Option 1: Buying a Home Before You Sell Your Existing Home

Buying a new home before you sell your old one is the trickier of the two methods. While it’s not impossible, it does require more financial finagling. However, in some cases what prompts you to even consider moving is that you find your dream home early on in your search. If this happens to you, here are your options:

1. Use a Home Sale Contingency

   The easiest way to deal with this scenario is by including a home sale contingency in any offer that you make. This contingency is part of your offer to buy your new home, which allows you a set period of time to find a buyer for your old home before you close escrow on your new home. If you can’t find a buyer in time, you may have the option to try to extend the contingency or to back out of the deal.

   If this option sounds too good to be true it’s because, for the most part, it is. Home sale contingencies are not widely accepted by sellers or listing agents. Sellers don’t like them because they offer little-to-no reassurance that the buyer will actually be able to purchase the home. Also because of the fast-paced nature of bay area real estate markets, the feasibility of this strategy is limited to slow markets, or overpriced or less desirable homes that are sitting on the market.

   You are free to include this contingency in any offers you make, but be aware that it negatively impacts the strength of your offer. In many cases, the seller may expect a higher price from a contingent sale offer. Seller’s are more likely to accept this type of offer if their home has been sitting on the market for a long duration or they like the price you are offering and are not in a hurry.

   Most importantly for this strategy to work, the sellers must be confident that you will be able to pull off the sale of your home.  Therefore the way it is presented to their agent must be done in such a way that it conveys the confidence that your home will sell.

   The pros of this strategy are that there is very little risk to the buyer.  If you are not able to sell your home and the purchase deal falls through, you might be out some fees for inspections or an appraiser and lost time and energy, but that is about it.

   The cons are that it’s rare that you will be able to convince the seller to accept your offer, and therefore you might lose your dream home to a better offer.

2. Get a Bridge Loan or Home Equity Line

A bridge loan is another option to help you deal with the financial strain of buying a new house before you sell your old one. Bridge loans are short-term loans that allow you to pay off the mortgage on your own home so you don’t have to carry that cost. Then, when your home sells, you’d use the proceeds from the sale to pay off the bridge loans. 

In order for this option to work, you have to have a considerable amount of equity in your existing home, and meet the lenders requirements to be able to purchase the new home.

That being said, bridge loans are a gamble. These loans often come with strict terms and high-interest rates. In order for a bridge loan to work, both transactions need to be completed. If there is a problem with the sale of your existing home, you’ll still be responsible for finding the funds to pay back the bridge loan on time.

A home equity line of credit (HELOC) assumes that you have enough equity in your existing home to be able to qualify for your new property.  The downside with this strategy is that it takes time to set up and open HELOC and you may not have that much time to make an offer on that dream home.

In order for this strategy to work, you have to prepare in advance and have the HELOC approved.  Also, lenders will not approve a HELOC on your home if you are selling it.  So you will need to open up the HELOC before your home goes on the market. 

Assuming your HELOC is approved, you then make the offer on your new home, without a contingency to sell your existing home, and once your offer is accepted you draw the funds from your HELOC for the purchase of your new home.  At this point, you can list your existing home to be sold.

There are a lot of what if’s in these two scenarios, such as having enough equity in your home, and being able to qualify for the new home.  Here are the pros and cons of these strategies.

Pros: Being in a position to make a clean offer without a sale contingency clause, therefore vastly improving the quality and strength of your offer.

Cons: The risk associated with these scenarios are the typical risk you assume when you buy before you sell.  If your existing home doesn’t sell or has a hard time selling then financially you may place yourself in a difficult situation. 

Had you counted on your home selling at a certain price and if it falls short of that price you may need to dip into other accounts, take out a higher loan, or sell other assets to make up the shortfall.

The key here to limiting your risk is working with an agent who understands your home and your home’s market, and can give you an accurate assessment of the value, sales costs, and additional costs you might incur such as capital gains.

In either case your first steps are to always speak with a Realtor who is knowledgeable, they will help you understand the market and your home’s value.  Ultimately a local real estate expert should be consulted to help you determine the best plan to achieve your objective.