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As a homeowner who's thinking of making a move, it's natural to wonder about how to buy a house before selling yours. Traditionally, a lot needs to go right for this to happen seamlessly, and for many, they’ll need to sell their old house before thinking about buying a new one.
The real estate industry is changing, however, and there are new ways to go about buying a house before selling, or conducting both processes simultaneously.
Here’s our guide to learn more about the process — and what your options are for buying a new home before selling your existing property.
What are the benefits of buying before selling?
On a basic level, it’s easy to understand the appeal of buying a house before selling. In a perfect world, doing this means you can move into your new home right away, and avoid the headaches of lining up your timeline with that of the person buying your home and the person selling you your new one.
If you have enough cash on hand to buy a new home outright before selling your old one, that’s great. For everyone else, the costs of carrying two mortgages at once, or of moving twice, are annoying and expensive, if not outright impossible to maintain.
For those of you new to the home-selling and buying process, it’s helpful to understand exactly why buying before selling is so powerful, and how it impacts every part of your experience.
You'll have a competitive advantage
First, it's important to take a look at the state of the market when selling. In the U.S. in 2021, we’re in a seller’s market — inventory is low, and demand is exceeding supply.
That makes it hard for a prospective buyer to find a new home: Since there are fewer homes on the market for sale, many buyers end up competing for the same listings. Often, an available listing will have multiple offers and the final sale price for an available property will go far above the asking price.
While this type of market is exciting when you’re a home seller, it can be frustrating as a buyer. Since so many people are competing over the same listings, it can take a while before you submit an offer that gets accepted. Sometimes prospective buyers can find themselves in the real estate market for months before they are able to buy a new house.
Not having to wait to sell your home before you put in an offer on your dream home, or not needing to make an offer contingent on you finding financing, means you can make a competitive offer on a new home quickly once you find it.
You’ll avoid needing to find temporary housing
If you've sold your home before buying a new one, there's a good chance that your living situation will be in limbo while you're trying to buy a new property. You may be living with family or you may be renting. Either way, this type of setup is far from ideal for most people.
However, if you aim to buy before you sell, you will have the security of your current home while you're in the market for a new property. You won't have to worry about paying rent for temporary housing or being someone's guest for an extended period.
You can wait until you've found the perfect home
When buyers sell their homes before making a new purchase, they can sometimes get desperate if they've been in the market for a while. Again, being in a temporary living situation can be uncomfortable and it's no surprise that most buyers would want to bring it to an end as soon as possible. That desire often means that they end up settling for less than a perfect match.
But if you buy before selling your existing property, you won't have to worry about facing that desperation. Since you have a roof over your head and, presumably, you are comfortable in your current home, you should be able to wait until you've found your dream home. In this case, there is no rush to settle on a new property.
Moving out means you won't have to accommodate showings
On a practical note, buying first means that you won't have to worry about getting out the door to accommodate showings. Typically, putting your home on the market means having to get the kids and pets out the door any time a buyer wants to walk through the property. Needless to say, this process can be a hassle, especially if you're juggling multiple people's schedules and time commitments.
However, if you've already moved into your new house, your current property will be vacant, which means that it will be much easier for real estate agents to schedule a showing and let prospective buyers through the door.
Here, the benefits of moving first are twofold. On the one hand, you can rest easy knowing that you won't have to rearrange your schedule to accommodate showings. On the other, having the flexibility to get buyers in whenever they want increases your chances of getting an offer sooner.
How to buy a house before selling your current house
Now that you have a better idea of why it makes sense to buy a new property before selling your existing home, the next step is to talk about the practical aspects of how to make it work. Generally, there are three methods that people use to buy a home before they sell. Take a look at each one to get a sense of which method might work for you.
Get a bridge loan or home equity line of credit
If you don’t have the cash on hand to buy a new home before getting the equity out of your old home by selling it, you can seek help with financing.
A bridge loan is a short-term loan. If you take out a bridge loan, you can use the proceeds from the loan to make the down payment on your new home. Then, when you sell your current home, you use the proceeds from the sale to pay off the bridge loan.
Unfortunately, this method is often expensive and can be very risky. First, bridge loans typically come with higher interest rates than your standard mortgage, which means that you will pay more for the privilege of borrowing this money for a short time.
