Let’s not sugar coat it: Selling and buying a house at the same time can be a royal pain at worst — and at best, it’s a bit of a juggling act with some element of risk. However, it’s not an uncommon situation. According to the National Association of Realtors, 71% of repeat homebuyers owned their previous residences, which means it’s highly likely that a considerable number of them did double-duty as both buyer and seller.
In a perfect world, you could hit that perfect timing “sweet spot” where you sell your house, release any built-up equity to use for a down payment, and then find your next dream home, in that order. But chances are, there will be some overlap.
In this guide, we’ll cover the common challenges you could face, alternative routes that might work better for you, and tips for navigating the process while maintaining some degree of sanity.
Challenges of buying and selling simultaneously
The simultaneous buy-sell scenario gets a bad rap — but why, exactly? Below are some of the common roadblocks that can make it difficult to tackle both transactions at once:
Unless you have a lot of cash on hand, it might be tough to come up with the money for a down payment while the equity is still tied up in your current home. Statistics show that between 2010 and 2019, the value of U.S. homeowners’ equity rose from $6.16 trillion to $18.72 trillion.
Some options would be to do a cash out refinance on your current home, take out a home equity line of credit, or maybe sell some investments. But these options all have costs associated with them and may not work in every situation.
Risk of getting “bumped” by a non-contingent offer
To minimize their risk, many homeowners decide to make an offer on a new home that’s contingent on the sale of their current home. In this scenario, there’s the possibility that your offer might get ousted in favor of a non-contingent offer. If this happens, you have to decide whether or not you want to remove your contingency.
If you decide to buy first
So, you’ve found your dream home that checks all of your boxes and the price is right — but your home hasn’t sold yet, and perhaps isn’t even listed. In spite of the caveats, you might decide that you simply can’t pass up the chance to pursue a special or unique property.
Find out whether it’s financially feasible
Steinemann says it’s important to look at your cash reserves and your monthly disposable income. Ask yourself these key questions:
- Can you afford paying both mortgages?
- How long of a financial runway do you have before you’ll be unable to make both payments?
- Do you have enough assets to use as a down payment?
- How much do you have available for your down payment after accounting for paying both mortgages for the number of months in your worst-case scenario?
Talk to a trusted agent and lender
It’s best to consult with a trusted real estate agent, who will likely talk to a lender about your situation. The lender will look at what your current house is likely to sell for, what your payment is, and what you want to spend on the next house. They’ll also look at your debt-to-income ratio to determine whether you can get preapproval for the loan before selling your current home.
Consider a bridge loan
If you don’t have enough assets for a down payment, Jacobs suggests talking to your lender about obtaining a “bridge loan.” This is a short-term loan that taps into the equity in your current home to get the necessary down payment to complete your purchase. This is only a viable option if you’re comfortable taking on two mortgage payments for up to six months or a year, which is the typical term for a bridge loan.
And if you want to get creative, Jacobs has had some buyers make their offers contingent on getting the bridge loan rather than on the sale of their home.
Make an offer that satisfies both seller and buyer
If carrying two mortgage payments is too much of a stretch, one option is to make a contingent offer, which includes a condition that you’ll only buy if your current home sells. If it doesn’t sell, the contract states that you won’t lose your earnest money. While this eliminates your financial risk, it also weakens your offer.
This is especially true in competitive markets where multiple offers are coming in, Paduhovich points out. When inventory is low and demand is high, going in with a contingent offer is not a powerful position to be in. It’s more likely to work out if it’s a buyer’s market or if there is less demand for the home you want to buy.
Another option is to solidify your offer by offering significant non-refundable earnest money, in hopes that the seller will consider that to be a good enough incentive to wait a bit longer until you have sold your house.
Consider seeking a cash buyer
If you decide to buy first and sell later, you’ll want to sell as quickly as possible to avoid paying two mortgage payments for an extended period of time. Work with an instant homebuyer or a local real estate investment company to initiate a cash sale, which typically goes much quicker than the traditional listing process. However, you should be aware with this route that the offers you receive could be significantly less than what you’d fetch on the open market.
If you decide to sell first
Sellers who aren’t comfortable being on the hook for two mortgages may opt to sell their current home before making an offer on another property. This is a safer financial route, as you’ll free up your equity to use for a down payment, will reduce your debt-to-income ratio and will be more likely to get pre-eapproved for your next loan.
There are plenty of variables that are outside of your control when trying to sell, but among the few factors you can influence is how your house looks and functions. Before listing, invest the time and effort into making sure these key bases are covered.
Have a plan for the “gap period”
While selling before searching removes any risk of overextending yourself financially, it also means you’ll need to secure temporary housing until you find your next home.
One option is to enter into a “back rent” (post-closing occupancy) agreement with the buyer of your current home. This happens quite often when homeowners need more time after closing to either move or find a new home.
Another option would be to move into a rental property before deciding on your next move. As Qui points out, this is a common strategy for people starting an out-of-state job who don’t have much time to buy a place first before moving to their new city.
Tips for staying sane when buying and selling at the same time
There’s no escaping the fact that selling a house can be monumentally stressful. One study found that more than one-third of American adults were driven to tears during the process, and 40% cite selling a home as “the most stressful event in modern life.” And that stress can be even further magnified when trying to buy a new house at the same time.
To help smooth over some of the inevitable bumps in the buying-while-selling road, the experts we spoke to recommend these tried-and-true tips:
- Work with a knowledgeable real estate agent who has experience juggling both transactions.
- Have a specific action plan and proper expectations in place.
- Set a reasonable selling price for your current home.
- Clearly define your buying criteria.
- Complete your checklist to make sure your home is ready to show and sell.
- Make sure you have enough cash on hand to cover any unwelcome surprises.
Look into a home trade-in program
Another option to consider is a program that allows you to trade in your house for a new one, similar to how you might trade in a car for the latest model. For example, some iBuyers have partnered with construction companies so that homeowners can swap their current properties for brand-new houses, without having to move twice or carry the burden of double mortgages.
It might sound like an ideal solution, but the convenience can come at a cost. According to a survey by MarketWatch, homeowners who traded in their houses to certain iBuyers ended up getting 11% less than the selling price of comparable properties on the open market.
Or, look into a Trade-In program offered by partner agents offering works a little differently than most iBuyer programs. HomeLight will list the home, and if it sells for greater than what the seller paid, they get to pocket the profits (minus program fees and any selling costs). That way, the seller can actively pursue their next home at the same time, without being limited by contingencies or lengthy lending processes.
While no one ever said buying and selling at the same time was easy, it is doable. By partnering with trusted experts, being prepared and exercising patience, you’ll be in a much better position to pull it off while keeping the risk and hassle to a minimum.