Buy before you sell – it’s not impossible. All you have to do is understand the process, and determine the smoothest path to move into your new home. Let’s help you get started.
One of the most common questions would be, ‘Should I buy a new home first or sell mine first?’
The answer depends on your situation, the current market, and what you’re comfortable doing. It’s important to weigh the pros and cons of each approach before making a final decision.
How do I buy a new home before selling my old one?
Once you’ve decided that buying first before selling is the right decision for you, here’s what you do next.
- Make a contingent offer
You can make an offer that’s contingent on your current home’s sale. In other words, if your home doesn’t end up selling (or doesn’t sell within a certain time frame), you can back out of the purchase.
- Use a short-term loan to make an all-cash offer
A short-term loan gives you access to the money that’s tied up in your home’s equity, letting you make an attractive cash offer.
What are the advantages of buying a home before selling it?
- You don’t have to move twice, literally.
- No short term rentals or staying with family and friends
- No stress, just bless: With enough cash to go through ‘buy before you sell’, the selling process becomes very easy, and by default very less stressful – especially if you already have a new place to move into.
- No double payment for moving expenses.
- Take the best of the best deals as soon as you find it: You don’t miss out on beautiful and great houses which might be in high demand, especially when the inventory is low.
- Less risk, less waiting time: By buying the home you love first, you don’t have to wait for a long period of time because your home isn’t sold yet.
- No need to look or pay for furniture storage.
- Save your money, and save your time.
- You have a place to live already!
The financial aspect of ‘buy before you sell’
Ironically, there’s no cash involved in a cash offer. It just means that money is guaranteed. You don’t need to have the entire purchase price of the home to make a cash offer work. Here are some ways in which you can make an attractive cash offer on your dream home.
> Dip into your retirement savings: The first option is to pull money from your 401(k) or your IRA to put toward a down payment.
Quick note: If you recently started investing in your retirement account, this option likely won’t work for you since you won’t have enough money to pull. One of the downsides is that you may incur fees or penalties for withdrawing from your retirement account early.
> Get a bridge loan: A bridge loan is a short-term loan you can put toward your down payment. Then, after you’ve sold your current home, you can use the profits to pay off the loan.
Quick note: The downside of bridge loans is that the interest rates are usually high. It’s also harder to get approved—you need to have great credit and a healthy debt-to-income ratio.
> Secure a home equity line of credit (HELOC): A home equity loan lets you tap into your home’s equity before you sell it. For example, if your home’s value is $350,000 and your mortgage balance is $200,000, then you have $150,000 of equity.
Quick note: The good news is that interest rates on HELOCs are relatively low. After selling your home, you can pay off what you’ve borrowed—both the HELOC and the primary mortgage.
So how can Flyhomes Buy Before You Sell program help you, especially to make an all-cash offer?
Like HELOC, Flyhomes will tap into your home’s equity before you sell. But instead of just giving you enough for a down payment, the Flyhomes Buy Before You Sell program gives you a short-term loan big enough to make an attractive cash offer on a home you love.
How does it work?
- Prepare to bid
First, you go through the pre-underwriting process. This lets you know your budget and frees you to start bidding as soon as possible.
- Buy with cash
Once you find a home you love and your cash offer is accepted, Flyhomes sets you up with a short-term loan. This money becomes available to you in about 10 days.
- Sell with ease
Now it’s time to sell! While you’re settling into your new home, Flyhomes does all the work of listing and marketing your home so it can sell for top dollar.
And if your home doesn’t sell within 120 days, you can either allow Flyhomes to purchase it from you or wait for another offer. Whichever you choose, you can rest assured your home will sell.
- Secure a long-term mortgage
Once your old home has sold, the Flyhomes in-house mortgage team will set you up with long-term financing. Or, if you prefer, you have up to three months to secure a loan with a lender of your choice.
Are there any tax implications when you buy a house before selling?
If your current home has been your primary residence for two out of the last five years, you can sell it without paying capital gains tax on up to $500,000 if you’re married and filing jointly. (The two years don’t have to be consecutive.) For single filers, up to $250,000 of the profit is tax-free. This is called the Section 121 exclusion.
Don’t meet these criteria? You still have options for tax savings. If you’ve owned your home for over a year, you’ll pay what’s called long-term capital gains tax, which is 0%, 15%, or 20%, depending on your income.
- If your yearly income is under $80,000, then your home’s profit is either partially or completely tax-free.
- Income above $80,000 but under $441,450 (single), $496,600 (married filing jointly or qualifying widow/widower), $470,050 (head of household), or $248,300 (married filing separately) is subject to a 15% tax rate.
- If you make more than the income limit listed above, then you’ll pay 20% in capital gains tax.
Lastly, if you’ve owned your home for under a year, you pay short-term capital gains tax. In this case, your home’s profit is treated and taxed as ordinary income.
For many people, the thought of buying a new home before selling sounds intimidating. But it doesn’t have to be. So sign up with Flyhomes and learn about the Buy Before You Sell program. It’s worth it.
