Figuring out how to buy a house before your other house sells is a major conundrum that faces many home buyers. This can be a tricky financial situation that doesn't have just one right solution.
Why Is This a Problem?
The problem, obviously, is that most people don't have enough money lying around to make a decent down payment on a house, or even to carry two mortgages. That's exactly what you'll have to do if you buy a house before your old one sells. You will have to come up with the cash for the new one (most people use the funds from the sale of the old one), and you will have to continue paying on both until the old one finally finds a buyer. If you're already sweating at that financial prospect, then you're paying attention.
How to Buy a House Before Your Other House Sells
Luckily, there are options. The right one for you will depend on your particular situation, so you should discuss these with a trusted financial advisor before you proceed.
Get a Loan to Cover the Gap
Bridge loans are meant to do just this, and may provide enough money for the down payment as well as the carrying of the two mortgages, at least for a little while. Bridge loans may or may not have high interest rates depending on your financial status. The good news is that the fees don't kick in until you actually call down the funds. In other words, it's feasible to set up a bridge loan, then just wait and see. If your old house sells in time, you can cancel the bridge loan without having lost any money. If it doesn't, it's waiting and ready to go so you don't end up losing the new house by not having the funds in time.
In a similar vein, you might consider a home equity loan on the house you already own. This is a bit riskier, but provides the same benefits.
Talking to the Bank
If you choose either of the options above, you're required to sit down and have a chat with the bank financing your new mortgage. Taking on a bridge loan or a home equity loan is a potentially major change to your financial status, and the mortgage lender might very well not be willing to lend to you, after all, if you have to do this. Make it clear to them why you're doing it and that the loan will not be triggered unless it has to be; if they say no, you have the choice of losing your new mortgage or finding another solution altogether.
Work with the Seller
This won't always work, but if the market is slow and the seller is just happy to have someone interested, he or she may be willing to work with you. Perhaps you can pay a small amount now and sign a contract, and then wait to go through with the actual purchase until your old house sells. Again, if there are buyers lining up for the house, this likely won't work. Don't forget that the seller might be impatiently waiting to sell just like you are as well, but it never hurts to ask.
Work with Your Buyer
If the market is hurting for buyers, the last thing you want to do is to scare one off, but sometimes it's your only option. If the buyers are interested enough in your house, they might be willing to sign on for a contingency purchase. In this case, you're essentially saying that yes, they are purchasing your house, but only on the condition that your old one sells, and not until it does. You can probably see already that this is kind of a lousy situation for the buyer, who has to wait around for a house he or she might not even end up being able to buy, but again, options are options and exploring them never hurts.
Deciding What to Do
Figuring out how to buy a house before your other house sells is not easy. It can be a financial Catch-22 that has been an issue for many buyers and sellers over the years. In a perfect situation, the timing works smoothly and houses sell and buyers buy on a schedule that works for everyone. If that doesn't happen for you, do you have a back-up plan in place? If you can't determine how to buy a house before your other house sells, do you have places to go in the meantime? Of course moving twice can be an inconvenience, but you won't be the first one to do it. In some situations it's the only way to get over this hurdle and into your new home. Remember to stay flexible and get creative, and you're sure to find some sort of solution.