Can I Put an Offer on a House Before Selling Mine?

It is a common scenario for homeowners to consider purchasing a new property while still owning their current residence. This involves balancing the desire to secure a new home without managing two properties or facing a period without housing. Successfully transitioning requires careful planning and understanding available strategies. This article explores methods and preparations for making an offer on a house before your current one is sold.

Understanding Offers with Sale Contingencies

A sale contingency is a contractual provision stating that the purchase of a new home depends on the successful sale of the buyer’s current property. This clause protects the buyer, ensuring they are not obligated to complete the purchase if their existing home does not sell within a specified timeframe. It helps buyers avoid the financial strain of carrying two mortgages or losing earnest money.

A sale contingency typically defines a period, often 30 to 60 days, for the buyer’s home to be under contract or sold. During this time, the seller’s property is “under contract” but often remains on the market with a “kick-out clause.” This clause allows the seller to continue showing their property and accept other offers. If a new, non-contingent offer is received, the original buyer usually has 24 to 72 hours to remove their contingency and proceed or allow the seller to accept the new offer.

For buyers, a sale contingency offers security, preventing financial overextension. If their home does not sell within the agreed period or they cannot remove the contingency after a kick-out notice, the contract terminates, and their earnest money deposit is typically returned. This approach is often straightforward for buyers relying on current home sale proceeds for a new home’s down payment.

For sellers, accepting a contingent offer carries risk, as it ties up their property without a guaranteed sale. A kick-out clause mitigates this risk by allowing them to seek other offers while the initial buyer sells their home. In a competitive market, sellers may be less inclined to accept contingent offers due to potential delays. However, in a buyer’s market, sellers may be more open to such arrangements.

Exploring Non-Contingent Offer Strategies

Making a non-contingent offer means the purchase is not dependent on your current home’s sale, making it more appealing to sellers, especially in competitive markets. This strategy requires alternative financial arrangements for the down payment and other costs. Such offers signal commitment and financial readiness, potentially streamlining the transaction. However, buyers assume greater risk by waiving conditions that protect their earnest money.

A common financial strategy is a bridge loan, a short-term loan designed to “bridge the gap” between buying a new home and selling an existing one. This loan uses your current home’s equity as collateral, providing funds for a down payment or the full purchase of the new property. Bridge loans typically have terms from six months to a year, sometimes up to three years. Borrowers often make interest-only payments, with the principal and remaining interest due as a balloon payment when their original home sells.

Bridge loan interest rates are generally higher than conventional mortgages, often ranging from 6% to 12%, reflecting increased risk for lenders. Closing costs and fees can range from 1% to 3% of the loan amount, plus 1.5% to 2.5% in points. Lenders commonly require at least 20% equity in the current home to qualify.

Another approach involves using a Home Equity Line of Credit (HELOC) or a home equity loan from your current property. A HELOC is a revolving line of credit allowing you to borrow against your home’s equity as needed, often with interest-only payments during a “draw period.” A home equity loan provides a lump sum upfront with fixed monthly payments. Both options allow access to your home’s equity for a down payment on a new property, though lenders typically limit borrowing to around 85% of available equity, considering your existing mortgage. Closing costs for HELOCs and home equity loans can range from 2% to 5% of the loan amount.

Other financial means for a non-contingent offer include using cash reserves, liquidating investments, or temporarily renting out your current home. Using cash avoids loan interest and fees but ties up liquid assets. Tapping investments may incur taxes or penalties. Renting your current home can provide income to offset dual mortgage payments, but it introduces landlord responsibilities and tax implications.

Essential Preparation Before Making Any Offer

Thorough preparation is paramount before making any offer on a new home, especially when your current home is yet to sell. A crucial initial step is obtaining a mortgage pre-approval. This is a formal lender commitment indicating the maximum loan amount you qualify for, based on a financial review. It differs from a pre-qualification, which is merely an estimate. For pre-approval, lenders typically require documentation like pay stubs, bank statements, tax returns, and debt information. Self-employed individuals may need business tax returns and profit-and-loss statements.

Understanding your current home’s value and equity is another significant preparatory step. A Comparative Market Analysis (CMA) from a real estate agent estimates your home’s selling price based on recent sales. For a more formal valuation, consider a pre-listing appraisal. This professional assessment by a licensed appraiser helps set a realistic asking price and can be beneficial for unique properties. While costing around $500, it offers an objective starting point for pricing and identifies potential issues early.

Assessing current real estate market conditions is important, as it influences your offer strategy. In a seller’s market, low inventory and high demand mean homes sell quickly at higher prices, limiting buyer negotiation power. Conversely, a buyer’s market has more homes and fewer buyers, leading to longer market times, lower prices, and increased negotiation leverage. Knowing the market type helps determine your offer’s competitiveness and whether a contingent or non-contingent approach is advisable.

Working with experienced real estate professionals is highly beneficial. A buyer’s agent can guide you on market conditions, help craft competitive offers, and navigate purchase agreement terms. A listing agent for your current home can advise on pricing, marketing, and managing the sale process. These professionals can coordinate both transactions for a smoother transition.