Buying A House Before Selling

November 12, 2023

Buying a house is a significant decision that requires careful planning, especially when it comes to the timing of buying and selling. While most people typically sell their current home before purchasing a new one, there are instances where buying a house before selling can be advantageous. This article explores the benefits, considerations, financing options, and strategies to help you make an informed decision.

The Benefits of Buying a House Before Selling

  1. Avoiding Temporary Housing: One of the main advantages of buying a house before selling is that it allows you to avoid the hassle and cost of finding temporary housing. By securing a new home before selling your current one, you can seamlessly move from one property to another without having to rent or stay with family or friends in the interim.

  2. Market Timing: Another benefit of buying a house before selling is the ability to take advantage of favorable market conditions. In a seller’s market, where demand is high and inventory is low, it may be challenging to find your dream home. By purchasing before selling, you have the luxury of time to find the perfect property without rushing into a decision.

  3. Renovations and Personalization: Buying before selling enables you to move into your new house and make any desired renovations or personalization without the constraint of living in an active listing. It allows you to create your ideal living space at your own pace, making the transition smoother and more enjoyable.

Considerations Before Buying a House Before Selling

  1. Financial Risks: One crucial factor to consider is the financial risk associated with carrying two mortgages simultaneously. If you’re unable to quickly sell your current home, you may face financial strain. Assess your financial stability, including savings and income, to ensure you can comfortably handle the potential burden of double mortgage payments.

  2. Contingency Clauses: When buying before selling, consider including a contingency clause in your offer. This clause allows you to back out of the purchase if you’re unable to sell your current home within a specified period. However, keep in mind that including such a contingency might make your offer less competitive in a competitive market.

  3. Emotional Stress: Buying before selling can also create emotional stress, particularly if your current home takes longer to sell than anticipated. It can be challenging to manage the emotional toll of maintaining two properties, especially if the financial burden becomes significant. Ensure you have a support system in place to help you navigate this potential stress.

Financing Options When Buying a House Before Selling

  1. Bridge Loans: A popular financing option when buying before selling is a bridge loan. This type of loan bridges the gap between the purchase of your new home and the sale of your current one. Bridge loans are typically short-term, and they provide the necessary funds to cover the down payment and closing costs of your new home.

  2. Home Equity Line of Credit (HELOC): Another financing option is to utilize a HELOC, which allows you to borrow against the equity in your current home. This option can provide the necessary funds for a down payment on your new property. However, it’s important to carefully consider the terms and interest rates associated with a HELOC.

  3. Contingent Financing: In specific circumstances, contingent financing may be an option. This involves getting pre-approved for a new mortgage while simultaneously listing your current home for sale. However, contingent financing can be challenging to secure and may limit the number of potential buyers for your existing property.

Strategies for Buying a House Before Selling

  1. Renting Out Your Current Home: Consider renting out your current home if it’s financially feasible. Becoming a landlord allows you to generate rental income that can help cover the costs of both properties. However, be prepared to navigate the responsibilities and potential drawbacks of being a landlord.

  2. Negotiating a Leaseback: If you need more time to sell your current home, negotiate a leaseback with the new owners. This arrangement allows you to remain in your sold property for a specified period, giving you extra time to finalize the sale and find a new home.

  3. Downsizing or Bridge Housing: In situations where buying before selling is not financially viable, downsizing or finding bridge housing can be a solution. Downsizing allows you to sell your current home first and then find a smaller, more affordable property to purchase. Alternatively, bridge housing, such as short-term rentals or staying with family, can provide temporary accommodation until you sell and buy a new home.

Deciding whether to buy a house before selling requires careful consideration of the benefits, considerations, financing options, and strategies available. While it can offer advantages such as avoiding temporary housing or taking advantage of favorable market conditions, it also comes with financial risks and potential emotional stress. Before making any decisions, thoroughly analyze your financial situation, consult with professionals, and assess the local housing market to determine the best course of action.