Choosing to buy a house contingent on selling your current home carries some unique risks, and it’s not your only option for buying a house before selling your own.
Why Even Consider Buying A House Before Selling Your Own?
There are some circumstances and market conditions that make choosing to buy another house before selling yours a relatively safe option. Specifically, buying a house before selling your own makes sense if:
- You’re living in a seller’s market where listings move quickly on- and off-market;
- The asking price of the home you want is so competitive that you can’t risk waiting to make an offer;
- Similarly, the home you want is one-of-a-kind and your dream house; or
- You want to avoid having to move your belongings twice (arranging to move from your current home directly into your new home ensures just one moving day).
What It Means To Buy A House Contingent On Selling Yours
To buy a house contingent on selling yours, you’ll need to negotiate terms with the person selling the home you want to buy. Specifically, you’ll need to arrange an agreement to prevent that transaction from closing before the sale of your current home is complete. This agreement will likely always involve kick-out clauses and time limits. That way, if something goes wrong while you’re trying to sell your current home, you won’t end up paying two mortgages at once as a result of fully buying a house before selling yours, but your buyer won’t end up in a situation where they own the home, but you’re still in it!
Contingency clauses can make it possible to buy another house before selling yours, yet they are not the only tactic to do so. For the two-thirds of homebuyers who already own a home, the options for buying a house before selling your own also include specialized loans that ensure your income can support both depts at once for a short period of time, as well as arranging for interim housing between sales. These tactics can be useful when buyers are uninterested in accepting contingent contracts (which is not an uncommon situation).
The Biggest Risks Of Buying Before Selling Yours
The greatest risks to you (and your finances) when you choose to buy a house while selling yours come from the unexpected actions of the other parties you’re contracting with. No matter how carefully planned and scheduled both transactions are, there is always a (fairly significant) chance that something will cause a delay or outright cancellation of the contract.
That’s why an essential part of how to buy another house before selling yours is setting up backup plans in case things don’t go according to the original plan. The most useful backup plans when you buy a house while selling yours include:
- Pre-arranging a seller rent-back agreement in case the contract on your new home is delayed or cancelled; and
- Planning how to cover both mortgages (whether by turning one home into an income property or taking out a bridge-loan) in the event that the sale of your current home is significantly delayed or falls through.