Beyond that, you're taking a risk with your home sale. You have no way of knowing how long your home will be on the real estate market. If it takes longer than expected, you may not have the proceeds from the sale of your home to fall back on when the bridge loan comes due. In that case, you would get stuck with a large payment that you have no way of paying off.
Another option is a home equity line of credit (HELOC), which functions similarly to a credit card and uses your current home’s value as collateral. This is a revolving line of credit that replenishes as you repay each draw with interest. You can use your HELOC to pay for a down payment on the new house you’re buying.
While interest rates for a HELOC are low compared to other forms of financing (the exact rate will depend on factors like your credit score and debt-to-income ratio), this is still a form of debt that you will need to repay — and you may not have the funds to do so until you sell your old home.
Make a contingent offer
The other option is to make an offer that's contingent on the sale of your home. When you use a home sale contingency as a buyer, you're saying that you will agree to buy the new property if, and only if, you can find a buyer for your current home within a certain period. if you are unable to find a buyer for your existing home, the home sale contingency gives you the right to walk away from buying a new home.
While this may sound like the perfect option, sellers don’t love contingent offers. We’ll discuss more below, but using contingent offers could put you at a disadvantage in a competitive market if other buyers come to the table with cash offers.
Use a service like Move First
Some modern brokerages now offer another solution to this dilemma, which is to pull your equity out of your current home before you sell it, so you can use that money to buy your next home.
For example, Orchard's Move First service allows you to tap into your home equity and use that to buy a home, which means that you can submit a contingency-free offer without taking on debt.
Orchard’s Move First process works like this: After completing a home assessment, Orchard gives you up to 90% of your home value upfront to put toward your new home purchase. Then, once you buy your new home and move out, Orchard helps you get your home ready for sale and listed on the market. If your home sells for more than the guaranteed sale price, you’ll receive the difference.
Services like these allow you to “sell” your home before you truly sell. Equity that would be otherwise trapped in your old home is available for use as cash. This way, you don’t have to delve into your savings, empty out interest-bearing investments, or take on a second mortgage.
Why contingent offers are at a disadvantage in the real estate market
There are many kinds of contingent offers. You may want the purchase of your new home to be contingent on it passing an inspection, or contingent on whether an appraisal of the property matches what you plan to pay for it.
A contingent offer puts you at risk to lose out to a non-contingent offer. And in a seller’s market, that’s especially true if the offer is contingent on the sale of your house.
In a seller's market, competition is fierce — the sale prices for available listings are often going well above the original asking price. In fact, people will submit offers that waive inspections and cushion appraisal amounts just to make their offers stand out from the crowd.
In contrast, including a home sale contingency in your offer creates more work for the seller, with little upside. In this case, they would have to take their home off the market in exchange for little to no reassurance that you’ll be able to buy the home. If the seller has other offers in hand, it’s unlikely that they will consider yours if it includes a home sale contingency.
That said, if you want to make your offer stand out, one thing you can do is make a cash offer. When it comes to buying a home, cash is king — and cash buyers often pay less, on average, than mortgaged buyers, according to a 2020 study from the University of California San Diego.
Fortunately, you don't have to have tons of cash-on-hand to go this route. Orchard's Offer Boost option allows you to use the company’s cash reserves to make a cash offer on your new home. Then, once we help you sell your home, you just pay us back.
Can you buy and sell on the same day?
Many homeowners wonder if it is possible to buy and sell on the same day. Buying and selling a home at the same time would, in a perfect world, give you the chance to turn your proceeds into a down payment, without wasting any time moving to a third location (such as a short-term rental or a family member’s house).
That being said, when you use a traditional real estate model, this is easier said than done. Often, this process quickly becomes complicated because so many pieces need to fall in place at the same time. Between mortgage approvals, home inspections, and the various timelines of every person involved in the process, it’s not common that the timeline aligns perfectly. Just one hiccup in selling your home can make it almost impossible to close on your new home the same day.
That said, when you use services like Move First, your home doesn’t go on the market until you're already settled in your new place, which means that you only have to focus on getting through one real estate transaction at a time.
The bottom line
It’s possible to buy a new house before selling your old one, but it can be tricky to do using traditional methods if you don’t have the cash to make a non-contingent offer on your own. No matter what, you’ll want to work with a real estate broker that can help you align the buying and selling aspects of your journey. Whether that’s by making a contingent offer, going through a brokerage like Orchard, or taking out a loan, make sure it’s the option that works best for you.