What Happens When You Sell a House and Buy Another?

Selling a current residence and acquiring a new one involves navigating two distinct, yet often interconnected, real estate transactions. This process requires careful planning to ensure a smooth transition. Understanding the stages of both the sale and purchase is important for managing expectations and achieving a favorable outcome.

Selling Your Current Home

Preparing your home for sale often involves preliminary steps to enhance its market appeal and attract potential buyers. This can include undertaking minor repairs, decluttering spaces, and staging rooms. Selecting a qualified real estate agent is important, as they provide expertise on local market conditions and assist in determining a competitive listing price.

Once prepared, the agent lists the property on multiple listing services. Prospective buyers schedule showings to tour the home. Offers may be received, which often involve negotiation between the seller and buyer regarding price, contingencies, and other terms.

After an offer is accepted, the process moves to a due diligence period. The buyer conducts inspections to identify any potential issues. An appraisal is also performed by the buyer’s lender to confirm the home’s value. If these evaluations are satisfactory, the transaction proceeds to closing, where documents are signed, ownership is transferred, and funds are settled.

Purchasing Your New Home

Purchasing a new home begins with defining your housing needs and preferences, considering factors such as location, size, and desired amenities. Securing mortgage pre-approval is an early and important step, as it provides a clear understanding of your borrowing capacity and strengthens your position when making an offer.

With pre-approval, house hunting commences, involving visits to various properties that meet your criteria. Once a suitable home is identified, an offer is prepared and submitted, outlining the proposed purchase price and any contingencies. Negotiations with the seller may follow to reach an agreement on terms.

Upon offer acceptance, home inspections are scheduled to assess the property’s condition. The buyer’s lender orders an appraisal to ensure the home’s value supports the loan amount. Concurrently, the mortgage application and underwriting process begins, where the lender verifies financial information. The final closing involves signing loan documents, transferring ownership, and taking possession of the new home.

Coordinating the Sale and Purchase

Coordinating the sale of an existing home with the purchase of a new one presents logistical challenges, primarily centered on timing. One common strategy involves making a contingent offer on the new home, meaning the purchase is dependent on the successful sale of your current property. Alternatively, a seller might accept an offer contingent on finding and closing on a new home. These contingencies help align the two transactions.

Another approach to bridging the gap between closings is arranging for temporary housing. This option becomes relevant if the sale of your current home closes before you can take possession of your new one. Temporary housing solutions can range from short-term rentals to staying with family.

Simultaneous closings represent an ideal scenario where both transactions occur on the same day. This minimizes the need for temporary housing and streamlines the transfer of funds. To facilitate this, some individuals may consider a bridge loan, a short-term financing option designed to cover the financial gap between the sale of the old home and the purchase of the new one. A bridge loan provides immediate access to funds.

Understanding the Financial Impact

Selling your current home and purchasing another involves a complex array of financial considerations and associated costs. On the selling side, real estate commissions typically represent a substantial expense, often ranging from 5% to 6% of the sale price, paid to both the seller’s and buyer’s agents. Other seller-paid closing costs can include transfer taxes, which vary significantly by jurisdiction, as well as attorney fees, title insurance premiums, and prorated property taxes up to the closing date. These costs collectively reduce the net proceeds received from the sale.

When purchasing a new home, a significant financial outlay is the down payment, which can range from a few percent to 20% or more of the purchase price, influencing mortgage terms and monthly payments. Buyer-paid closing costs encompass a variety of fees, such as loan origination fees, appraisal fees, credit report fees, and title insurance. Additionally, buyers are typically responsible for establishing escrow accounts for future property taxes and homeowners insurance premiums, which are collected at closing. These costs generally range from 2% to 5% of the loan amount.

The net proceeds from the sale of your old home, calculated after deducting the outstanding mortgage balance, real estate commissions, and other selling costs, are frequently used to fund the down payment and closing costs for the new property. This strategic use of funds can significantly reduce the amount of new financing required.

Understanding the tax implications is also important, particularly regarding capital gains from the sale of a primary residence. Under current IRS guidance, individuals can exclude up to $250,000 of gain from the sale of their main home if they meet certain ownership and use tests, while married couples filing jointly can exclude up to $500,000 of gain.

The existing mortgage on the sold home is typically paid off in full at closing, and the new home is financed through a new mortgage tailored to the buyer’s financial situation and the new property’s value. This involves new interest rates, loan terms, and monthly payment obligations. Careful financial planning ensures that the proceeds from the sale adequately cover the expenses of the new purchase and that the new mortgage is manageable within the household budget.