If you are in the market to sell your current house and buy a new one, you likely have a lot of questions about the logistics involved. Is it better to buy or sell first? How do you prepare your finances? The process is complex. This article has tips on buying and selling at the same time, and financial options to ensure that you are successful.
It’s stressful trying to buy and sell a home at the same time. If you choose to sell before you buy, you might be in an unstable housing situation. However, if you buy before you sell, you’ll have to pay two mortgages at once. So, which one should you do first? Can you do both at once? Buying and selling at the same time might sound complicated, but it is possible if you have the right resources lined up.
Regardless of the order in which you end up buying and selling, know that both processes require a lot of planning and preparation. It’s best to stay on top of everything and be aware of all potential complications. Planning ahead is the best first step you can offer yourself.
How to buy and sell a house at the same time in 6 steps
1. Get your property valued
We recommend reaching out to local estate agents to provide a valuation of your home. Knowing how much your home is worth helps you decide what you can afford on your new home. Since some agents might give you an exaggerated figure to gain your business, we recommend reaching out to at least three agents.
2. Get your finances in order
If you plan to take out a mortgage to purchase your new house, get it pre-approved and ready to go. Securing a line of credit can be a lengthy process, so be sure to start this process as early as possible. You can find additional SuperMoney tips for how to finance a house here. We also recommend checking out Fund That Flip House Flipping Loans.
Be prepared to pay a deposit on your new house the same day that a buyer puts a deposit down on your old house. If you want to purchase a new house that is worth more than your old house, you may be able to negotiate a smaller deposit. However, this isn’t always the case, so know where you can access extra cash if needed.
When you sell your home, you will use the proceeds to pay off the mortgage and then, with any leftover money, put it towards the next property. You’ll likely have a lag between the sale closing and when you have to put down a down-payment. You could use your savings, but that may not be sufficient. Know your other options:
Home equity line of credit (HELOC)
With a HELOC, you can draw out cash from equity in your current property. However, you have to have the HELOC already in place and ready to go before you put your house on the market.
A bridge loan allows you to borrow up to 80% of your home’s value, which is split into two payments. Use the first payment to pay off the old mortgage, and the second payment to put money down on a new house or for a second mortgage. The interest rate of these loans are high and the maximum term is short, normally a year. You should be able to pay it off quickly if you time the sale and purchase correctly.
401(k) or other investment account loan
You can take out a loan against a retirement or other investment account. For example, with a 401(k) loan, you can borrow up to half the balance up to $50,000. The benefit with this option is that the loan isn’t considered debt when calculating your debt-to-income ratio, which might help you secure a new mortgage. Just be sure to repay the loan immediately after the house sells; defaulting on a loan from a 401(k) account can have serious consequences. Here is an in-depth article on the pros and cons of 401(k) loans.
The last option is to get a low-down-payment conventional mortgage. Then, apply the proceeds from the sale of your old house to your new house and get your mortgage recast. However, not all lenders offer mortgage recasting. Be sure to plan ahead and talk to your lender before counting on this option.
3. Get your current home ready to go on the market
This means everything from cleaning and decluttering your house, to taking pictures for property listings, to finding an estate agent. From a buyer’s perspective, your house should be as ready to sell as possible. This step also ensures that you are as ready to move as possible. Having your belongings packed and organized simplifies the moving process so that you can complete the move in one day.
4. Know how to buy a house
Start looking for a house as soon as yours is ready to sell. Know what neighborhoods you are interested in, and have a list of “must-haves.” Make sure you have all necessary documents to make an offer on a house.
5. Make an offer that is contingent on selling your current home
Known as a contingency clause, this allows you to put an offer on a new house, but only if your old house sells within a certain time frame. This ensures you will never be in a situation where you have to pay for two mortgages at once, for example. However, not all sellers will be agreeable to a contingency clause, so make sure to discuss this option in advance if it’s something you want to do.
6. Consider iBuyers
iBuyers simplified the process of buying and selling at the same time. For example, companies like OpenDoor allow you to receive a cash offer, make an offer on an existing OpenDoor home, and schedule your closing dates for both transactions simultaneously.
Other companies, such as Homeward, Knock, Orchard, and Ribbon offer similar services, although the specifics vary. In every case, these companies provide financing so you can make a cash offer on a new home before you close the sale on your home. However, these services only exist in certain markets. Check each website to determine if this is a feasible option for you and your market.
