How to Buy a House Before Selling Yours

Want to buy a house before selling your current house? Buying a house before selling is rarely simple, but a West Chester, PA real estate agent can help you out. If you want a new home but still have yours to sell, an experienced real estate agent like Mike Ciunci can review your personal options.

For those in the beginning stages of planning, let’s look at three general options to buy before you sell.  

1. Find Out If You Qualify for a Second Mortgage

You can take out a second mortgage based on the equity that you’ve built up in your current home. When you get a second mortgage, your initial one stays in place until you sell your house. After your first home sells, you can pay off this mortgage. And if you bought a new home for less than what your first one sold for, you can use the money from your sale towards your second mortgage.

Before you get a second mortgage, there are a few things you should keep in mind. First and foremost, there are two types of second mortgages.

Home Equity Line of Credit (HELOC)

A HELOC works like a credit card. A lender gives you a line of credit based on your home equity, which you can use to buy a second house.  

Home Equity Loan

A home equity loan is similar to a traditional mortgage. With this loan, a lender gives you a percentage of the home’s equity in a lump sum, so you can purchase a second house. You then repay your loan based on your lender’s terms, which typically consist of biweekly or monthly payments made over the course of five to 30 years. Along with this, lender requirements for second mortgages vary, so it pays to shop around.

To qualify for a second mortgage, you may need to meet the following requirements:

• At least 20% equity available in your current home
• A credit score of 600 or better
• A debt-to-income ratio of 43% or less

You’ll need to provide your current mortgage information, W2s, and other financial documents when you complete your application for a second mortgage. Once you submit all of your application materials, it takes an average of 45 to 60 days to get approved.  

Lastly, make your second mortgage payments on time — if you don’t, you risk a foreclosure.

2. Request a Bridge Loan

You can use a bridge loan to pay off the mortgage on your current house or make a down payment on a new home. This helps with buying a house before selling, since you’ll be able to use your loan to get into your new residence faster than you could if you tried on your own. Bridge loans are short-term financing options. Generally, you’ll have to pay back a bridge loan within six to 12 months.

Lenders will determine your eligibility for a bridge loan based on your credit score, the real estate market’s conditions, and other factors. Bridge loan interest rates and fees depend on the lender. In many instances, these rates and fees are higher than those associated with other types of loans.

When you get a bridge loan, you’ll use your home as collateral. If for any reason you can’t make your loan payments, your lender can foreclose on your house.

3. Add a Contingency to Your Purchase Agreement

You may be able to negotiate a home sale contingency clause into your purchase agreement. With this clause in place, a seller agrees to let you buy their home, with the stipulation that you will purchase their residence contingent on the sale of your house. At the same time, the clause gives the seller the flexibility to accept other offers.

If another buyer reaches an agreement with a seller on the home you want to buy on contingency, the seller will notify you. At this point, you’ll have a certain amount of time (likely 24 to 48 hours) to remove the contingency. If you can’t, the seller has the option to terminate their agreement with you and accept the other offer.

A home sale contingency is a great option if you don’t qualify for a second mortgage or don’t want to get one. Also, a contingency helps you seamlessly transition from one home to the next, since you already have a new house to move into after your current one sells. On the other hand, you’ll still have to pay for home inspection, bank, and appraisal fees for the home you want to buy — and these expenses won’t be refunded if your deal falls apart.

Frequently Asked Questions

How does one determine the equity available in their current home to qualify for a second mortgage?

To determine the equity available in your current home, you’ll first need to know your home’s current market value. This can be done through an appraisal by a professional or by comparing your home to similar properties recently sold in your area (comparative market analysis). Once you have an estimated market value, subtract the amount you still owe on your mortgage from this value. The difference represents the equity you have in your home. For a second mortgage, lenders typically require you to have at least 20% equity in your home. It’s also important to note that the more equity you have, the better the terms you might qualify for on a second mortgage.

What are the specific risks and benefits of choosing a bridge loan over a home equity loan or line of credit?

Bridge loans offer the significant benefit of allowing you to purchase a new home before selling your current one by providing short-term financing. This can be especially useful in competitive real estate markets where you need to act quickly. However, bridge loans come with higher interest rates and fees compared to traditional mortgages or home equity loans, reflecting their short-term, higher-risk nature. Additionally, because your current home is used as collateral, if you’re unable to sell your home or fulfill the loan terms, you risk foreclosure. Carefully consider your ability to sell your current home within the bridge loan’s term and assess your financial resilience before choosing this option.

How can a buyer make their offer more attractive when using a home sale contingency, considering the potential for competing offers without such contingencies?

If your offer includes a home sale contingency, there are several strategies you can employ to make it more attractive. One approach is to ensure your current home is already on the market, ideally with significant interest or even offers, to demonstrate to the seller that the sale process is well underway. You might also consider offering a higher purchase price to compensate for the contingency, or agreeing to non-refundable earnest money to show your commitment. Additionally, being flexible with the closing date can be appealing to sellers. These actions can help mitigate the perceived risk to the seller and make your contingent offer more competitive.

The Bottom Line on How to Buy a House Before You Sell Yours

If you want a new home but still have yours to sell, you have options. West Chester real estate agent Mike Ciunci understands the challenges that come with buying before you sell. He will explain your options for buying a home before you sell one — and much more.

Contact Mike Ciunci for help buying or selling a home in the West Chester area.