Buying a new home while simultaneously putting your current home up for sale can be challenging to navigate. Over the last couple of years, home sellers have seen their home equity skyrocket to record levels as home prices climbed. While some homeowners are feeling tempted to put this windfall toward a new home, many are shying away from listing their homes due to steeper mortgage rates.

In fact, seller hesitation is the number one reason for the inventory shortage we are facing today. A whopping two-thirds of homeowners have locked in sub-4% mortgage rates in the past. This helps explain why some homeowners are waiting in the wings for the right opportunity to enter the housing market. 

Still, for some sellers, the equity accrued over the years has been enough that they are able to put more money down toward a home and secure favorable mortgage payments even if rates trend higher. If you are one of these homeowners sitting on a pile of equity cash, here’s what to know about buying and selling a home at the same time:

Buy first or sell first?

This is likely the question the majority of homeowners put to their real estate agents. As with most things, there are pros and cons to both options. If you choose to buy first, this will give you more time to vacate the home and avoid the annoyance of finding temporary housing or having to move twice. The risk is that your home may linger on the market and that you may end up paying for two properties until it sells. 

Buyers wanting to buy first will often take out bridge loans, which are short-term loans used to bridge the gap between buying a home and selling your previous one. Not only does a  bridge loan give a buyer the cash needed to make a down payment on a new home before selling their current home, but it also allows them to make an offer without it being conditional on their home selling first. 

If you opt to sell first, you may be in a better position to budget for your new home. If you are going this route, make sure to allow enough time for the proceeds of the sale to reach your bank account prior to closing on a new property. The flipside of selling first is that you may need to move into temporary living quarters and find storage for your belongings. Sellers can negotiate a rent-back from homebuyers, but not all buyers are willing to enter into this sort of arrangement. 

Make an all-cash offer or take out a mortgage?

If you have built up sizable home equity, making an all-cash offer can help you stand out from the competition. Keep in mind, though, that the days of fiercely competitive markets are gone. If an all-cash offer is going to stretch your finances, you may be better off making a higher down payment and financing a lower amount at slightly higher rates. Another possibility would be to make an all-cash offer and take out a mortgage later when mortgage rates go down.  

Whether or not you have enough equity, securing a pre-approval letter will make you a stronger buyer. A pre-approval letter helps you understand how much home you can afford and can set you apart from other bidders. 

I would be happy to meet with you soon to plan the next steps toward your new home purchase. In most cases, pre-approval letters are good for 60-90 days, so let’s start you on your way. Call me today to set up an appointment!