Selling your home and buying another: A complete guide

Selling your current home and buying another at the same time can be somewhat daunting with so many moving parts. But both transactions are manageable with the right time sequencing, financing and preparation.

You've got home equity, and you've probably got a new destination in mind, such as a bigger house, a better school district or more space. And you may have a low mortgage rate you don't want to give up. The dilemma move-up buyers are facing isn't whether to move, but rather how to do it without taking a financial hit.

Explore the selling and buying process from start to finish, and learn how to approach both transactions strategically.

Start with your financial picture, not the listings

Before you fall in love with listings online, get a clear picture of your finances. This includes your current home equity, your debt-to-income (DTI) ratio if you were to carry two mortgages simultaneously, your credit profile and the liquid assets you have available for a down payment that don't depend on your sale proceeds.

Think of the simultaneous sale-and-purchase as a balance-sheet repositioning event instead of a real estate transaction. Ask yourself what you want your financial picture to look like in 10 years; that should drive the order in which you buy and sell.

What preapproval tells you

A mortgage preapproval determines how much house you can afford. It ends with a conditional loan commitment rather than an estimate.

Get preapproved for a new mortgage before listing your current home for sale. This spells out how much house you can afford independent of your sale proceeds.

In a dual real estate transaction, a mortgage preapproval without a sale contingency makes your offers more attractive to sellers. It also proves you have the financial means to carry two mortgages simultaneously.

Know your equity number before you list

Before you put a For Sale sign in the yard, it's key to calculate your home equity. This is your home's current market value minus whatever you owe and estimated selling costs, which are typically 8% to 10% of the sale price.

Your home equity helps you gauge how much of your sale proceeds are needed for the down payment for your next home, and how much financial risk a delayed sale creates.

Should you sell first or buy first?

When deciding to sell or buy first, you need to consider many moving parts with no clear-cut answer. Fortunately, a framework can help you decide.

Selling first: Lower financial risk, higher logistical friction

If you sell first, the key benefit is not carrying two mortgages at the same time, reducing financial risk. You also know exactly how much net profit is available to put toward your down payment and how much your total buying power is before making offers.
The downside of selling before buying your next home is you'll need temporary housing while waiting for your new home to close.

• Best for: Buyers with limited liquid reserves and high DTI ratios. Selling first also makes sense if you're moving to another market where your buying timeline isn't set in stone.

Buying first: Lower logistical friction, higher financial risk

Buying first lets you find the right home without a time crunch or having a gap in housing. But it requires having enough liquid cash for a down payment and closing costs, as well as moving expenses.
The risk? If your current home takes longer than the median 28 days to sell, you'll carry two mortgages. A three-month overlap can result in double the carrying costs for many buyers, not counting moving expenses.

• Best for: Buyers with strong cash reserves, low existing DTI ratios and confidence that their current home will sell quickly.

Financing tools for the gap period

To bridge the gap between cash on hand and what you need, you have another option to consider: your home's equity. But accessing it before it sells poses a real challenge. Here are three financial products to consider, along with risks and costs for each.

Bridge loan

A bridge loan is a short-term loan secured by your current home that gives you cash for a down payment on your new purchase before your current sale closes. These loans must typically be repaid within 12 months or less and carry higher interest rates than a conventional mortgage. Not all lenders offer them, and terms vary from one lender to the next. They work best when your current home is already under contract, limiting your risk.

Home equity line of credit (HELOC)

A HELOC lets you draw on a portion of your equity as a reusable line of credit. HELOC rates are generally lower than bridge loans, and the draw period is more flexible. However, most lenders won't approve a HELOC on a home that's already for sale, so it needs to be set up before you list. You typically repay a HELOC from your sale proceeds once your current home sale closes.

Contingency offer

Adding a contingency offer into your purchase agreement makes it conditional on your current home selling first. It protects you from the financial risk of owning two homes at once, allowing you to back out of your home purchase without penalty if your home sale doesn't go through. However, it can weaken your offer in competitive markets.
A settlement contingency, where your current home is already under contract and just needs to close, is a significantly stronger position than a sale contingency in which your home isn't on the market yet.

How to execute a sale and purchase at the same time

If selling and buying a home at the same time are inevitable, this step-by-step process can help you manage both transactions seamlessly.

1. Audit your balance sheet. Calculate your equity, liquid reserves and DTI. Determine whether you can carry two mortgages temporarily if needed.
2. Get preapproved. Obtain a full preapproval before listing. Know your purchase ceiling with and without contingency on your current home's sale.
3. Establish gap financing before listing. If using a HELOC, open it before the home goes on the market. If using a bridge loan, identify a willing lender early.
4. Select your real estate agent. For local moves, one agent handling both sides can simplify timeline coordination. For cross-market moves, local expertise in the purchase market is often more valuable than consolidated representation.
5. Price your current home competitively. An overpriced home sits on the market longer, creating the overlap risk that undermines the entire plan.
6. Begin the home search in parallel. Start looking at properties once your home is listed or even just before listing if market conditions favor a fast sale.
7. Negotiate closing dates. The ideal scenario is a same-day double closing. More practically, negotiate for the sale closing to precede the purchase closing by a few days to ensure proceeds are available. Rent-back agreements on the current home can buy additional time.
8. Close and reposition. After both transactions close, revisit your balance sheet. Does your mortgage fit your financial plan for the next 10 years?

Use your upgrade advantages strategically

Move-up buyers have stronger negotiating power. They bring equity, a credit history and mortgage experience to the table. The simultaneous transaction might be tough logistically, but financially, it's one of the most powerful moves a homeowner can make in putting their equity to work for them in their next home.

Ready to buy your next home? Explore mortgage options with Citizens.

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Frequently asked questions

Should I sell my house before buying another?

Selling first reduces financial risk since you won't carry two mortgages, and it gives you certainty about your budget before making offers.

What is a bridge loan and how does it work for a simultaneous sale and purchase?

A bridge loan is a short-term loan of six to 12 months, secured by your current home, that fills the financing gap between a home purchase and sale.

Can I buy a new home before my current home sells?

Yes, if you have a bridge loan or enough liquidity for a purchase independent of your sale proceeds. However, you may have to carry two loans temporarily if your sale takes longer than expected.

What is a rent-back agreement and when should I use one?

A rent-back agreement allows you to stay in your sold home for a set period after closing, paying rent to the new owner.