The simple answer is, “Yes, you can definitely buy another house before you sell your current home.” However, there are many factors to consider before packing up and heading out of the driveway. The process is unique to each situation and—when done correctly—it will save you a lot of money and a major headache.
This article explores the details and thought progression necessary for you to make informed decisions when planning to move.
Reasons to Buy Another Home Before You Sell
There’s an invisible war happening between buyers and sellers across the U.S. The housing market is in a constant state of churn. When a great deal presents itself, buying immediately could prove beneficial. Reasons to pounce include:
Finding the Home of Your Dreams
When you have sights set on the home of your dreams, it only makes the waiting game more challenging. Buying a home in the perfect neighborhood, with the garage space needed for activities, and—of course—those beautiful granite countertops, might be a one-time opportunity.
The market doesn’t wait for anybody. So, if your liquidity is sound, this could be a reason to buy before selling your current home.
Getting a Price You Can’t Refuse
Buyers, if they’re lucky, have the chance to stumble upon a lucrative deal. When you’re involved in a seller’s market—more demand than supply—deals don’t come often. Buyers are smart to capitalize on discounts, even if it costs them a few extra mortgage payments. When a house fulfills expectations, assuming your financial
situation allows for it(adequate liquidity, income and credit), and the price tag is right, you might be able to secure a win.
Bending the Homebuying Process to Your Timeline
What’s better than moving in on your terms? Making a purchase beforehand gives you control of your move date. This flexibility and freedom are worth paying for in some cases, especially when moving out of state. Paying two mortgages can even be avoided by making the seller a contingent offer, which we’ll talk about below.
Considerations to Make
There are boxes to check off before your agent writes an offer letter. Conducting financial and psychological due diligence complements decision-making. Here are a few key concerns to address ahead of time:
Liquidity
Liquidity is how much cash you have, or what you can quickly access, at the time of purchase. The need for purchasing power is evident when you’re carrying both homes. Savvy homebuyers will have plenty of cash on hand and even reserves if things get jammed up during the sale. With charges for mortgages, bills, and taxes on both homes piling up, it’s easy to see how costs accumulate.
Best practices include speaking with a financial professional to ensure sound decision making before signing.
Stress and the Unknown
While buying a new home is traditionally a spectacular experience, added stress can occur when purchasing before you sell. There’s no sure thing in real estate, so prepare for the worst and be pleasantly surprised when everything goes according to plan.
Interest Rates
Banks may offer loans with higher interest rates because of the increased risk associated with carrying both homes. Or worse, they won’t offer any financing at all. Even if the housing market is hot and you’ve everything in order, it’s more challenging to get a loan while paying two mortgages.
What Options Do I Have to Simplify the Process?
The good news is these are problems lenders, real estate agents, and homeowners have been solving for decades. There’s a vast support network out there to address challenges along the way. Here are some options to ensure a smooth transition:
The Contingent Offer
Contingent offers stipulate specific conditions be met before the contract is binding. While not limited to one situation, these contingencies are frequently utilized when a buyer wants to sell their house before they purchase a new one. Real estate agents and attorneys, when necessary, include contingent clauses in the offer made to the party handling the listing. In a buyer’s market, these work well to limit risk and potential expense for the buyer. If they are unable to sell their current home, contingent offers allow them to extend the closing or exit the contract without penalty.
However, in a seller’s market, these contingencies can make a buyer’s offer less attractive. Their benefits must be weighed against the fact that they reduce the strength of the buyer’s offer. Simply put, given two equal offers to buy a home, the one without the contingency clause will typically be chosen. These clauses put some of the buyer’s risks on the seller, who will have to continue making payments until the buyer can sell their home or obtain financing within a predetermined maximum time.
The Bridge Loan
A bridge loan is a short-term commitment using the equity in an existing home to purchase a new home. The prerequisite to making this work is having adequate equity in your current home. Lenders will specify when the loan must be paid back and generally allow deferred payments on the new mortgage. These are useful in competitive markets as you can make a noncontingent home purchase.
Rent or Airbnb
If you need extra time to sell your home or the market conditions aren’t ideal, sellers can always rent or Airbnb their current home to buy time. If homeowners have additional capital and time to put into their old property, these options can be quite
lucrative—especially in high-demand locations. It’s worth crunching the numbers, maybe even for the short term, while you get adjusted to your new home.
The Bottom Line
Buying another house before you sell is an excellent idea for some, but not for others. If you’ve stumbled upon the right home at the right price and have the cash reserves to make a move, it’s time to buy.
While the decision can be stressful, there are many resources available to guide you through the buying and selling process. Buying a new place should be a fun and exciting experience. Remember, a real estate agent should be your main point of contact for all home buying and selling inquiries—when in doubt, reach out.
