How to Buy a House While Selling Yours

There comes a time in many homeowners’ lives when they feel the urge to pick up and relocate. For those who grew up in a military family, you might get this itch every few years! Whether you’ve got dreams of a larger home or want to relocate to a new area, you’ll need to consider what it means to buy a new home and sell the one you already live in.

Handling one property transaction can be stressful enough—buying and selling back to back is even more complex. Thankfully, there are ways to keep it simple. Here’s what you need to know about how to buy a house while selling the one you already have.

Should You Buy First or Sell First?

The first question you need to ask is whether you want to buy a new home before you sell your current one, or if you want to sell first and buy second. There is no right answer, and everyone’s situation is different. Here’s a look at some of the pros and cons to help contextualize your decision:

Pros and cons of buying first

• PRO: You can continue to live in your current home until you close on your new home.
• PRO: No rush to buy, leaving time to accommodate contingent repairs before closing.
• CON: You’ll need to tap into equity to come up with financing for the down payment.
• CON: You could find yourself on the hook for two mortgages until you sell your home.

Pros and cons of selling first

• PRO: Easy to finance a new home, since you’ll have cash in hand from the sale.
• PRO: You’ll offload the old mortgage before the new one, avoiding double payments.
• CON: You’ll need to find transitionary living while you look for a new house. 
• CON: The cost of a month-to-month lease, coupled with a storage unit, can add up fast.

Not sure what to do? Most homeowners opt to buy a new home before selling their old one. It’s often a simpler, more linear process: buy, move and sell. While selling first can simplify the process of financing your next home purchase, it also comes with a more complex timeline. It’s best to talk with a real estate agent—and they’ll likely recommend that you buy before you sell.

How to Buy a House Before Selling One

If you’re choosing the buy-before-you-sell route, there are several strategies you can use to finance your new home purchase. Here are 4 strategies to help you come up with a down payment, so you can finance a new home purchase with confidence.

Option 1: Buy With a Sales Contingency

The safest option is to buy a new home with a sales contingency. This means that the sale of your new home won’t close until you sell your current home. This allows you to use the profits from the sale as the down payment on the new home. A sales contingency also consolidates the timeline for buyers and sellers, since the purchase of one home depends on the sale of another. The downside? Some sellers will turn down offers with sales contingencies if they’re in a hurry to sell.

Option 2: Buy Using a Bridge Loan

A bridge loan is the most common method for buying a new home. A bridge loan uses your current home as collateral, giving you access to its equity in the form of cash for a down payment. Bridge loans can also cover the cost of carrying two mortgages until you sell your current home, making them a smart solution to buying before you sell. Keep in mind that bridge loans tend to come with higher interest rates, and getting one is largely dependent on the amount of equity you have in your home.

Option 3: Buy Using Home Equity

Similar to a bridge loan, you might be able to tap into home equity via a home equity loan (HEL) or line of credit (HELOC). It’s important to note that a HEL and HELOC create a lien, or claim against your home. Typically, HEL or HELOCs are only options for homeowners who have substantial equity in their home.

Option 4: Sell in an Active Market

If your current home is in a hot real estate market and free of any major defects, there’s a good chance you’ll find an eager buyer quickly. If that’s the case, listing your home at the same time you put in an offer on another home can lead to a simultaneous transaction. Technically, this would mean selling your home before you close on a new one; however, the 2 transactions would happen in parallel—similar to a sales contingency clause. Keep in mind that this is a calculated risk: you’re assuming your home will sell quickly. Have a safety net strategy just in case!

Each of these strategies introduces a new wrinkle into a property transaction. That’s why it’s so important to work with a real estate expert you trust and a mortgage lender who understands your situation.

Consult With a Real Estate Expert

Getting ready to buy a house? Trying to figure out when and how to sell the one you already own? The process differs for every homeowner, but there are options to accommodate your situation—no matter what it looks like.

Whether you’re upgrading, downsizing or just relocating, Navy Federal is here to help. Find a qualified real estate agent through RealtyPlus® and take advantage of the many perks that come with the program. And, don’t forget—we’ve got helpful resources for every phase of your home-buying journey.