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Kris and I had been in our first house for ten years when our dream home fell in our lap one day. Until then, we had no plans to move. We were completely unprepared to sell our existing home while buying a new one. Eventually we made it happen, but we violated a number home-buying best practices as we scrambled to make our dream a reality.
We were particularly worried about how to time things financially. We couldn’t afford to carry two mortgages — 
how would we possibly make ends meet? Ultimately, we were saved by the rise of the housing bubble and a friendly banker. Our home sold in one day, and we were able to close on it soon after closing on the new house. Meanwhile, a home equity loan floated us the cash we needed to get by.
I don’t recommend following our example. I think it’s better to be prepared, to make your move in a sensible fashion. Smart Money has an article on how you should actually sell your new home while buying a new one. Though this piece was originally published in 2005, it has been recently updated to reflect current market realities. Author Stacey L. Bradford provides advice for two possibilities.
If you sell your home first, she says, you’ll have the cash needed to make the transition, but you’ll be homeless until you’re able to close on the new property.
- In some cases, you may be able to stay in your existing home by renting it back from the new owners.
- If this isn’t an option, you’ll need to find temporary quarters: rent an apartment, stay in a hotel, move in with friends or family.
Neither option is ideal, especially since you’ll likely have to move your stuff twice. But financially, this is by far the smartest choice.
If you buy your new home first, you can end up in a cash crunch, especially in this current market. If you don’t have enough in savings, you’ll need to borrow money until you can sell your existing home. You can tap into your home equity, take out a “bridge loan”, or (as a last resort) borrow from your retirement savings.
When Kris and I bought the house we live in now, a sympathetic banker gave us a home equity loan to provide a temporary cash infusion despite the fact we intended to close the loan in only a month or two. (She wasn’t supposed to allow such a loan if she knew it wouldn’t be long-term because the bank would lose money. We’re grateful she did anyhow.)
Your best option, of course, is to plan your move, and to save up enough cash to be able to buy your new home first. This isn’t always possible. And in the current real estate market, it’s difficult to know just how much you’ll need to save. My youngest brother bought a new home before selling his old house, and has been carrying both mortgage payments for two years. The last I heard, it’s possible that he’ll lose both houses.
[Smart Money: Selling your home while buying a new one]
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July 15th, 2008 at 5:12 am
Bridge loans are getting harder and harder to get, especially in down market areas like Florida. The banks know how long its going to take you to sell house #1 (a long time) and many bridge loan lenders will require that you qualify to own two homes (house #1 and the new house).
If you don’t already have a HELOC many banks will not give you one if your house is on the market.
July 15th, 2008 at 5:12 am
We have recently moved to another state and the time factor was difficult. We spent about three months with my parents. To avoid moving twice, we had two “PODS” dropped at the house, loaded it up, and had them shipped. We took just the basics to my parents. By the time we factored in gas, moving twice, storage etc, it wasn’t too far off financially. And it was less stressful. Worked out great for us.
Buying a home before selling a current home in this market is not something I would want to be doing.
July 15th, 2008 at 5:39 am
We bought our duplex in January, moved in March, and are still getting the house ready for sale. (OMG!) With 2 small kids, it would have been nearly impossible to make all the cosmetic changes “in place” (sorting/purging, removing wallpaper, plastering, pulling up old carpets, painting, etc.), and DH had a few family and physical issues that slowed things down. Fortunately, the mortgages combined are within our monthly cashflow.
We’re torn between “dumping the house” for -$20k or so ASAP, renting it out for just above what we’d need for expenses maintenance and waiting, or moving back in and renting out the duplex. We’ll see — at least we have choices. Even if we move back to the house, we’ll have less junk, which was a major reason I wanted to move to a smaller place in the first place.
July 15th, 2008 at 5:49 am
If you can’t pay for both mortgages, I would definitely sell the old house first. Especially in this housing market!!! You can always find a place to crash while hunting for a new house (I realize its more difficult if you have kids, etc.)
The other alternative would be to just plan on renting the old place until the market improves. Obviously you have to account for an initial vacancy and the risks of owning rental property.
I started renting my old home in Nov 2006, when I bought a new home — which was just about when the housing market was starting to decline. I still rent it out now to the same tenant, with no problems. Its cashflow-negative, but it would be 5x as cashflow-negative if I didn’t have a tenant in there. But I made sure that even if I just couldn’t get a tenant in there, I could pay both mortgages every month — I just wouldn’t be socking away much money. (I’m somewhat lucky that my old home was a 1br condo.)
