How to make it work
Make a contingent offer
If you found your dream house, but can’t afford to pay for it until the sale of your own home closes, you can make a contingent offer. This means you will enter a contract on the new home when and if your home sells. Keep in mind that sellers don’t look favorably upon this type of offer. In a seller’s market, when competition is fierce, your offer may be declined because sellers don’t want to wait around to see if you can sell your house before buying theirs.
Apply for a credit line
The benefit of owning your home is the ability to use it as an asset to borrow against. You can open a Home Equity Line of Credit (HELOC) to pull funds for your down payment and mortgage payments on the new home, borrowing up to 85% of your current home’s value minus the amount you owe.
To estimate if you’ll qualify before meeting with a lender, calculate your loan-to-value ratio (LTV). LTV is a percentage score based on the current value of your home, the outstanding balance on your mortgage, and your credit score. Use online calculators to estimate your LTV and how much you’re eligible to borrow via a HELOC.
Opt for a bridge loan
To overcome that daunting debt and get around the problem of coming up with a down payment, if your credit score is high and your debt-to-income ratio is low, you may qualify for a bridge loan, a short-term loan designed specifically to bridge the gap between selling one house and buying another. Bridge loans are typically for a six- to 12-month term, so they do not follow the standard “ability to repay” rules.
While approval is largely based on the value and equity of your property, you still need excellent credit and sufficient income to carry two mortgages. Bridge loans are notoriously pricey with higher interest rates than standard home loans, and come with additional costs, such as administration and appraisal fees. They are also difficult to obtain from institutional lenders, so you’ll probably need to go to a private lender.
Bridge loans typically work best in a seller’s market where your home is likely to sell quickly if priced correctly.
Rent your old home in the interim
If you move into your new home, you can become a landlord and rent your old house to cover the mortgage. Barber points out that not everyone can afford a second mortgage to purchase a new house before selling the old one, but if you can, this may be a viable option.
It’s wise to consult an attorney and your insurance agent to be sure you and your property are protected and to determine all the steps and permissions required. In addition, be clear with tenants about your intentions and expectations regarding any showings and open houses, such as when homebuyers are scheduled to visit, who is responsible for cleaning, and whether tenants need to leave.
Check with your state’s laws, but most require 24- to 48-hour notice of showings. You’ll also need to know what your state’s laws are regarding move-out notices. Typically, it’s at least 30 days, but it depends on the state.
Keep in mind that renters can cause severe wear and tear on the property, and being a landlord is not for everyone.
Cash-out with Airbnb
As opposed to a long-term rental, you can make it available for a short-term rental by listing your home on Airbnb, Vrbo, or other vacation rental sites. According to Thrillist, Airbnb hosts in the US make an average of $44,235 per year, with some hosts in hotspots like Hawaii earning up to $73,247 per year.
This option becomes more challenging if you move out of the area. Regulations limiting short-term rentals are developing, so be sure to check your local laws before listing.
Sell and buy at the same time
Ideally, you hope to coordinate the purchase of your new home with the sale of your old one. Using the same agent for both transactions can increase the odds of pulling this off by streamlining communication — a real benefit when trying to coordinate dates or have a contingent sale. You may even be able to negotiate a discount on the commission.
Work with a top agent
“What separates a top agent is finding a solution for the client,” Barber states. That goes beyond price to include strategy. He has acquired clients due to the solutions he has offered, such as adding a virtual component or drone footage that other home listings did not include. “You need to study the market and know what’s going on with buyers and sellers,” he shares.
It can be difficult to find someone experienced as both a buyer’s and a seller’s agent. HomeLight can connect you with proven agents through our platform, which analyzes millions of real estate transactions in order to determine the top agents in your neighborhood.
Get backed by the right lender
Takacs recommends working with a local lender because these smaller operations understand the local market and have a more personal interest in your loan closing on time.
“It’s OK to shop fees and rates to some degree, but I wouldn’t make that my primary decision point,” he says. “It’s more about closing on time, the back office not screwing things up, the underwriter being local.”
Your agent can recommend a trusted lender they have worked with. If you’re still curious about the bigger backers, U.S. News provides a detailed guide to the best mortgage lenders.
