Buying a home before selling? What you need to know first

person with keys for real estate

Buying a second home before selling your first one isn’t impossible. Learn your options to determine the smoothest path to your new home. 

You learn a lot when you buy your first home. But buying your second home raises an entirely new set of questions. One of the most common is: “Can I buy a new home before selling my current one?” 

The answer is yes, you can! And it doesn’t have to be a daunting process either. In this guide, we’re walking you through the best way to buy your next home before selling. 

Points to remember

  • Buying a home before selling has many benefits, including snagging a great deal on your next home, fewer moving hassles, and an easier selling process. 
  • You can buy before you sell by making a contingent offer, buying and selling on the same day, taking out a short-term loan for a down payment, or by using the Flyhomes Buy Before You Sell program to make a convenient cash offer. 
  • Cash offers give you a firm competitive advantage in the current market. 
  • When buying before you sell, there are several ways you can avoid paying steep capital gains tax.

Should I buy a new home or sell mine first? 

Once you know you’re ready to buy a home, the next question is whether you should buy or sell first. The answer depends on your situation, the current market, and what you’re comfortable doing. 

Selling first lets you use the equity in your home for your next down payment. But it also means you need to find another place to live in between selling your old home and closing on your new one. 

It’s important you weigh the pros and cons of each approach before making a final decision.

What are the benefits of buying a home before selling?

If you have enough cash to buy before selling, this can often be the best way to go. It makes the selling process much easier—and less stressful—if you already have a new place to live. 

It’s stressful trying to sell your home while still living in it. But there are several benefits of buying a new home first, especially in a competitive market.

You can snap up a great deal as soon as you find it 

Buying a home is more difficult when houses are in high demand and inventory is low—as is the case right now in many areas around the country. 

Few things are as frustrating as finding a home you love but not being able to make an offer because you haven’t sold your home yet. Buy first to lessen the risk of having to wait months or years before finding a home you love.

You have a place to live while selling your home 

If you sell first, you have to find a place to live until you close on your new home. Often, people will live in short-term rentals, stay with family or friends, or ask their buyer to include a rent-back clause in the contract. A rent-back clause allows you to sell your home but still stay there temporarily while you pay rent to the new buyer. 

Each of these options are doable, yet come with its own sets of problems and setbacks. Short-term rentals can be pricey. Family and friends can feel taken advantage of if you stay for an extended period of time. And not all buyers are open to a rent-back clause. 

By buying first, you eliminate this pesky housing issue completely because you already have a place to live while you sell your home.

You don’t have to pay double for moving expenses 

Selling your home first means you have to move twice—first to your temporary living arrangements and then to your new home. Moving twice means double the moving expenses and double the time it takes to pack and unpack. 

If you own a lot of furniture, you may also have to pay for storage during that in-between time. And if it takes months to find a new home, storage can easily cost you hundreds, if not thousands, of dollars. 

Buying your new home first means you only have to move once, saving you time and money. That’ll help you focus on your move and everything your new house needs to make it a great place to live, right away.

woman in blue denim jacket standing beside woman in black shirt
If you buy your next home before selling, you won’t have to move twice

It’s easier to show your home while selling

Buying a new home first eliminates the stress of trying to juggle multiple people’s schedules to accommodate showings. 

When a potential buyer wants to see your home, it’s better if you’re not there. That way, they feel comfortable to look around and ask questions about the property. 

If you’re already living in your new home, you don’t have to worry about getting your family and pets out of the house whenever a buyer wants a tour. Your real estate agent will find it much easier to schedule showings with buyers.

What are the drawbacks of buying a new home before selling my current one? 

Although there are plenty of benefits to buying a new home before selling your current one, there are also disadvantages to consider. 

You’ll have to pay two mortgages at the same time 

You may need to juggle two mortgages while you’re trying to sell your old home. In a seller’s market, this isn’t usually a huge problem. But if you find yourself in a buyer’s market and it’s taking a long time to sell, consider renting out your old home to cover the mortgage until the market shifts. 

It’s not as easy to use your home equity to purchase the new house 

Many people use their current home’s equity to afford a down payment on a new house. If you buy first, you can still access that equity, but it does require a few extra steps. We’ll cover those options in the next section. 

How do I buy a new home before selling my old one? 

You’ve decided that buying before selling is the right decision for you. What’s next? Generally speaking, there are three different ways to make this work. 

Sell your current home and buy your next one on the same day 

Yes, it is possible for your real estate agent to coordinate with both the buyer of your old home and the seller of your new home so they can close on the same day. 

But it’s very easy for this effort to fall through. Schedules can change at the last minute, financing can get delayed, and even bad weather can prevent a deal from going through as planned.

Make a contingent offer 

You can make an offer that’s contingent on your current home’s sale. In other words, if your home doesn’t end up selling (or doesn’t sell within a certain time frame), you can back out of the purchase. 

It’s clear why this option isn’t as attractive in a competitive market. It puts the seller at greater risk of the deal falling through. And no seller wants to waste their time and resources on a faulty deal.

Use a short-term loan to make an all-cash offer 

A short-term loan gives you access to the money that’s tied up in your home’s equity, letting you make an attractive cash offer

Why do sellers prefer cash offers? 

Buyers who make cash offers have a competitive advantage during fierce bidding wars. In fact, you may be able to purchase a home for less than asking price simply because you offer all cash. 

Why? Because cash offers tend to close more quickly and are less risky for sellers than financed offers are. After all, there’s always a chance that a buyer’s loan will fall through. 

keys on hand
Sellers prefer cash offers because there is less of a chance that the deal will fall through

How do I make an all-cash offer when buying before selling? 

