There are many reasons why you may be ready to sell your home and buy a new one. You may be upsizing, downsizing or relocating to a new area. Aside from your moving motivation, there are some things you’ll need to keep in mind. Let’s take a deep dive into what goes into selling and buying a home at the same time.
Selling Your First Home and Buying Your Second Home at the Same Time
Timing is everything when it comes to selling a home and buying a new one. In an ideal world, both real estate transactions would align. You sell your home and immediately move into your new one. There’s no need to manage two mortgages or live in a hotel while your belongings are in storage. But it doesn’t usually work out this way. In most cases, you’ll have to decide which to do first: Sell your home, then purchase a new one, or vice versa. We break down the pros and cons of both options.
Selling Before Buying
Selling before buying is the most popular choice. According to a 2022 report by the National Association of Realtors, about 64% of homeowners sell their current home before buying a new home. Should you sell first? Weigh the following advantages and disadvantages to determine if this option suits you.
You Can Use Equity and Profits To Buy Your Next Home
One of the primary reasons for selling before buying is that you can access the equity and any profits from your current home to buy your next home. According to a 2023 report by the National Association of Realtors, 38% percent of buyers’ down payments came from the proceeds from the sale of a primary residence. You know how much you’ll be able to afford and may even be able to make a stronger offer and a sizable down payment.
That being said, homeowners who choose not to sell first can still access the equity in their current home to purchase their new residence by including a contingency clause in the real estate contract. This clause provides additional security in case the sale of your present home falls through while purchasing a new home. It allows you to back out of a contract if you’re unable to sell your current home within a certain time frame. However, purchasing a home based on the contingency of selling an existing one must be coordinated properly. If the sale of your current home does not go through, it could impact the closing on your new home.
Won’t Need To Pay Two Mortgages
You won’t have to pay for two mortgages simultaneously. Having two mortgages under your name not only impacts your finances but can also affect your borrowing ability since you will be in more debt and have greater financial obligations.
When you choose to sell your home before buying a new one, you can take your time when negotiating with prospective home buyers. You don’t have to settle for the first offer — you can hold out for the best one.
You’ll Need Temporary Housing and Storage
Selling your home first means you’ll need a place to stay while you search for your new permanent home. You may need to move in with family, lodge in an extended-stay hotel or a short-term rental and keep your furniture, appliances and other belongings in a storage unit.
In addition to spending money on temporary housing and storage, you’ll also have to pay your moving costs twice — once when moving from your current home to your temporary residence and again to your new home.
Interest Rates Could Rise
Interest rates fluctuate constantly. By the time you decide to purchase your second home, mortgage rates could be higher than you had anticipated. A higher interest rate can also impact the ability to qualify for a loan depending on your income vs. outgoing expenses. Securing a rate offers buyers more confidence.
Buying Before Selling
While most homebuyers opt to sell before buying, others do the opposite. Let’s take a look at both the advantages and disadvantages:
Move When You’re Ready
Depending on the lender, the state and the type of loan you choose, you typically have up to 60 days after closing to move in. That means you have time to pack, furnish and do some remodeling to your new home.
Save on Moving, Rental and Storage Costs
Moving twice or paying for a costly storage unit or temporary housing is unnecessary.
You Won’t Lose Out on Your Perfect Home
Buying your home before selling means you can jump on that ideal listing as soon as you find it.
Risk of Two Mortgages
One of the most significant disadvantages of buying before selling is that if your old home doesn’t sell quickly, you’ll be carrying two mortgages at the same time. Other expenses will continue until you sell as well, such as utilities, property taxes, homeowners insurance and homeowners association (HOA) dues, which can be very costly, especially for a condominium.
Stress to make a fast sale
You may feel pressure to sell your home quickly to avoid having two mortgages simultaneously. As a result, you may be willing to accept a lower asking price or make other compromises.
Can’t use proceeds to buy new home
You’ll need to have available funds to pay for your new home since you won’t be able to use the proceeds of your home sale for your purchase. If you don’t have the funds, you may need additional financing, such as a bridge loan, which may be more difficult to obtain since your debt-to-income ratio will be higher.
Strategies for buying and selling your home simultaneously
Timing can be tricky when buying and selling a home at the same time, but planning ahead is key. These four steps can help streamline the process.
Step 1: Get your house ready to be sold
No matter when you choose to sell your home, you’ll need to get it market-ready. Here are five quick tips:
- Consider hiring a cleaning service to do a deep clean of your house
- Declutter and stage your home – Staging your home and removing personal items allows potential buyers to visualize what their future home could look like and creates a more aesthetically pleasing space
- Make minor repairs and upgrades like fixing leaky faucets, replacing cabinet hardware and adding fresh mulch to gardens
- Get a home inspection, which can reveal any underlying issues or concerns with the home that may need to be repaired or addressed prior to selling your home
- Use a home value estimator to better understand what your home could be worth and how it compares to properties in your area – This can give you insight into how you may want to fix up your home before selling it
Step 2: Get Your Finances in Order
Carefully examine your finances in preparation for your mortgage application. Some of the information a lender will require include:
- Credit score and credit report
- Your down payment amount, which may differ if you decide to sell or buy your new home first
- Income and employment history
It is also advisable to avoid taking on new debt or financing while you are in the home-buying process, as this could affect your ability to qualify for a loan.
Step 3: Compare Mortgage Rates
As you likely did when buying your first home, you’ll want to compare mortgage rates, terms and lenders when shopping around for your new home loan. It pays to do some due diligence.
- Determine which type of mortgage will work best for your goals.
- Research to find the lender that offers the loan and service you need.
- Get pre-screened by a lender so you know what you can comfortably afford.
Step 4: Meet With a Real Estate Agent
Most home buyers will use a real estate agent to purchase and buy a home.
Real estate agents can be a valuable resource for home sellers that can be well worth the commission. They act as your ally, providing guidance throughout the home selling process, including:
- Marketing and showing your home
- Knowing the market you’re selling in to maximize your selling price
- Act as a liaison between you and potential buyers
- Understanding all the paperwork involved, including the fine print details and contingency dates
Homebuyers can leverage the knowledge and experience of real estate agents to find their ideal home. An agency will:
- Provide education about the home-buying process
- Know the neighborhoods and the market
- Be able to locate houses in your price range and your desired location, sometimes before they hit the market
Selling and buying a home at the same time can be challenging, but with careful planning — and support from your lender and real estate agent — you’ll be setting yourself up for success.