home Equity Loan or HELOC

If you’ve built up significant equity in your current home, consider leveraging it through a home equity loan or a home equity line of credit (HELOC).

Home Equity Loan: This second mortgage gives you a lump sum, allowing for consistent monthly payments. But remember, this loan sits on top of your current mortgage, so you’ll need to budget for both.

HELOC: Think of this as a credit line based on your home’s value. It’s more flexible than a home equity loan, letting you draw funds as you need them. However, interest rates can fluctuate, adding a bit of financial unpredictability.

Secure a Bridge Loan for Temporary Funding

A bridge loan is designed precisely for situations like these, letting you “bridge” the financial gap between buying a new property and selling the old one. These short-term loans give you access to cash for a down payment on your new home, and you pay it back once your current home sells. It’s a useful tool, but it often comes with higher interest rates and a short repayment period, so be prepared to sell quickly.

Consider Borrowing from Your 401(k)

In some cases, your 401(k) can act as a backup. Some employers allow you to borrow funds from your retirement savings to help with a home purchase. This approach is best for those with a well-funded retirement, but it does come with some big caveats. If you can’t repay, it could trigger taxes and penalties, so weigh this option carefully.

Look into Sale-Leaseback Agreements

With a sale-leaseback agreement, you sell your current home and then lease it from the new owner for a specified period. This setup gives you cash from the sale and lets you stay put while you finalize your move. However, you’ll need to negotiate a fair rent and agree on a timeline that suits both you and the buyer.

Partner with Power Buyers and iBuyers

Power buyers and iBuyers like Orchard and Opendoor offer innovative solutions, like cash offers for your existing home. Some power buyers even let you access up to 90% of your home’s value upfront, allowing you to buy a new property before selling your current one. While there may be fees, these services provide flexibility and peace of mind, knowing your old home will sell.

Rent Out Your Old Home

Not in a hurry to sell? Renting out your existing property can provide an income stream that offsets the cost of a second mortgage. Keep in mind that being a landlord comes with responsibilities like tenant management, maintenance, and repairs, so be sure this is something you’re ready for.

Evaluating if Buying Before Selling Is Right for You

Is buying a home before selling the right move for you? Here are the factors to consider:

Your Financial Situation: Do you have the resources to cover two mortgages or the cash flow to manage payments on both properties? Understanding your financial stability will help you avoid costly surprises.

Current Market Conditions: In a seller’s market, your current home may sell quickly, making the transition smoother. In a buyer’s market, homes take longer to sell, making buying first a bit riskier.

Your Timeline: Need to move by a specific date? If you have a strict timeline, the buy-before-sell approach can help you secure a new home without rushing to sell the old one.

Risk Tolerance: Can you handle the uncertainty of possibly carrying two properties for a while? If you’re risk-averse, you might find the financial strain outweighs the flexibility.

You may also like: Should You Renovate Your Home Before Selling? Here’s How to Decide

Key Tips for a Smooth Transition from Old Home to New

When you’re buying a new home before selling your current one, a smooth transition is all about careful planning and smart financial moves. Here are some final tips to keep things running smoothly:

Work with a Knowledgeable Real Estate Agent: Real estate pros know the ins and outs of both buying and selling and can help you navigate tricky contingencies, negotiations, and the timeline of handling two properties at once.

Consider a Contingency Plan: Even if you buy first, it’s wise to have a backup plan if your current home takes longer to sell. That could mean setting aside extra savings or adjusting your budget to carry both homes for a bit.

Get Pre-Approved: Before you even start shopping, get pre-approved for your new mortgage. Pre-approval can make all the difference in a competitive market, showing sellers you’re serious and financially prepared.

Stay on Top of the Market: Real estate markets can change rapidly, so keep an eye on trends. Knowing if you’re in a buyer’s or seller’s market can help you time your buying and selling steps.

Ready to Make Your Move?

Navigating the world of buying a new home before selling your current one doesn’t have to feel like a balancing act. At FootHills Fine Homes, we bring clarity and simplicity to the real estate process, helping you strategize and manage every step of the way. Whether you need advice on financing, selling strategies, or just a little extra confidence to make that leap, FootHills Fine Homes has the tools and expertise to turn your real estate dreams into reality.

Ready to make your move? Connect with us today and find out how we can help you through the home-buying and selling process, because with the right guidance, you don’t need to juggle alone!