Timing is critical in all things, but it can be especially challenging when it comes to real estate. Deciding whether to sell your home before buying a new one is a difficult decision.

It could land you in temporary housing if you haven’t found a house to buy. That means two moves, which is nobody’s idea of a good time.

Or, you could wind up paying two mortgages for a while if you go ahead and buy that dream house before you’ve sold yours.

Each option may have advantages that depend on market conditions. We’ll explain the market’s impact on this decision to sell or buy first, and provide advice from real estate experts such as Joel Barber, a top agent who works with 83% more single-family homes than the average Myrtle Beach, South Carolina, agent, to help you make the right choice.

How Much Is Your Home Worth Now?

When deciding whether to sell first or buy first, it’s helpful to know your home’s value. Our Home Value Estimator tool analyzes the records of recently sold homes near you, your home’s last sale price, and other market trends to provide a preliminary range of value in under two minutes.

Start by understanding the market

Real estate market conditions will have a significant impact on your decision on whether to sell your house before you purchase another one. It helps to know where the market is now and where it’s headed.

In a buyer’s market

In a buyer’s market, inventory exceeds demand, typically resulting in homes spending more days on market, and thus, resulting in pressure on the seller to reduce the price or offer concessions to incentivize a buyer. In such a market, it’s advisable to list your home first because it probably won’t sell right away. This provides time to look for a new home before you sell the current one.

In a seller’s market

Just the opposite occurs in a seller’s market; there is low inventory and high demand, often coupled with stiff competition. While you’re likely to sell your home quickly – possibly above asking, with few to no contingencies, and possibly a quick close – you may experience difficulty finding the next one. If you wish to avoid a second move into a temporary situation, you might not want to list until you’ve found a new home.

Here’s how to tell what kind of market you’re in:

The COVID-19 pandemic contributed to a strong seller’s market as buyers started seeking larger homes with more outdoor space and reassessing their home destinations with the rise of work-from-home opportunities. Supply chain issues limiting building supplies, as well as a labor shortage further contributed to the housing shortage. In addition, record-low mortgage rates incentivized buyers.

Over the past two years, housing prices set new records as inventory continued to lag behind demand.

The market in 2022 is slowly changing. The National Association of Realtors survey predicts that home prices will increase by 5.7% this year, fed by ongoing labor shortages, along with increases in the cost of materials, mortgage interest rates, and inflation. But by the end of the year, the market should start to level off.

Barber says prices remain steady, while inventory and interest rates have increased. This strong market has led to a “change in dialog” between buyers and sellers, he says. “Buyers have more options. They’re not offering over [asking price] and they’re not waiving appraisals.”

After checking the experts’ predictions for the market’s direction, be sure to consult HUD’s Comprehensive Housing Market Analysis for a general overview of market insights on your nearest city. HUD conducts research on more than 100 major U.S. cities, releasing a regional report every two to three years that covers the city’s housing market trends, including the average home sale price, time on the market, the number of homes for sale, and relevant economic factors such as job growth rate, population, and average household income.

Sell your house first

Barber’s question to sellers is: Can you buy a new house without selling yours first?

Selling your home first has some benefits; for example, it lets you know what your budget is for the new home, but it’s a gamble that may see you having to move to temporary digs until you find that new home.

The upsides

  • Buying with a set budget: You know exactly what your budget is for purchasing a new home.
  •  Financing is simple: You can use the cash from your sale as a sizeable down payment.
  • Reduced pressure: You can negotiate confidently for the top sale price on your current home.
  • Benefiting from market shifts: You can capitalize on a hot market by selling now. Housing prices are expected to remain high through 2022.

The downsides

  •  Living in temporary housing: Like everything else, rent has gone up. Barber says the rental market is stronger than the housing market, with tight inventory allowing rental property owners to name their own price.
  • Moving twice: Moving twice is expensive and exhausting, especially if you have to pay to store your furniture.
  • Risking the market: Prices in the market could rise, so you might pay more for your new home than you budgeted for.