July 15th, 2008 at 6:24 am
I just moved in May. Our agent for the old place was very realistic. She told us that we needed to take a $20,000 loss if we wanted to sell in two months. Since it was all funny money anyway we agreed and it took 2.5 months. Then the search was on for a new house, as I wasn’t going to buy a new house without having this one sold! We went to our new location two weeks later and found a house that would have only had us living in a hotel for a week. It turned into two weeks as someone along the chain couldn’t move their closing date. The seller’s agent agreed to pay for our housing for the extra days. We were lucky in that the moving company could just store the truck with our stuff for that two weeks for only $200/week (don’t try this during the summer and try not to have as much junk as we do!) At that point, we rented an apartment from someone who does short term leases for executives. It cost a great deal, but was cheaper than a hotel and was furnished. I think that a sense of realism is essential in this market, someone down the street from my old house had renovated and was still trying to get top dollar for it. The rest of us had defined top dollar down below what she was willing to accept and she wasn’t facing that fact.
July 15th, 2008 at 7:06 am
The buying or selling of a home is more of an emotional endeavor than a logical one.
My wife and I lived in two homes in the past 10 years and have loved both of them. With that said, however, we recognized after both purchases and the emotional dust settled, that we could have found something we loved even more for possibly a lower price if we had managed our emotions (aka “house fever”) a bit better.
As for the balance of buying a new home while selling an old one, this scenario is another potential emotional trap. Financially and logically, it makes sense to sell your existing home first and do the “double move,” if necessary.
As a buyer with cash and no urgent closing deadline, you will have much more negotiating leverage and more space and time for logic to take precedence over emotion…
“It is easier to exclude harmful passions than to rule them, and to deny them admittance than to control them after they have been admitted.” ~ Seneca
Kent
July 15th, 2008 at 7:16 am
I agree always SELL FIRST. The trick on this is to move the possession date at least 3 months in the future. That should give you enough time to find something to move into. Worst case you move stuff into storage and rent for a while.
That way you also know exactly how much money you have to go shopping on the next place.
Tim
July 15th, 2008 at 7:20 am
I agree with Kent. “House Fever” can really bite.
I purchased my current home before my previous home sold, and at the bank’s suggestion, ended up using the old house as a rental for a year and a half. What a nightmare. The first tenant I had (a family) destroyed it. My second tenant (a single mom with one adorable son) loved the house and finally made me a purchase offer I couldn’t refuse…$30k above my previous listing price and no listing agent! It worked out well in the end, but the stress of having my beautiful home and yard destroyed by the first tenants, combined with the expense of having to restore it to it’s previous state, wasn’t worth it. Next time I will sell my house first and trust that the perfect new location will present itself.
July 15th, 2008 at 8:06 am
Man, almost losing both houses is rough. If I were in that pinch, I think I would cut my losses by officially giving up on paying for one house in hopes of keeping the other one.
July 15th, 2008 at 8:52 am
I totally agree with Brandon on trying to keep at least one house.
We found a great house that is perfect for my daughter and I at the end of October, 2006. I settled at the end of December (hint: if you celebrate Christmas, do NOT move right after Christmas! I’m just saying…). We were very lucky that housing was still relatively hot at that time because I put our new house on the market on 1/10/07 and accepted a contract for it on 1/14/07. Our agent was fantastic with lots of good advice and a reasonable approach to pricing - not too hight but also not too low. I also used a “handyman” company that fixed up all the little things that we had lived with for years but which needed corrected to sell, hired professional painters to just paint the entire interior off-white, and had new carpet professionally installed. It was all worth it because they saved me a lot of time and stress and I was able to sell quickly. If we had not sold it, we would have rented it out.
July 15th, 2008 at 9:01 am
Not having the other house sold is a much harsher option than moving twice.
I have seen people ruin there finances by buying a house and not having a firm deal on their old one.
July 15th, 2008 at 10:11 am
How timely! This is something we just started discussing this weekend for a few years down the road. We are planning to move back closer to our parents — a move about 5 hours from here. So we’re not staying in the same market.
Think of all of the things that have to add up: two new jobs (or a transfer), sell old home, buy new home.
Terrifying.
July 15th, 2008 at 10:59 am
In general I agree with the advice of selling the old house first, then buying the new house, or if need be, renting an apartment till you figure out where to move. However the opposite problem happened to my brother and sister in law. They put up their house for sale at the same time they started actively looking for a new home. However their old house was attractive (reasonably priced 2 bedroom bungalow) while my brother in law was very particular (picky) about their new home, would only look in a couple neighborhoods, etc. Their old house sold quickly, and my sister in law was getting frantic they would be homeless. My brother in law finally saw a house he approved of, but they ended up bidding 5 or 6k above the asking price, because they wanted to be assured they got it, because they felt they didn’t have time to start the process over again if this one didn’t work out. So you can lose money by selling your old house first, by feeling pressured by time demands to get a house rather than moving twice.
