How to Buy a House While Selling Your Own

Are you selling before buying or buying before selling? In this competitive market, it’s nearly impossible to come out on top with a “sale of home” contingency in your offer. So what can you do to remove this contingency?

Buying Before Selling

To avoid moving twice, you should buy before you sell. But to buy your new home without selling your previous home, you’ll need to qualify for two mortgages.

That means your total debt-to-income ratio (with the two mortgage payments and other debt you have) is below your lender's max. And don’t forget - you’ll need money for at least a 5% down payment and, in this market, most likely all your closing costs.

If two mortgage payments push your debt-to-income over your lender’s limit, you have options. If you have enough equity in your current home, consider getting a line of credit. This will allow you to make a larger down payment, reducing the loan amount.

Suppose you're within the debt-to-income ratio but lacking cash for the down payment and closing costs. Try working with a different mortgage company and see if they offer a bridge loan with a grace period. A loan like this could allow you more time to repay the loan. Alternative to an equity line can be gifted funds from a family member or looking into selling valuable possessions.

If you only need a smaller payment to qualify for two mortgages, ask your lender about doing a 1st and 2nd mortgage to avoid mortgage insurance. You can pay the mortgage insurance cost upfront at a discount and not have that expense in your monthly payment if you have enough cash.

When you close on your new home, it’s time to put your current home on the market. Well presented and priced right, it should sell fast so you can avoid two mortgage payments. However, you should prepare for a short period of overlap. If you have a backup plan for a place to stay, you can also put your home on the market when you have a new home under contract.

Selling Before Buying

You can also sell your current home before purchasing a new one. Selling your existing home cuts out considering two mortgages. And you can be more flexible with the closing date and your offers on a new home. However, be prepared to stay with family and friends or look into a short-term or long-term rental.

Another option is to rent the property back from the buyer. I see more and more listings that say, “the seller will need to rent back property after closing.” In this case, you will only need to qualify for one mortgage and have the necessary funds for your down payment and closing costs. However, a buyer will want to limit this period, so if you still haven’t found your new home and closed before you have to move out, you’ll need a backup plan.