Financing a New Home While Selling

Many people who are planning to move from their current home to a new home need to navigate the homebuying and selling process simultaneously. In an ideal world, you would be able to consolidate timelines and close on your home sale right before you need your equity to make a down payment on your new home purchase.

The real estate market and transactions are complex. Timelines often don’t align perfectly, requiring contingencies, loans or alternative financing methods to finalize a home purchase while still living in or listing your current home.

These scenarios are common, and various financial and contingency solutions have been developed to support homebuyers and sellers.

Short-Term Financing With a Bridge Loan

Bridge loans are short-term loans designed to cover the gap between buying your new home and selling your current one. They allow you to tap into the equity of your current home to fund a down payment and closing costs on the next property.

Key Advantages

• Provides immediate access to funds for your next home.
• Helps you avoid a contingent offer, making your bid more competitive in a hot market.

Considerations

• Bridge loans typically come with higher interest rates than traditional mortgages.
• They are best suited for homeowners with significant equity and strong credit profiles.

Access Equity Before Listing Your Home with a Home Equity Line of Credit (HELOC)

A HELOC allows you to borrow against the equity in your home, providing a revolving line of credit that can be used for a down payment or other costs.

Why It’s Useful

• Flexibility to draw funds as needed.
• Often comes with lower interest rates compared to bridge loans.

Timing Is Key

Some homeowners prepare ahead of time for this scenario because of the way they are approaching the selling and buying process. For example, households with kids might want to purchase a new home toward the end of the school year with the goal of moving during the summer. They might only list their current home once they’ve begun the moving process.

In this type of situation, the homeowners may want to secure the HELOC before listing their current home, as lenders typically won’t approve a HELOC for a home that is already on the market. Once the sale is finalized, you can use the proceeds to pay off the outstanding principal balance on your current mortgage and the HELOC.

Contingency Clauses

Two of the most common contingency clauses—purchase and sale contingencies—are intended to help homebuyers and sellers solve timeline misalignments. They can allow you to make the purchase of your next home dependent on the sale of your current property (or vice versa).

While common, these clauses can make your offer less appealing in competitive markets. If a home seller has multiple bids, including some from buyers who aren’t requiring any purchase contingencies, the seller may reject your offer.

However, there are ways to mitigate the negative impact contingencies can have on offers, such as making your bid slightly higher than competing offers to compensate for the inconvenience of the contingency.

Rent-Back Agreements

A rent-back agreement allows you to sell your current home but remain in it as a temporary tenant. This gives you more time to finalize your next purchase without rushing the process.

Benefits

• Eliminates the need for temporary housing or dual mortgage payments.
• Lets you focus on securing your next home after the sale.

Potential Drawbacks

• Not all buyers may agree to a rent-back, particularly in competitive markets.
• A buyer who need to move right away, like those trying to close their own home sale quickly, might not have the flexibility to accommodate a rent-back agreement.
• Negotiating rental terms in advance may complicate the closing process.

Temporary Financing Options for Buyers Who Qualify

• Dual Mortgage Preapproval: If your finances allow, consider getting preapproved for two mortgages simultaneously. This ensures you can secure your next home while still carrying your current mortgage.
• Piggyback Loans: Use a second mortgage or loan to cover your down payment until you sell your current home. These loans often have adjustable terms and can be a useful stopgap.
• Savings as a Safety Net: If possible, tap into savings or liquid assets to fund your next home upfront, then replenish them after your sale closes. Once you receive equity from your current home sale, you can pay down the principal on your new home. If you do plan on taking this approach, be sure your new loan agreement does not contain prepayment penalties.

Sell Your Home Quickly for a Great Price

72SOLD is committed to helping current homeowners close sales fast. We utilize innovative marketing methods to identify interested and qualified buyers before listing to ensure the homes we sell garner competitive offers quickly. If you want to rapidly close your sale without sacrificing equity, our professionals can help. Fill out the form on our site to get our price for your home.