As strange as it sounds, there’s usually not actual cash involved in cash offers—it simply means the money is guaranteed. 

You also don’t need to have all the money on hand to make a cash offer work. There are several ways to access the money you need to make an attractive cash offer on a home you love. 

Dip into your retirement savings 

Your first option is to pull money from your 401(k) or your IRA to put toward a down payment. If you recently started investing in your retirement account, this option likely won’t work for you since you won’t have enough money to pull. And even if you do have a sizable amount of cash set aside for retirement, withdrawing thousands of dollars from that account will negatively impact the amount you earn in interest. 

The other downside is that you may incur fees or penalties for withdrawing from your retirement account early. You will also owe income tax on the withdrawal. That tax may be much higher than you’re used to if the withdrawal moves you into a higher tax bracket for that year. 

Get a bridge loan 

A bridge loan is a short-term loan you can put toward your down payment. Then, after you’ve sold your current home, you can use the profits to pay off the loan. 

The downside of bridge loans is that the interest rates are usually high. It’s also harder to get approved—you need to have great credit and a healthy debt-to-income ratio.

Secure a home equity line of credit (HELOC) 

A home equity loan lets you tap into your home’s equity before you sell it. Equity is the value of your home minus your mortgage. For example, if your home’s value is $350,000 and your mortgage balance is $200,000, then you have $150,000 of equity. 

The good news is that interest rates on HELOCs are relatively low, although the exact rate depends on your credit and debt-to-income ratio. After selling your home, you can pay off what you’ve borrowed—both the HELOC and the primary mortgage. 

To get an equity line of credit, though, you have to have enough equity in your home. And if your home doesn’t end up selling—or if it sells at a much lower price than expected—then you’re stuck having to come up with a new way to pay off your debt.

Use a service like the Flyhomes Buy Before You Sell program to make an all-cash offer

Like HELOCs, these services tap into your home’s equity before you sell. But instead of just giving you enough for a down payment, the Flyhomes Buy Before You Sell program gives you a short-term loan big enough to make an attractive cash offer on a home you love.

Here’s how it works: 

Prepare to bid 

First, you go through the pre-underwriting process. This lets you know your budget and frees you to start bidding as soon as possible. 

Buy with cash 

Once you find a home you love and your cash offer is accepted, Flyhomes sets you up with a short-term loan. This money becomes available to you in about 10 days. 

Sell with ease 

Now it’s time to sell! While you’re settling into your new home, Flyhomes does all the work of listing and marketing your home so it can sell for top dollar. 

And if your home doesn’t sell within 180 days, you can either allow Flyhomes to purchase it from you or wait for another offer. Whichever you choose, you can rest assured your home will sell. 

Secure a long-term mortgage 

Once your old home has sold, the Flyhomes in-house mortgage team will set you up with long-term financing. Or, if you prefer, you have up to three months to secure a loan with a lender of your choice.

What are the tax implications of buying a house before selling? 

If your current home has been your primary residence for two out of the last five years, you can sell it without paying capital gains tax on up to $500,000 if you’re married and filing jointly. (The two years don’t have to be consecutive.) For single filers, up to $250,000 of the profit is tax-free. This is called the Section 121 exclusion

Don’t meet these criteria? You still have options for tax savings. If you’ve owned your home for over a year, you’ll pay what’s called long-term capital gains tax, which is 0%, 15%, or 20%, depending on your income. 

  • If your yearly income is under $80,000, then your home’s profit is either partially or completely tax-free.
  • Income above $80,000 but under $441,450 (single), $496,600 (married filing jointly or qualifying widow/widower), $470,050 (head of household), or $248,300 (married filing separately) is subject to a 15% tax rate. 
  • If you make more than the income limit listed above, then you’ll pay 20% in capital gains tax. 

Lastly, if you’ve owned your home for under a year, you pay short-term capital gains tax. In this case, your home’s profit is treated and taxed as ordinary income. 

Wrapping up with how to buy a home before selling yours

For many people, the thought of buying a new home before selling sounds intimidating. But it doesn’t have to be. There are several ways to make this process work for you, depending on your local real estate market and financial situation. And although cash offers give you the best competitive advantage, it’s important you analyze your options thoroughly before making a decision.

FAQs 

How do you buy a house before yours has sold? 

Buying another home before selling your current one may sound impossible, but it’s not! You have several options: 

  • Make an offer contingent on the sale of your current home. 
  • Withdraw from your retirement savings early for a down payment. 
  • Apply for a bridge loan and pay it off once your current home sells. 
  • Secure a HELOC and pay it off after you sell your current home.
  • Use Flyhomes’ Buy Before You Sell program to seamlessly buy first and sell later.
Can I use my paid-off home to buy another home? 

Yes, you can. First, find out how much your current home is worth. Online estimates can give you a general idea, but to get a trustworthy estimate, ask your local real estate agent. An agent will evaluate your home in your specific location within the current market. 

Once you know how much your home is worth, you can determine how much you want to put toward a down payment on your next home. Then, you can choose from the options outlined in this article to set that plan into motion. 

Does owning a home help you buy another house? 

If you have equity in your current home, then yes, owning a home can help you buy another home. You can use the equity in your current home to contribute to your next down payment. 

Owning a home can also be helpful if your credit history shows you’ve been faithfully paying off your mortgage debt. This tells your next lender that you’re reliable and are less likely to default on your new loan. 

What happens to your mortgage when you sell your home and buy another? 

The money you get from selling your current home first goes to paying off closing costs and your current mortgage. Whatever is left over is then yours to keep or invest in a down payment for another home. 

About the author: Jenny Rose Spaudo is a freelance journalist and copywriter specializing in real estate, PropTech, and investing. She’s also a proud Central Florida homeowner.

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