Buying a Home Before Selling Your Current Home

If you already own a home, timing your next move can be tricky. Sell first, and you may need temporary housing. Buy first, and you may carry two homes for a while. Many sellers in competitive California markets also prefer offers that aren't contingent on the buyer selling another home.

Here are the common ways to approach it.

Option 1: Sell first, then buy

You sell, use the equity as your down payment, and then buy.

Advantages

• You know exactly how much equity you have.
• No risk of carrying two mortgages.
• Your purchase offer can be non-contingent.

Disadvantages

• You may need to rent or stay somewhere temporarily, and move twice.
• Pressure to find the next home quickly.

Some sellers negotiate a rent-back period after closing to buy time.

Option 2: Buy with a sale contingency

You make an offer contingent on selling your current home.

Advantages

• Less financial risk.

Disadvantages

• Many sellers will reject or deprioritize contingent offers, especially in competitive markets.

Option 3: Qualify with both payments

If your income and reserves allow, you may qualify for the new mortgage while still paying the old one.

Things lenders typically consider

• Your debt-to-income ratio with both housing payments, unless the current home is under contract or meets certain other conditions. Guidelines vary.
• Cash for the new down payment and closing costs, from savings or other sources.
• Reserves to cover both homes.

This option works best for buyers with strong income and savings.

Option 4: Tap equity in your current home

Borrowing against your current home's equity before listing can provide down payment funds.

• HELOC: a line of credit on your current home. It's generally easier to open one before you list the home for sale, since many lenders won't open a HELOC on a property that's listed. See HELOC vs. cash-out refinance.
• Cash-out refinance: possible, but usually less practical if you're about to sell.

Keep in mind that the HELOC payment is added to your debts when qualifying for the new loan.

Option 5: Bridge loans

A bridge loan is short-term financing secured by your current home, meant to "bridge" the gap until it sells. Some lenders offer programs designed for buy-before-you-sell situations.

Advantages

• Access equity for a down payment without selling first.
• Can make your offer non-contingent.

Disadvantages

• Higher rates and fees than standard mortgages.
• Short terms. If your home takes longer to sell, costs add up.
• Availability and guidelines vary considerably.

An example

These numbers are for illustration only. A homeowner has $600,000 in equity and wants to buy a $1.2 million home before selling. They open a $250,000 HELOC on their current home before listing, use it for a 20% down payment, and qualify carrying both payments based on their income. Once the old home sells, they pay off the HELOC and their original mortgage. If the home takes longer to sell than expected, they're paying three loans in the meantime. That risk needs to fit their budget.

Questions to ask yourself

• How quickly is my home likely to sell, and for how much?
• Could I comfortably carry both homes for several months?
• How much cash do I have outside my home equity?
• How important is a non-contingent offer in my target market?

Questions?

Buying before selling takes planning, and the right approach depends on your equity, income and timing. contact me before you list or make an offer, and we'll map out the options. You can also start an application.