How to Buy a House When You Haven't Sold Yours Yet
One of the most exciting times in a homebuyer’s life may be at closing when you sign on the dotted line and get the keys to your new dream home. But before you start packing up your belongings into the moving truck, what do you do if your old home hasn’t sold yet? Or you may be thinking: 'Can I even buy another house before I sell mine?'
Although selling and buying a home at the same time may be a bit tricky, it isn’t impossible. Here are a few tips to consider.
Have a Contingency Offer
If you want to avoid carrying two mortgages, one of the best things to do is to buy on contingency, meaning you're making an offer on a house contingent on selling yours. The overarching definition of a contingency is "a provision in a contract requiring certain acts to be completed before the contract is binding," but when it comes to homebuying, this means you can't close on your new home until your old home sells.
If the seller is flexible on timing or it's a buyer's market, then making an offer that’s contingent may be the right move. This will also allow you to withdraw your offer if your current home doesn’t sell by a certain date. Although this is a good option for some buyers, it may not be too appealing to sellers in hot housing markets who want to sell their home quickly and receive multiple bids from other homebuyers.
Have a Rent-Back Option
A rent-back agreement allows home sellers to stay in their home past closing. After settlement, the previous owners of the home you just bought can pay rent to you in order to stay there a bit longer. This may be the perfect arrangement: It gives sellers some extra time to find a new house while paying you rent since they're still occupying your future residence, which gives you some extra money to briefly cover two mortgages.
This rent-back option can alleviate some financial concerns and help you avoid moving into a temporary home. On the flip side, it's also convenient when you sell your home and then rent it back from the new buyers while you're waiting to close on your new home. A rent-back agreement is typically for only a month or two.
Find Temporary Housing
Although moving and packing more than once is a nuisance, it may be a more appealing option than carrying two mortgages at the same time. Finding a short-term rental property or moving in with relatives or friends could be a great option to help you save money.
If you can find a short-term rental home or an apartment for a few months, it'll allow you to have your own space before the stressful moving and packing adventure begins again. If you can temporarily move in with a friend or relative, you may also be able to keep that rent money in your pocket.
Obtain a Bridge Loan
If you want to sell your current home without taking out a mortgage on your new home, you can get a bridge loan. A bridge loan is a short-term loan that provides immediate cash flow. Bridge loans have a term of up to one year, they have relatively high interest rates, and they're usually backed by some form of collateral (in this case, the home you currently own). However, a bridge loan can be an option for homebuyers who need money for a down payment on a new home before their current home is sold and finalized.
According to SmartAsset, besides giving homeowners the funds they need for making a down payment on a new home purchase, a bridge loan also removes the need to make a contingent offer on a home. While this is a plus, the bridge loan does carry risks like the lender could foreclose on the home if you default on your loan. Another disadvantage of getting a bridge loan is higher fees and costs associated with the loan as well as not being able to get a loan from a different lender, which will limit your chances of comparing mortgage rates to find the best deal.
So, can you buy another house before selling your own? The short answer is yes, absolutely. However, selling and buying a home at the same time can be difficult, so be sure to consider all your options, take stock of your financial needs, and discuss your goals with your real estate agent before making a decision.