How to make it work

Transition via rent back

If your home sells before you find one to buy, you can opt for a “rent back,” also known as a sale-leaseback, holdover, or “possession after closing,” in which you rent your home from the new buyer for a specified period of time, usually no more than 60 days. After that, the home is considered an investment property so their loans would carry a 1.25% higher interest rate than a mortgage. This allows the seller to avoid a double move.

Barber says this is the best solution and is a “flip” on the more commonly seen buyer contingency. However, he adds, “as the market changes, fewer buyers are willing” to do this because increased inventory provides more options. On the other hand, he adds, if a buyer really wants the home, allowing a lease-back can give them an edge in a competitive market.

In this scenario, the buyer gets some cash back and the seller has the proceeds from the sale to apply toward a new home.

According to Mark Takacs, a top-selling agent in Atlanta, “The seller who is renting it back takes good care of the place — it was their house.”

Extend the closing period

According to Barber, the second-most popular option is extending the closing period. This allows the seller to remain in the house for a specified period of time. It’s a riskier option, because, while the house is under contract, it’s possible for the buyer to back out. Barber points out that the seller doesn’t have the proceeds from the sale to apply toward a new house, either.

Find temporary housing

Sellers may choose other options — staying with family, renting nearby, or house sitting. Perhaps they own a vacation home they can stay in temporarily. Barber suggests considering a short-term rental.

Buy your new house first

If you find the house you want before you sell your own house, it can carry some financial risk. You may have to come up with a down payment and carry two mortgages. To overcome that daunting debt and get around the problem of coming up with a down payment, if your credit score is high and your debt-to-income ratio is low, you may qualify for a bridge loan, a short-term loan designed specifically to bridge the gap between selling one house and buying another. This typically works best in a seller’s market where your home is likely to sell quickly if priced correctly.

The upsides

  • Securing the perfect home: You get the home you really want.
  • Avoiding moving twice: You can save on the cost and stress of moving twice and (maybe) storage.
  • Having time to make improvements: Whether you want to make major improvements, such as an addition or remodel, or minor improvements like painting, buying the new house before you sell your old house gives you time to accomplish these changes.
  • Benefiting from market shift: If prices in the market rise, you earn more on your home sale.

The downsides

  • Balancing two mortgages: This can be financially burdensome and stressful.
  • Taking on high-interest loans: We’ll break these down for you below.
  • Feeling pressure to sell: You might not get as much as you could from your house sale because you’re worried about carrying two mortgages and get in a hurry to sell quickly.
  • Risking the market: If prices in the market fall, you may pay more for your new home than you get out of your old one.

How to make it work

Make a contingent offer

If you found your dream house, but can’t afford to pay for it until the sale of your own home closes, you can make a contingent offer. This means you will enter contract on the new home when and if your home sells. Keep in mind that sellers don’t look favorably upon this type of offer. In a seller’s market, when competition is fierce, your offer may be declined because sellers don’t want to wait around to see if you can sell your house before buying theirs.

Apply for a HELOC

The benefit of owning your home is the ability to use it as an asset to borrow against. You can open a Home Equity Line of Credit (HELOC) to pull funds for your down payment and mortgage payments on the new home, borrowing up to 85% of your current home’s value minus the amount you owe.

To estimate if you’ll qualify before meeting with a lender, calculate your loan-to-value ratio (LTV). LTV is a percentage score based on the current value of your home, the outstanding balance on your mortgage, and your credit score. You can find many easy-to-use online calculators to estimate your LTV and how much you’re eligible to borrow via a HELOC.

Opt for a bridge loan

Although rare these days, bridge loans allow you to finance the purchase of your new home by borrowing against the equity of your current home. The loans are typically for a six- to 12-month term, so they do not follow the standard “ability to repay” rules.

While approval is largely based on the value and equity of your property, you still need excellent credit and sufficient income to carry two mortgages. Bridge loans are notoriously pricey, with higher interest rates than standard home loans (rates vary, but expect them to be at least 2%-3% higher) and come with additional fees. They are also difficult to obtain from institutional lenders, so you’ll probably need to go to a private lender.

Rent your old home in the interim

If you move into your new home, you can become a landlord and rent your old house to cover the mortgage. Barber points out that not everyone can afford a second mortgage to purchase the new house before selling the old one, but if you can, this may be a viable option.