July 15th, 2008 at 11:08 am
And I had an employee here at new job who’s old house sold in two days. It took her another 6 months to find a new house (luckily the buyers were far more patient than I would have been, and she didn’t have to move).
July 15th, 2008 at 11:08 am
We just successfully bought a new house before selling our condo. In our experience, if you have savings and a good credit rating, it can be done. We found our house and bought it for about $50K below market because it was pure 1978 inside. We sold our condo for a small profit about a month after closing on our new house. We also got a great interest rate (30/fixed) with zero down on the house while being able to buy without the deal being contingent on the sale of our condo.
Here’s how we did it:
We had 12 months worth of condo mortgage payments in savings.
We had fully renovated our condo so it showed REALLY well. (We’d owned it for 4 years w/a 30/fixed plus a home equity renovation loan.)
We priced very aggressively and sold at 96% of our asking price in just over a month. We were prepared to sell for a loss of up to $20K.
We left nearly all our stuff in our condo to show it furnished and basically had 2 plastic chairs and a mattress on the floor at the new house. The buyers bought about $1000 worth of our stuff!
We negotiated aggressively on the purchase of the house - starting almost $100K below asking.
We negotiated aggressively on the sale of our condo. The first offer was from a bargain shopper that didn’t want to even put it on paper. We told him to take a hike after our reasonable counteroffer got a weak response. Within a week of that conversation, we had a second offer that was written, with a deposit, and realistic (same day as their first viewing). It was SCARY to say no to the first offer, but we knew our condo was priced correctly to sell higher.
We had a great realtor too. He brought both of our prospective buyers in — they weren’t just drive bys or random open house people. He got really aggressive when we told him after one month we were going to take it off the market and rent for a loss to wait things out. (which would have meant he’d have lost out on potentially thousands) All of a sudden, we had 2 offers.
It can be done, but you have to have a high tolerance for risk and stress, and you really have to know the local market.
July 15th, 2008 at 12:10 pm
I second the PODs idea from #2.
We are in the midst of building a new house, and we just closed on our old house. The last thing I wanted to do what move twice. (Old house to storage, storage to new house). While the PODS company is a but pricey, we found a local company that was a good deal cheaper. It is a local move, so a local compnay worked for us. The per month storage rates are not much different than normal storage. The pickup/delivery charges are the difference. We felt it was worth it, especially since I did not have to rent a truck to get our stuff to/from the storage unit.
July 15th, 2008 at 12:29 pm
My neighbor is in a bit of this situation currently. His house has been for sale for about 4 months now, and I believe he has already moved to another city for financial/job reasons.
I know initially he tried to sell the house “by owner” but things must have gotten tighter since he recently signed on with a realtor.
I was almost planning a move myself, but after seeing these houses just sit around, I’ve decided to focus on how to improve other things locally.
July 15th, 2008 at 1:12 pm
When I become a homeowner, I will probably err on the side of caution and make sure that my old house is sold before I buy the second house.
Our neighbors moved to Florida almost two years ago and their house has still not sold. However, they have been leasing it out fairly continuously for the last several months.
It’s scary and sad to think about how much stress they’re feeling paying two mortgages.
July 15th, 2008 at 1:56 pm
Wow, he’s been paying 2 mortgages for the past 2 years? I hope he’s at least been able to rent out the old place at the same time to cover some of the cost.
I would get really aggressive and creative if I was in that kind of situation. I’d do pretty well anything, including taking a big loss on house number one just so I wouldn’t lose both houses!
July 15th, 2008 at 2:24 pm
I am currently a first time home owner, so I haven’t dealt with this yet, but have given it some thought. I start with the assumption that when I move it will be to a different city for a job, as I probably won’t know the city very well I think renting for a while until you learn what neighborhoods you like or what is close to work in your price range etc. makes sense. Minimizing material items also makes moving twice not as big a deal. I wouldn’t mind moving twice in 6 months or a year as that is a typical rental lease agreement time. I guess, in a way that is how our current house was purchased. We rented for a year after moving to a new town and then bought when a house we liked became available, not because we “had” to buy a house.
