How to Buy a New Home Before Selling the Old One


One of the main concerns home owners have when upsizing (moving into a larger or more expensive home) or downsizing (moving into a smaller or less expensive home) is timing. How can you be sure you’ll sell the first home in time to have the money in hand to purchase the next one? Alternately, what happens if you move forward and buy the second home before selling the first? In terms of mortgage lending, how can you be certain you’ll qualify and won’t overextend yourself financially? And if you do sell one and buy the other but the closing dates don’t coincide, where will you live in the meantime?

Luckily, there are several ways to solve these issues.

Option #1

Many buyers’ mortgage services won’t approve them to own two homes at once. Be sure to use Ark’s mortgage calculators to estimate how much of a loan you can qualify for, based on your monthly income and debt. If you must use the proceeds of your current home to pay for your next one, make sure that when your Realtor lists your home on the Multiple Listing Service, they include an explanation that the sale is contingent on your finding your next property. This tells potential buyers that you are currently house hunting and may not be able to close right away.

Some buyers might not be in a rush to close and will love the house enough to be willing to work within your time frame. They may be willing to go into contract with a closing date to be determined. This might work especially well if you decide to sell your home in the winter because many relocating families may not want to pull their children out of school mid-term. The benefit for you in securing a buyer early is that when making an offer on your next home, the seller will be more likely to entertain your offer. They won’t be worried that you might not be able to close on your home and afford to buy theirs.

One consideration, however: some potential buyers might have a mortgage rate they want to lock in and may have to close by a certain date. You may have to be a little more flexible in your sales price to compensate them if their rate increases while they are waiting for you to find your next home. If they are working with Ark Mortgage for their mortgage services and have secured an Ark Certified Pre-Approval with Rate Protection, this might be less of an issue because their rate may be locked in for 90 days. Have them contact Ark for more information.

Option #2

Have your attorney insert a “sale contingency” in the contract for your next home. This means you only agree to buy the home if you can sell the one you currently own. Be forewarned: sellers won’t always accept this contingency because they run the run the risk of your current property not selling. Meanwhile, they could have lost other potential buyers because their home was “off the market” waiting for yours to close.

Option #3

Finally, your attorney can also arrange for a “use in occupancy” agreement as part of the contract for the sale of your current home. This would alert potential purchasers that you reserve the right to remain in the home and pay them per diem rent to cover their cost of ownership (which might be higher than what you used to pay for mortgage/tax/fees) until you find your next perfect property. Normally, you would be required to escrow a security payment as well, just as in a rental agreement.