Sell first or buy first
Most people buying their next home need the money that is tied up in the one they own now. That creates a timing problem: the down payment for the new home is sitting in the old one. There is no single right order. Each has a cost, and the right choice depends on your finances and on how fast homes are selling where you live.
| Sell first, then buy | Buy first, then sell | |
|---|---|---|
| The upside | You know exactly how much you have to put down. You qualify on one mortgage, and your offer is not dependent on another sale. | You move once, straight into the new home, and you can take your time preparing the old one for sale. |
| The cost | You may need somewhere to live in between, and you might move twice. | You have to qualify while carrying both homes, find a down payment before your equity is free, and you carry two sets of payments until the old home sells. |
| Fits best when | You need the sale proceeds for the down payment, or your budget cannot stretch to two payments. | You have savings for the down payment and income to qualify with both mortgages. |
Many people land in between: they list their home, accept an offer, and then make an offer on the next one, aiming to close both within days of each other. The rest of this chapter covers how lenders treat each situation and the tools that make the timing work.
Qualifying while you still own
Until your current home is sold, its mortgage payment counts against you when a lender works out how much you can borrow. On a conventional loan there are three ways that changes:
- It sells before you close on the new home. The payment drops out of the calculation. The lender will ask for the signed settlement statement or Closing Disclosure from the sale, which also documents the proceeds you are using for your down payment.
- It is under contract but has not closed. The lender can leave the payment out if you provide the signed sales contract and confirmation that the buyer's financing contingencies have been cleared. A contract where the buyer is still waiting on loan approval does not qualify.
- You keep it as a rental. Rent can offset the payment within limits. The rules for this are in If you already own a home.
If none of these applies, you must qualify with both payments in your debt-to-income ratio, and the lender may want to see extra savings in reserve. FHA, VA and USDA loans have their own versions of these rules, so tell your loan officer at the start that you have a home to sell. It changes how your pre-approval is written.
In the Pre-Qualification Calculator, add your current home under real estate owned and try it as "selling" and as "keeping." The difference between the two results shows how much the sale matters to what you can buy.
Reaching your equity in time
If you need the money from your current home before it has sold, these are the usual ways to bridge the gap. Each one has a cost.
A home-sale contingency
Your offer on the new home says you will only buy if your current home sells by a set date. It protects you from owning two homes. Sellers like it less, because their sale now depends on yours, and in a competitive market a contingent offer often loses to one without it. Sellers who accept one commonly add a "kick-out" clause: they keep showing the home, and if another offer arrives you get a short window to drop the contingency or step aside.
A home equity line of credit
A line of credit on your current home lets you draw the down payment before you sell, then pay it off from the sale. It has to be opened before you list, because most lenders will not open one on a home that is for sale. The payment on any balance counts in your debt-to-income ratio for the new loan.
A bridge loan
A bridge loan is a short-term loan, secured by your current home, designed to cover the gap until it sells. Rates and fees are usually higher than a regular mortgage, the payment counts as a debt, and not every lender offers one. Ask what happens if your home takes longer to sell than the loan lasts.
A rent-back after you sell
You sell first and stay in the home for a short time as the buyer's tenant, which gives you time to close on the next one. It is negotiated in the sales contract. The buyer's lender usually limits how long it can run, commonly to 60 days, because a buyer taking an owner-occupied loan must move in within that time.
Short-term housing
Sell, move somewhere temporary, then buy with cash in hand. It is the least convenient option and the simplest financially: one mortgage, a known down payment, and an offer with no sale contingency.
What you'll walk away with
Your down payment on the next home comes from your net proceeds, which is less than the difference between the sale price and what you owe. Work it out before you shop, because it sets your price range.
| Start with the sale price, then subtract | What it is |
|---|---|
| Mortgage payoff | The amount to pay the loan off on the closing date. It is higher than the balance on your statement because it includes interest up to that day. Ask your servicer for a payoff statement. |
| Other loans on the home | A second mortgage or home equity line, paid off in full at closing. |
| Real estate commissions | Whatever you agreed to in your listing agreement. |
| Seller closing costs | Title and attorney fees, transfer taxes and recording fees. These vary widely by state. |
| Credits and repairs | Anything you agreed to pay toward the buyer's closing costs or to fix after their inspection. |
| Prorated taxes and dues | Your share of property taxes and HOA dues up to the closing date. |
For example, on a $400,000 sale with a $250,000 payoff, $22,000 in commissions, $6,000 in closing costs and taxes, and a $2,000 repair credit, you would walk away with about $120,000, not the $150,000 the sale price and loan balance suggest. Your listing agent or the title company can prepare a seller's net sheet with your real figures.
Your lender will count the proceeds once they are documented on the signed settlement statement from the sale.
Timing two closings
When the sale of your current home pays for the purchase of the next, the two closings have to happen in the right order, and the money has to arrive in between.
- The sale closes first. Your purchase cannot fund until the proceeds from your sale have been received. The two can be on the same day, with the sale in the morning and the purchase in the afternoon, or a few days apart.
- Leave room for the money to move. Proceeds are wired from the closing agent handling your sale to the one handling your purchase. In some states a sale does not fund until a day or more after signing. Ask both closing agents how long the transfer will take before you set the dates.
- Make the contracts match. Your agent can tie the closing dates of the two contracts together, and write in what happens if one is delayed.
- Tell your lender the plan early. Your loan officer needs the sale contract, the expected proceeds and both closing dates, and your rate lock has to last through the later date.
- Have a fallback. If the sale is delayed, the purchase is too. A rent-back, a short extension written into the contract, or a few flexible days with the movers can save the deal.
Your sale proceeds and your cash to close both move by wire. Confirm every set of wiring instructions by phone, using a number you look up yourself, before any money moves. See wire fraud and how to protect your closing funds.
After the sale
- Your escrow refund. Any money left in the escrow account on your old loan belongs to you. The servicer must return it within 20 business days of the loan being paid off. It comes separately from your sale proceeds, so do not count on it for the new closing.
- Your old homeowners insurance. Cancel the policy once the sale has closed, not before. You are normally refunded the unused part of the premium.
- If you bought first: recasting. When the old home sells after you have already bought, you can put the proceeds toward the new loan and ask the servicer to recast it. That re-sets the monthly payment on the lower balance without refinancing or changing your rate. There is usually a small fee and a minimum lump sum. Not every loan can be recast, and government-backed loans often cannot, so ask before you buy if this is your plan.
- Taxes on the sale. If the home was your main residence, you can generally exclude up to $250,000 of gain from your income, or $500,000 on a joint return, provided you owned and lived in it for at least two of the five years before the sale and have not used the exclusion in the previous two years. Gains above that, and homes that were rented out or used for business, are treated differently. Speak with a tax professional about your own sale.
More of the guide