Ideally, you’d put your home on the market, start looking for a new home, accept an offer on your home, make an offer on a new home, and coordinate the closing for both homes so they happen at the same time. But with so many variables in play, this scenario rarely works out as planned. You’ll need to develop a strategy that fits your situation, while preparing for the unexpected. Start by asking yourself these questions:
- Can you afford to carry two mortgage payments?
- Do you need to tap the equity from your current home to buy?
- Is your timeline flexible?
- Do you have temporary living options if you sell before buying?
Once you understand your situation, you can decide the approach that works best for you, such as whether to buy or sell first. You may start out hoping to take one approach but find you’ll need to shift based on how your home sale or search is going.
The ideal sequence: Close at the same time
Most seller-buyers likely plan for this scenario, but it’s easier said than done. The key is to try to negotiate the closing for both homes so they fall on the same day—then move directly from one home to the other with no gap in time. If this timing is most important to you, you may need to be flexible in other areas of your negotiations. For example, if you’re trying to save costs for a hotel, apartment, or other short-term living expenses, weigh that against adjusting you're asking or offer price.
Remember, you can plan for perfect timing, but you can’t rely on it. Expect the unexpected. Closings are commonly delayed. You or your buyer could have trouble securing a mortgage. Home inspections, or even closing-day walkthroughs, could uncover issues that need to be renegotiated.1 The bottom line is always have a plan B.
Sell first, find temporary living arrangements
When you’re unable to coordinate your 2 closing dates, or you sell before you find a new home, a common option is to find a temporary place to live. With a short gap between closing dates, you may be able to stay at a hotel or with friends or family. Otherwise, your best option may be to find a short-term rental, ideally a month-to-month situation that allows you to continue your home search, if needed.
The drawbacks to this option include costs, as short-term apartment leases tend to be more expensive than traditional rentals; or, if you’re staying at a hotel or with friends or family, you’ll likely need to budget for a storage unit. And you’ll still need to move a second time when you eventually find your new home, which means double the moving costs.2
Sell first, rent back your current home
If a temporary living arrangement isn’t an option for you, you might want to consider a rent-back agreement, where you negotiate with the buyers to rent your home back to you for a short time—typically for a maximum of 60 days.2 If the buyers agree—and they don’t have to—you may need to make concessions in other areas of your negotiations, such as on price.
While this choice gives you more time to buy and move to another home, the rent you agree to pay the buyer could end up costing more than you were paying for your mortgage. But, on the plus side, if you’re able to find a new home in time, it may save you the cost and hassle of moving twice.
Make an offer to buy with home sale contingency
If you haven’t sold your home yet, but found a home you want to buy, you can make an offer with a home sale contingency, which says you must sell or close on your home before committing to the deal. Keep in mind this makes your offer less attractive, and unless the seller is having difficulty attracting interest, it’s possible they may not accept, as it gives them no assurance that you’ll be able to purchase the home.
Once your current home is in contract a home sale contingency becomes stronger. But even if accepted, be prepared to allow a first-right-of-refusal for the seller—if another buyer comes along, then you need to remove the contingency, or the seller can accept the second buyer’s offer.3 You may still need to make other concessions to make your offer more attractive, like increase your price.
Buy first, carry two mortgages
While it may be a financial stretch, if you can afford it, buying first and holding 2 properties at the same time may be one of the least stressful options, as you can shop for a new home on your own terms. To pull this off, you’ll have to qualify for a second mortgage—which means you must show that you can manage potential monthly payments of both homes. If the second mortgage represents too much debt compared to your monthly income, your lender isn’t likely to approve the loan.4
Another approach is to qualify for a mortgage based on a pending sale of your home, which won’t include your current mortgage in your debt-to-income ratio. This gives you a better chance for approval, but only if you sell your current home. Your new loan will not fund until you close on your current home and your original mortgage is paid in full.
Buy first, get a bridge loan
A bridge loan is a short-term loan that lets you pay off the mortgage on your current home, freeing up your financial obligations to make it easier to buy a new home. When your home sells, you use the proceeds from the sale to pay off the bridge loan. It bridges the gap between the sales price of your new home and your new mortgage by providing the cash needed for a down payment and closing costs.5
Qualifying for a bridge loan can be difficult, though, and they can be expensive. Bridge loans often come with strict terms and high interest rates, and if there’s a problem with the sale of your old home, you'll still be on the hook for paying back the loan on time.5
Buy first, rent your current home until you sell
If you’re comfortable becoming a landlord, you can buy first and rent out your current home to help make ends meet—and maybe even make a little profit. Short-term or month-to-month rentals are appealing to potential renters for many reasons, including for people like you trying to sell and buy a home at the same time. Or you can rent your home longer term, on a more traditional year-long lease, while trying to sell.
In a slow market, renting your home might be your best option. Talk to other landlords so you know what you’re getting into. And be sure to let your tenants know the home is for sale and will occasionally need to be shown to potential buyers.