Can I buy another house before I sell mine?
Updated for 2025. Because who wants to move twice? To buy a new house while selling yours (or selling and buying a home at the same time), you need cash and potentially the ability to carry two mortgages. Although challenging, here are seven options for buyers looking to buy a new home before selling the old house.
Coming up with a down payment to buy a new house before selling your old home
The top two challenges for homeowners looking to move into a new home before selling the old house are:
- Getting the down payment
- Staying within an acceptable debt to income ratio while carrying both properties
Keep in mind that many of the options to help solve problem #1 will hurt your efforts in solving problem #2. While there are no major tax implications of buying a house before selling, with your financial advisor to review your options and discuss how a particular strategy may impact your overall situation before taking action.
Is It Better to Buy In Cash or with a Mortgage?
How to buy a house while selling yours
- Using home equity from your current house or the one you’re buying
- 401(k) loan
- Cash-out refinance to pull equity from your current property
- Get a gift from family
- Make a smaller down payment
- Sale-leaseback contingency on your old home
- Securities-backed line of credit to tap your investments
1. Using home equity
A home equity line of credit (HELOC) or a home equity loan are ways for homeowners to use their current home’s equity before selling the house. A home equity loan is essentially a second mortgage to provide cash that can be used for any purpose. Like a mortgage, a home equity loan will have a one-time equity draw, typically a fixed interest rate, and monthly repayments. In a home equity line of credit, you may access all or portions of your equity line during the draw period, but aren’t required to take out the entire amount.
Buyers may also be able to get a home equity line of credit on their new home purchase. Essentially, buyers apply for a regular mortgage (perhaps 80% of the purchase price) and a HELOC (perhaps 10%) at the same time. You would close on both loans on the same day. While you’re selling your own home, you’ll pay all three mortgages.
With the proceeds from the home sale, you can pay off the HELOC on your new house. This won’t work in every situation, but for qualified buyers, it could be an option to discuss with your lender.
Should You Tap Your Home’s Equity?
How much can you borrow? Most institutions will only lend up to 80 percent of a property’s combined loan-to-value ratio (CLTV). Here’s an example:
Appraised value of property: $350,000
Current mortgage loan balance: $250,000
Equity desired: $30,000
Combined loan amount: $280,000
CLTV = 80% (loan balance + equity desired) / appraised value
Benefits and considerations for using home equity:
- Risks. The biggest risk is that you’re further leveraging your property and take on the added risk of not being able to pay off short term debt if the net proceeds aren’t enough. There’s also a risk of losing the property if you cannot keep up with the payments.
- Potential for a low rate and tax deduction. During periods of low interest rates, using home equity may be an attractive option. A portion of the interest paid may even be tax-deductible, subject to limitations.
- Advance planning. Banks do not often allow either method of the home is already on the market. Secure your home equity loan or HELOC on your current home first. At the closing of your old home, the equity you withdrew will become due in full. Make sure your projected sale price is conservative enough to cover your debts and selling expenses.
- Make sure you understand the impact on your ability to buy. Your lender on the new property will include your monthly payment (or estimated payment) in your debt ratio. Also, your credit score may suffer as a result of the additional leverage.
- Review the terms and fees. There is often a minimum draw requirement and an early termination fee.
2. Taking a loan from your 401(k)
Ask your plan administrator or HR department whether 401(k) loans are permitted under the plan. If so, find out the repayment period, interest rate, and terms. The amount you can borrow depends on the plan, but cannot exceed IRS guidelines which stipulate that “the maximum amount that the plan can permit as a loan is (1) the greater of $10,000 or 50% of your vested account balance, or (2) $50,000, whichever is less.”
401(k) loan benefits and considerations:
- Repayment problems. Pre-tax 401(k) contributions will result in a pre-tax loan. Therefore monthly repayments (usually made by payroll deductions) will be after-tax. If you plan to repay yourself with a lump sum after closing, confirm whether that’s even possible. If you leave your job, the loan will be due in full.
- Better ratios. Many lenders see 401(k) loans as borrowing from yourself, so your debt ratio usually isn’t affected.
- Retirement risks. Tapping retirement savings may do more harm than good. Studies have shown many individuals who take a 401(k) loan end up worse off in the long run.
3. Cash-out refinance
A cash-out refinance is very similar to a home equity loan or HELOC in that you are using the equity in your existing home and turning it into cash. But unlike these options, a cash-out refinance is a new first mortgage, not a second lien.
With a cash-out refinance, you take a portion of your equity (around 80%) and the bank pays you the amount in cash and then adds the payout to your new, larger, refinanced mortgage. Getting a new mortgage takes time which can complicate the home buying process or selling process.
Benefits and considerations of a cash-out refinance:
- Better interest rates…maybe. Refinancing may provide a better interest rate than the other ways you can use your home’s equity. If the interest rate on your existing mortgage is high, you may be able to refinance without much change in your monthly payments.
- Risks. The same considerations that apply to the preceding options apply to a cash-out refinance: foreclose risk, debt ratio and credit score implications, and the ability to repay the note at closing.
- Closing costs. Closing costs can be 5% or more of the loan amount, which can significantly offset the benefits of using this method to raise cash for a down payment.
