Want to Buy Your Next Home Before You Sell? What Are Your Options?

Why this is hard

Most families have a big part of their savings tied up in the home they live in. That money is called equity. It is the part of the home you own free and clear. You may need that equity to make the down payment on the next place. But you do not get it until the old home sells.

At the same time, homes in parts of Williamson County can move fast. A seller may not want to wait for you to sell first. So the timing can feel like a trap. The options below are ways out of it.

Choice 1: Sell first, then buy

This is the simple path. You sell, take your cash, and then shop with money in hand.

• The upside: You know just what you have to spend. You never pay for two homes at once.
• The downside: You may need a short-term place to live. That could mean a rental, a stay with family, or two moves.

One way to soften this is to ask your buyer for more time before you move out. Some sellers ask for a later closing date or a short stay after closing. Your agent can help you ask for this in the contract.

Choice 2: Buy with a home sale contingency

A contingency is a part of the contract that says the deal depends on something. A home sale contingency says you will buy the new home only if your old home sells first.

• The upside: If your home does not sell, you can usually walk away without losing your earnest money, as long as you follow the contract terms.
• The downside: Many sellers do not like this. In a busy market, an offer with this kind of term may lose to an offer without one.

This can work best when the new home has been for sale a while, or when your own home is already under contract.

Choice 3: Use a HELOC on the home you have now

A home equity line of credit, or HELOC, lets you borrow against the equity in your current home. You can open the line before you list the home. Then you can use it for the down payment on the next one. When the old home sells, you pay the line off.

• The upside: You can make a stronger offer with no sale term in it.
• The downside: For a while, you may owe on your first mortgage, the HELOC, and the new loan. Many lenders will not open a HELOC once your home is listed for sale, so plan early.

The Consumer Financial Protection Bureau says to read the HELOC terms closely. Look at fees, how long you can draw, and whether the cost to borrow can change.

Choice 4: A bridge loan

A bridge loan is a short-term loan that helps you get from one home to the next. It is backed by the home you are selling. It can give you cash for the down payment before your sale closes. Then it gets paid off from the sale.

• The upside: Like a HELOC, it can help you write a clean offer.
• The downside: Bridge loans often cost more than other loans. Terms vary a lot from lender to lender, so compare the full cost.

Choice 5: Buy first and carry both homes

Some buyers have enough savings and income to pay two house payments for a while. If that is you, you can buy first, move in, and then sell the old home empty. An empty, clean home can be easier to show and stage.

But here is the catch. When you apply for the new loan, the lender will usually count the payment on the home you still own. Your income has to cover both. In some cases, a signed sale contract or a lease on the old home can change how that payment is counted. Ask your loan officer what applies to you before you shop.

Questions to answer before you pick

• How much equity do I have, after the costs to sell?
• How much cash do I have now, without selling?
• Can my income cover two house payments, and for how long?
• How fast are homes like mine selling right now?
• How would I feel about a short stay in a rental?

There is no one right answer. The best choice depends on your money, your time, and how much risk you are okay with.

A quick example

Picture a family in Cool Springs. Their kids are getting older, and they want more room in Brentwood. They have good equity but not much cash in the bank. They find a home they love, and it has other offers. A sale contingency would likely lose. So before they list, they open a HELOC on their current home. They use it for the down payment and write a clean offer. A few weeks later, their old home sells. The HELOC is paid off at that closing. Now picture a second family with less room in their budget. For them, selling first and renting for two months may be the calmer path.

Tips for agents

• Start the money talk at the listing appointment. If your seller also needs to buy, connect them with a loan officer before the sign goes in the yard.
• Get the HELOC question answered early. Once the home is listed, that door may close.
• Plan the dates as one project. Line up both closings so your client is not stuck between homes.
• Get a fresh pre-approval. Make sure the letter reflects how both homes will be counted.

Common questions

Want help planning your move?

Reach out through our contact page and we will connect you with a Heathrow Mortgage loan originator. You can also start an application online.