Buying a house before selling
Buying a house before selling your old one is a great option for people who are on a tight timeline. For example, this would be a great option if you are moving to a new city and have to arrive by a certain date. This can also be a good choice for people who have more of a flexible income and can afford the cost of managing two houses at once. However, the financial cost can be significant.
Here is a list of the benefits and the drawbacks to consider.
- An easier and less stressful move. You can take your time moving your belongings to a new property and you only have to move once.
- A relaxed home-buying process, where you are able to take the time to find your “dream house.”
- Two mortgage-payments and more financial stress overall, dealing with the cost of two houses.
- Potential difficulty securing a new mortgage as you will have a higher debt-to-income ratio.
If you do decide to buy first, there are some tips for an easier and cheaper transition. First, you could rent out your old property, either through flyers and word-of-mouth or on a website like Airbnb.
You could also consider a contingency clause or a home equity loan (HELOC). A contingency clause applies when you submit an offer for a new home, and states that your offer is pending the sale of your current home. This means that if your old home doesn’t sell in a specified timeframe, you can back out of the “deal” of the new home without any repercussions. A home equity loan is a great option if you have equity in your current home. This allows you to free up cash to better maintain both properties.
Buying first is a significant financial decision—make sure you are financially prepared before pursuing this option.
Selling a house before buying
Selling your house before buying can be a smart financial decision. For starters, you only have to worry about one mortgage. You also will not have to worry about closing costs while dealing with two properties. However, there are some cons to selling first. For instance, if you sell before you buy, you won’t have a permanent address or place to live. You’ll also have to move twice: once to temporary housing and again to the final house. For some, the stress of not having a “home” could be worse than having additional financial payments.
Here is a list of the benefits and the drawbacks to consider.
- Less financial stress as you don’t have to worry about two mortgage payments.
- You may have more money to put as a down-payment on your new home.
- Without a mortgage, you may find it is easier to qualify for a new mortgage on your new home.
- Living in temporary housing or without housing.
- Requires two moves, which also doubles your moving costs or may require storage costs.
- You may feel rushed to purchase a new property, putting you in a situation where you purchase a property that is not what you expected or dreamed of.
If you do choose to sell first, plan your temporary housing situation beforehand. We also recommend that you be certain of the criteria you want in your new house. Have a list of “must-haves” and potential neighborhoods or areas you want to look into. Start the new house search immediately and be ready to buy with a mortgage lender secured and a loan pre-approved.
There is also the option of a lease-back. This allows you to “rent” your old house from the buyer while you look for a new home. This means you pay the buyer or reduce the sale price, but it also means you don’t need to secure temporary housing or move twice. Consider talking to your buyer if this sounds like an appealing option.
Knowing your market matters
Knowing your buying and selling market can help inform whether your plan to buy and sell simultaneously is feasible. For example, if you are in an in-demand market, it might be challenging to find a home quickly, in the necessary time frame, and in budget. In these cases, it is likely best to sell first, maximize your profits, live in temporary housing, and then wait until the market cools to purchase a new home.
There are many ways to plan to buy and sell: you could buy first then sell, sell first then buy, or time it perfectly and do both at the same time. Planning ahead can help you prepare for the option you think is best for you, but it also requires some market luck. When in the process of buying and selling, you should expect delays and complications without getting frustrated. Plan as much as possible, and have back-up options in place. Think about your financial situation, temporary housing situations you are comfortable with, your timeline, and your market. All are critical factors in deciding how you will go about buying and selling.
What happens when you sell a mortgaged house?
When you sell a mortgaged house, the buyer’s funds first pay off the mortgage and then any remaining funds are your proceeds.
Should I pay off my mortgage before selling my house?
It might sound like the smart financial decision to pay off your mortgage before selling, but it does not always work out that way. In fact, you may owe more when closing the sale of your house if you are subject to a prepayment penalty. This varies depending on the terms of your loan.
- Buying and selling a house at the same time is difficult but possible.
- Have all necessary documents ready to purchase a home when you start looking.
- At the same time, prepare your home to be sold as quickly as possible. This includes straightening up, having your house valued, and hiring an estate agent.
- There are multiple loan options available if you need assistance with managing your mortgages or making a down-payment.
- Create a list of “must haves” for your new house and consider what neighborhood you prefer to live in.
- Know the current buying and selling markets before trying to buy and sell simultaneously.