It’s wise to consult an attorney and your insurance agent to be sure you and your property are protected and to determine all the steps and permissions required. In addition, be clear with tenants about your intentions and expectations regarding any showings and open houses, such as scheduling, who is responsible for cleaning, and whether tenants need to leave.

Check with your state’s laws, but most require 24- to 48-hour notice of showings. You’ll also need to know what your state’s laws are regarding move-out notice. Typically, it’s between 30 and 60 days, but it depends on the state.

Keep in mind that renters can cause severe wear and tear on the property, and being a landlord is not for everyone.

Cash out with Airbnb

As opposed to a long-term rental, you can make it available for a short-term rental by listing your home on Airbnb, Vrbo, or other vacation rental sites. Airbnb hosts earn an average of $924 a month. This option becomes more challenging if you move out of the area. Regulations limiting short-term rentals are developing, so be sure to check your local laws before listing.

Buying and Selling at the Same Time?

Juggling the sale of one home and the purchase of another can be stressful even under the best of circumstances. Working with a top agent on both ends of the deal can help ensure an outcome that works best for you.

Sell and buy at the same time

Ideally, you hope to coordinate the purchase of your new home with the sale of your old one. Using the same agent for both transactions can increase the odds of pulling this off by streamlining communication – a real benefit when you’re trying to coordinate dates or have a contingent sale. You may even be able to negotiate a discount on the commission.

Work with a top agent

“What separates a top agent is finding a solution for the client,” Barber states. That goes beyond price to include strategy. He has acquired clients due to the solutions he has offered, such as adding a virtual component during the height of COVID-19 that allowed potential buyers to view the property without actually visiting it. In one such deal, he had two offers at or above the asking price within five hours. “You need to study the market and know what’s going on with buyers and sellers.”

It can be difficult to find someone experienced as both a buyer’s and a seller’s agent. You can connect with proven agents by using HomeLight’s free Agent Match platform, which analyzes millions of real estate transactions in order to determine the top agents in your neighborhood.

Get backed by the right lender

Takacs recommends working with a local lender because these smaller operations understand the local market and have a more personal interest in your loan closing on time.

“It’s OK to shop fees and rates to some degree, but I wouldn’t make that my primary decision point,” he says. “It’s more about closing on time, the back office not screwing things up, the underwriter being local.”

Your agent can point you to a trusted lender they have worked with. If you’re still curious about the bigger backers, U.S. News provides a detailed guide to the best mortgage lenders.

Use a home trade-in platform

There are innovative real estate companies that can help people navigate the balancing act of buying and selling a home at the same time. Companies like HomeLight, Orchard, Knock, Flyhomes, Ribbon, and others offer valuable home trade-in services that can streamline the entire process, bringing everything together in days, not months.

For example, HomeLight Trade-In works in four easy steps:

  1. We make an offer to purchase your current home, which is payable (as a cash transaction) as soon as you’re ready to close on your new home.
  1. This gives you a budget for making a cash offer while house shopping. Because there are no contingencies and the risk is lower, cash offers are often favored by sellers.
  1. Once your offer is accepted, we’ll get moving on the details. First, we’ll purchase your home at the agreed-upon price. Then, we’ll give you the cash to close on your new home.
  1. After you’re all settled into your new home, we’ll work with your agent to kick off the home-selling process. If the old home sells for more than what we paid for it, we’ll put the additional cash in your pocket (minus any selling and program fees).

Platforms like HomeLight Trade-In can be a successful option to help you buy and sell at the same time. Trade-in services may not be currently available in your area.

Choose the path that best fits your needs

Selling your home before you find a new one can deliver benefits in a seller’s market:

  • You may get a higher price due to low inventory and high demand.
  • You’ll know what your budget for a new house is.
  • You can put the proceeds from the sale of your house toward the purchase of your new one.

However, you run the risk of having to move twice and store your furniture if you can’t find a new home quickly – and you may get stuck in a short-term rental.

Whichever path you take, remember that you have options and keep the goal in mind: leaving behind a house that no longer suits your needs in order to move into one that does.

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