If you already own a home and want to purchase your next one before your current property sells, a home sale contingency can make your offer less competitive. Sellers often prefer offers that are not dependent on another property closing first.
The good news is that there may be several ways to use the equity in your current home or structure your financing so you can move forward with the new purchase before the old home is sold.
Why a Home Sale Contingency Can Weaken an Offer
A home sale contingency generally means your purchase is dependent on successfully selling your current home. From a seller’s perspective, that introduces another layer of uncertainty because the transaction now depends on two separate closings.
In a competitive market, an offer without a home sale contingency may be more attractive because the seller is not waiting for another property to sell before your purchase can move forward.
Option 1: Bridge Financing
Bridge financing can potentially help homeowners access equity from their current property before it sells. Those funds may then be used toward the purchase of the next home, helping the buyer move forward without waiting for the current property to close first.
We have access to an in-house bridge financing option that may be useful for qualified borrowers in this situation. The exact structure depends on the borrower’s equity, income, debts, new purchase and other qualifying factors.
Bridge financing is not automatically the best choice for every homeowner, but it can be a valuable tool when the timing of the sale and purchase do not line up.
Option 2: Use a Home Equity Line of Credit
Another possible strategy is to access equity in the current home through a home equity line of credit, or HELOC, before the property is sold.
The available funds may be used toward the down payment or other costs associated with the new purchase. Once the existing home sells, the HELOC can potentially be paid down or paid off with the sale proceeds.
This approach requires careful planning because the borrower must still qualify while accounting for the payments and obligations associated with both properties.
Option 3: Make a Smaller Down Payment Initially
In some situations, a buyer may be able to make a smaller down payment on the new home rather than waiting for the proceeds from the current home sale.
After the existing home sells, the proceeds may then be applied toward the new mortgage. Depending on the loan program and servicer, a mortgage recast may also be available, which can potentially reduce the monthly principal and interest payment after a substantial principal reduction.
Whether this approach makes sense depends on the mortgage program, available assets, debt-to-income ratio, mortgage insurance considerations and the borrower’s overall financial goals.
What Happens After Your Current Home Sells?
Once the existing property sells, the proceeds can be used in several ways depending on how the new purchase was structured. They may be used to pay off bridge financing, pay down or eliminate a HELOC, reduce the balance of the new mortgage, or replenish funds used for the purchase.
The key is to plan the financing before making the new offer so you understand both the temporary carrying costs and the long-term mortgage structure.
Is Buying Before Selling Right for You?
Buying a new home before selling your current one can make your offer stronger and may give you more flexibility with moving, timing and negotiations. However, it also requires careful review of your equity, income, monthly obligations and available cash.
There is no single strategy that works for every homeowner. Bridge financing, a HELOC, a smaller initial down payment or another financing structure may each make sense depending on the circumstances.
If you are considering buying a new home before selling your current home, I can review the numbers with you and help determine which financing strategy may give you the strongest position while keeping the overall structure comfortable.
Questions?
Call or text me at 240-670-5090 or email me at CJMT@mainstreethl.com.
Ready to explore your options? Start your prequalification online.