The 2017 tax reform limited the mortgage interest deduction to loans up to $750,000 for all mortgages issued after 12/15/17. However, older mortgages can still deduct interest for loans up to the old $1M loan limit. Refinanced mortgages that currently fall under the old limit can maintain their grandfathered status, provided the new loan doesn’t exceed the balance on their existing mortgage.
4. Getting a gift to buy a new home while selling yours
Many lenders will accept a gift from a family member as a portion of the down payment. For jumbo or non-conforming loans, a gift cannot be the full down payment, but some lenders will only require the buyer to put up 5% of their own funds. To get a gift to help with the down payment, the donor will need to complete a gift letter and provide some other financial information such as copies of bank statements.
Benefits and considerations of getting a gift:
- Free money! Obviously this is the biggest benefit of getting a gift. It has no impact on your debts as the donor will have to sign an agreement stating that the gift won’t be repaid.
- Gift tax considerations. Depending on the gift amount and the tax situation of the donor, the IRS may consider it a taxable gift. Ensure the donor consults a tax professional prior to signing any paperwork.
5. Putting less than 20% down
For buyers looking to purchase a home under the conforming loan limits, a 20% down payment is not required and many institutions will underwrite the loan. The difficulty is when non-conforming or jumbo loan buyers don’t have the cash in hand for a 20% down payment.
Different states and counties have varying loan maximums that determine what’s conforming and what isn’t. Further, some lenders are only licensed in certain states.
Benefits and considerations:
- Always make sure the purchase price and monthly mortgage payments are within your comfort level. Just because someone is willing to lend you a certain amount does not mean you can afford it. You know your expenses and cash flows better than anyone.
- Buyers without 20% will pay a higher interest rate as their loans carry a higher risk. They will also have fewer choices when selecting a lender.
- Putting less down means having a higher monthly payment. When buying before selling, you’ll have two mortgage payments. This may put you over the top of allowable debt to income ratios.
- Less competitive offer. Ask your real estate agent how this may impact your ability to secure a new house in a competitive market.
6. Using a sale-leaseback contingency on your old house
A home sale contingency is one way to buy a house before selling your current house. As a seller, you can request a sale-leaseback to get more time to buy a new home without having to move into a short term rental. As part of the negotiations, the buyer and seller of the home will agree on how long the leaseback will be and the monthly rent.
As a seller, the benefit of a sale-leaseback is that you can finalize the sale and raise the needed cash to buy a new property without having to move. But in a competitive market, any type of contingent offer may be difficult. After all, prospective buyers are probably trying to navigate buying and selling simultaneously too.
Benefits and considerations of using a sale-leaseback:
- You don’t need a bridge loan. Since you’ve already sold your house (and are renting it back from the new owner) you’ll have cash in hand to buy your next house.
- If you already have an offer accepted on a new property. Assuming your buyers are fine with your proposed timeline, a sale-leaseback can work very well.
- Monthly rent will likely be much higher than your mortgage. It will be at a current market rate. You will save yourself the hassle of moving and living out of boxes while you find a place, but your short-term expenses are still likely to go up.
7. Get a securities-backed line of credit
A securities-backed line of credit (SBLOC) or asset-based line of credit is essentially a bridge loan from your investment account. Using your investable assets as collateral, homebuyers can get money without taking out an equity-based loan or writing a contingent offer.
Programs will vary with the lender and not all borrowers will qualify. There will typically be a standard minimum/maximum line of credit amount, though maximums are most often set by the value of your portfolio.
Borrowing against your portfolio to buy a home isn’t a great long-term strategy, but it can be a compelling way to get a short term loan while your existing home sells. Learn more about the pros and cons of buying a house with a portfolio based line of credit.
Benefits and considerations of using a portfolio based line of credit to facilitate selling and buying a home at the same time:
- Tax savings and staying invested. Perhaps the biggest benefits of using an SBLOC are on the tax and investment side. Liquidating your brokerage account to fund the purchase could mean incurring a huge tax bill, which means you’ll need more cash and also be out of the market while selling your current home. The interest you pay on the loan may also be tax deductible, subject to regular limits.
- Risks. Borrowing against your portfolio carries unique risks. The lender may be able to demand a partial or full payment at any time depending on the value of your collateral account and other factors. Discuss the terms and risks with the lender.
- Eligibility and minimums. Not all borrowers will meet eligibility requirements. Depending on the lender, retirement accounts may not be eligible.
- Interest rates and fees. Borrowing rates will be variable as a spread from the Secured Overnight Financing Rate (SOFR) rate. Payments are interest only. Note that borrowers will often pay a higher interest rate than a regular home loan. But if your current home sells quickly, carrying costs shouldn’t be prohibitive.
- Flexibility and simplicity. The process of getting approved for an asset-based loan is often much quicker and easier than a traditional mortgage. Since your portfolio is the collateral, not the new home, there are no appraisals or other typical homebuying requirements from the lender’s standpoint.
Buy a house before selling your current home
For those looking to get into a new house before selling the old home, there are options. Depending on the real estate market and overall lending climate, the ease of navigating this situation will vary in time. In a seller’s market, homeowners will have more leverage in using terms that are contingent on the sale of their old home, but in most cases, that won’t be ideal for buyers.