July 15th, 2008 at 2:29 pm
Selling a home and then purchasing another, can be very hard in this market. My wife and I were able to utilize our heloc back in 2004 to purchase our new home. We sold our existing home in less than 30 days. Now the heloc are drying up and banks are less likely to let you tap into it. Here in California, 30 days could be a loss of thousands of dollars if prices continue to fall. Waiting to sell a house could be very pricey. First time home buyers may be in the best position of all, if they can come up with 20% down. Lot’s of inventory to choose that first dream house.
July 15th, 2008 at 4:03 pm
Although I normally curse the English house buying system, it can actually work out pretty well in this respect. A really fast house transaction with a mortgage will take 6 weeks to complete, I think mine took 4.5 months. Given the longer timeframes it’s easier to line everything up.
Of course, this is more of a silver lining than actually a great thing, but I’m trying to look on the bright side.
July 15th, 2008 at 4:15 pm
I can certainly understand the difficult decisions and stress that accompany a move and real estate investments. I’m in the military and have moved several times during my career.
The one regret I have during my experiences is that I did not keep my first home when I moved away from Jacksonville, Fl almost ten years ago. I sold that property at a slight loss (couple grand). Today it’s worth more than double what I paid for it. I let fear of the unknown drive me into a $2K loss and away from a $100K profit.
Well, I have another move coming up in the Spring of 09. This time from Virginia Beach to Boston. The stress and decision-making will still be there, but this go round I’m going to do everything in my power to keep my current home AND buy a new one in New England.
I’ve been fortunate to have made $250K in appreciation and possess a mortgage payment that is $500-$700 less than neighborhood rents. I’m not going to pass up on positive cash flow, a second property at owner occupied financing rates and the opportunity to NOT sell during market lows.
Just my two cents.
-Jeff
I’m Minding My Own Business, are you minding yours?
July 15th, 2008 at 7:43 pm
We have an unusual situation where we live in Canada. We have and older home on a 50 foot lot and new homes can be built in our area on 25 foot lots. Meaning we can subdivide and build two houses. However, where do you live in the mean time?
What we ended up doing was to approach the builder building a new “semi-detached” across the street and working trade. We swapped our home for lot value plus a little extra cash. The builder takes our house when the new one is done. This has several advantages, not the least of which is that both of us save the real estate fees (60k plus). We essentially sold at wholesale and the bought at wholesale. We also got in early and made some changes that saved some money. (I don’t need 4000.00 in lighting.)
Not relevant to every area but if you are in an area that is being redeveloped it is worth a try. It does require getting builders to think outside the box.
July 15th, 2008 at 8:26 pm
Yah, house fever is a problem.
You should do a post about your brother’s house situation - that would be pretty interesting.
Mike
July 15th, 2008 at 9:04 pm
It’s not good advice to ‘always’ sell your home before buying another. As many commenters have said, it can take months to find and close on another property. And in a rising market, you can easily find yourself left behind in just a couple of months and not even able to afford your old house.
In the current market, you might be okay. Just be careful of any advice that starts with ‘always’ or ‘never’.
July 15th, 2008 at 10:20 pm
I was lucky when I bought my current house before selling the last one–someone came along a few weeks after we listed, and it sold.
But at about the same time, a friend & her husband arranged to have a house built. They decided not to sell their existing home at that time, because they didn’t want to have to move twice.
This was just as the bubble was picking up speed.
What with Contractor Standard Time, the bubble was starting to deflate when the new house was finally built. They put their house on the market and didn’t get so much as a nibble. That was three years ago. They’re still paying two mortgages, heaven only knows how. They’ve managed to rent the old place for short periods. In the interim, the grocery store onto which the old house backed has closed, leaving a ghost shopping center…hard to know which is a worse neighbor: a 24-hour supermarket or an empty strip mall. The value of their house is now somewhere in the sub-basement–they effectively have no chance of selling.
Watching that debacle has led me to think I’ll never buy another house without selling the old house first.
July 16th, 2008 at 10:16 am
Thanks for this article, and the link. We are going to be putting our house on the market and looking for a new one around Christmas time this year. I’ve been worried for a while about how the logistics and timing are going to work out!
July 16th, 2008 at 10:38 am
In this market, we don’t even bother checking out houses that are listed By Owner. Very often they are riding the market down because they are unrealistic about the real value of their house. Second, they don’t know how to conduct a decent open house. Third, their availability to show their house is usually limited.
When we put our condo on the market, we left it furnished, staged, absolutely clear of personal items and spotless every single day. We never said no to a viewing. Even the little things like that make a HUGE difference if you’re trying to sell.
Several of the homes we looked at buying have been taken off the market now after months with no offers - and if they’d just price more aggressively, they could have sold.