Top 5 Ways to Buy a Home Before Selling Your Current One
If you're thinking about moving to the Reno-Tahoe area but you're not sure how to buy a new home before your current one sells, you're not alone. It's one of the most common questions I get as a mortgage lender, and it's usually followed by the same worry: "I don't want to end up with two mortgage payments."
I recently sat down with Tristan Lipschutz of Compass Real Estate, and she flipped the script and interviewed me on this exact topic. Here's a breakdown of the five strategies we covered, so you can figure out which one fits your situation.
The Real Fear: Two Payments, or Losing the House
Most buyers in this spot are worried about one of two things. Either they're scared of carrying two mortgages at once, or they're scared of losing a home they love because their offer comes with a sale contingency attached.
There are two paths depending on your financial picture. If most of your money is tied up in the equity of your current home, you have fewer options. If you have some liquid assets, you have more flexibility. I'll walk through both.
A lot of people come to me asking about bridge loans first, since they're marketed heavily as the solution. My honest advice: don't use a bridge loan unless it's truly your only option.
They're expensive. Here are five better ways to go about it.
1. Get a Gift From Family, Then Recast Your Mortgage
If you don't have much cash on hand, a gift from family is often the cheapest way to get into your new home. On a conventional loan, you can put as little as 5% down. On a $700,000 home, that's $35,000. If the seller covers closing costs, that gift is all you need out of pocket.
Once your old home sells, take the proceeds and apply them to the principal balance of your new mortgage, then request a recast. A recast is different from a refinance. It's cheaper, usually just a few hundred dollars, and it doesn't touch your interest rate. Your loan simply reamortizes based on the new, lower balance, which drops your monthly payment. There's no deadline to do it either. You can recast whenever it makes sense.
2. Take Out a HELOC on Your Current Home
A home equity line of credit on your existing house can fund the down payment on your new one. Keep in mind you'll now be carrying two mortgage payments plus a HELOC payment, so you'll need to qualify with all of that debt factored into your debt-to-income ratio.
One tip here: get the HELOC before you're under contract on a new home, while your current house is still your primary residence. HELOC rates on primary residences are significantly better than rates on second homes or investment properties, and some lenders won't even offer HELOCs on investment properties at all.
3. Do a Cash-Out Refinance on Your Prior Property
This is another way to pull equity out of your current home to use toward your new purchase.
Expect roughly $5,000 in closing costs on a $500,000 home, covering underwriting, appraisal, title, and recording fees.
The smart move is to ask your lender for a lender credit that covers those costs, which makes the refinance essentially free upfront in exchange for a slightly higher rate. Compare that adjusted rate against a HELOC rate to see which option actually costs less over time.
4. Use Cash
If you have liquid savings, stock, or cash in the bank, the straightforward option is to put down as much as you're comfortable with and qualify for both mortgages at once. On a conventional loan, 5% down is the minimum. Jumbo loans typically require a larger down payment since lenders want to reduce their risk on higher loan amounts.
5. Use a Margin Loan Against Your Investments
This is one of my favorite strategies for buyers who have money in a stock account but don't want to sell and trigger capital gains tax. A margin loan lets you borrow against your portfolio, typically up to 50% of its value. If you have $200,000 in a stock account, you could borrow $100,000 against it.
Here's the part buyers are often surprised by: under conventional loan guidelines, that loan doesn't count against your debt-to-income ratio. Since it's secured by your assets rather than pulling cash out, there's no repayment risk to the lender. If the market drops and your portfolio value falls, the loan is simply paid back automatically from the account. That's why it doesn't factor into your qualifying debt.
A Related Option: Renting Out Your Current Home
Whichever route you choose above, renting out your current home on a long-term lease can help offset your old mortgage and HELOC payment while you qualify for the new one. You'll need to show first month's rent and a security deposit in your account along with a signed year-long lease. Lenders see this often, and it's a straightforward process.
Don't Rule Out a 401(k) Loan
If your 401(k) plan allows it, you can take a loan against it to help with your down payment. This works similarly to a margin loan in that you're borrowing against an asset rather than liquidating it. Just check with your plan administrator on the specifics, since rules vary and can differ for a first home versus a second home.
The Bottom Line
Most buyers in the Reno-Tahoe market have more options than they realize. Between gifted funds, a HELOC, a cash-out refinance, liquid savings, or a margin loan, there's usually a path that avoids an expensive bridge loan altogether. Right now, we're also seeing more contingent offers get accepted in this market, so if you'd rather not carry two mortgage payments, having the right agent in your corner to negotiate that contingency can make a real difference.
If you're planning a move to the Reno-Tahoe area and want to talk through your specific numbers, reach out. And if you need a sharp local agent, Tristan Lipschutz with Compass Real Estate is a great place to start.
Buy or Sell with Tristan by connecting with her here:
(775) 223-2695
Get a mortgage with Shay by connecting with him here:
(817) 243-9476
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