How to Buy Your Next Home When You Need to Sell First

What happens when you find your next home, but need to sell your current home first? Many homeowners need the proceeds from their current home - or need it's mortgage paid off - before they can purchase another property. There is no way to eliminate every risk, but the right preparation can make your offer stronger and keep both transactions moving together.

Speak With your Lender Before Shopping

Before you start house hunting, get a complete mortgage preapproval - not a quick online estimate or prequalification. Ask the lender:

Do I need to sell because I need the equity for my down payment?
Does my current mortgage need to be paid off for me to qualify?
How much cash will I need for the down payment and closing costs?
Are bridge financing or other temporary financing options available?
How long is my loan approval valid?

Knowing exactly why the sale is required will determine which strategy is realistic.

Prepare Your Current Home First

The strongest way to avoid losing the next home is to make your current property ready to sell before you find the one you love. Ideally, estimate your home's market value and net proceeds and complete any necessary repairs. Have the home clean, clutter free and ready to be placed on the market. A buyer whose home is already listed on the market is usually in a stronger position than one who has not started. A buyer whose home already has an acccepted offer is stronger yet.

Understand the Home-Sale Contingency

If your lender requires you to sell your home before purchasing another one, then as the buyer you will need to include a Home-Sale Contingency in your offer to purchase. This contingency makes the offer to purchase dependent upon the successful closing of the buyer's current property by a stated deadline.

If the buyer's sale does not close by the deadline, the purchase may become null and void unless the buyer can provide the required proof of funds or bridge financing and properly waive the contingency. The exact result depends on the accepted wording in the offer to purchase. It protects the buyer from being forced to purchase the property without the funds - but also makes the offer less certain for the seller.

What is a Bump Clause?

A Home-Sale Contingency may include a bump clause. This allows the seller to continue marketing the property and potentially accepting a secondary offer. If this happens, the first buyer receives written notice and is given a limited amount of time to meet the requirements stated in the contract. If they cannot meet the requirements, then they are "bumped out" and the secondary offer becomes primary.

What If You Receive a Bump Notice?

Contact your lender immediately. You generally need to determine whether you can satisfy the contract requirements and safely remove the contingency if you don't already have an accepted offer on your home. Your lender will walk you through your options.

How to Make a Contingent Offer More Attractive

You may not be able to remove the contingency, but you can reduce the seller's uncertainty by considering:

Listing your current home before submitting the offer.
Pricing your home realistically instead of "testing the market".
Showing that your current property is already under contract.
Providing a strong lender preapproval.
Allowing the seller to review information about your home's sale.
Offering a flexible closing date.
Providing reasonable earnest money.
Keeping unnecessary requests out of the offer.
Responding quickly to documents and deadlines.

As always, do not waive inspections, appraisals or financing contingencies unless you fully understand and can afford the consequences.

Four Different Options to Coordinate the Move

Sell First and Purchase Later - usually the lowest risk option. Once the sale closes on your current home, you know exactly how much money is available and can write an offer without a home-sale contingency. The disadvantage is that you will have to find temporary housing and storage.
Sell First with Delayed Occupancy - you may negotiate permission to remain in your former home for a short period after closing while purchasing the next property. This can reduce moving pressure, but the arrangement has to take into consideration dates, insurance, security deposits, utilities and responsibility for damage. It is not a guarantee that the buyer will agree.
Use a Contingent Offer and Coordinated Closings - your current home closes first, followed by the purchase of the next home - ideally on the same day. This can work well, but the schedule is fragile. Any delay on your sale can affect the purchase. Build in as much time as the parties will allow and keep all parties involved updated.
Purchase Before Selling - some homeowners qualify to purchase using a bridge loan which is temporary financing that would be repaid from the eventual sale of the existing property. This can make the purchase offer feel stronger and move easier, but it may involve additional fees and the possibility of temporarily carrying two homes. Additional information on the specifics of bridge loans should be directed to your trusted lender.

The Best Strategy

For homeowners who truly cannot purchase until their current home sells, the above recommendations do not guarantee that every seller will accept your offer, but it shows that your sale is already moving forward and reduces the number of unknowns.

If you need to sell before buying, I can help you calculate your likely proceeds, help decide how best to prepare your current property, coordinate both transactions and develop a backup plan before you find the home you want. The goal is to help you move forward without taking risks you cannot comfortably manage.