Buy Before You Sell

Options When Your Down Payment Is Tied Up in Your Current Home

You’ve found the next home—but there’s one problem: a significant portion of your down payment is tied up in the equity of the home you haven’t sold yet.

The good news? Selling first isn’t always your only option.

Depending on your equity, income, assets and overall financial situation, there are several strategies that may allow you to purchase your next home before selling your current one.

OPTION 1: Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit can allow you to access a portion of the equity in your current home before you sell it.

The funds can potentially be used for:

  • Down payment on your next home

  • Closing costs

  • Repairs or improvements needed to prepare your current home for sale

  • Other expenses associated with the move

How it works: Available financing will depend on the amount of equity in the home and program guidelines, but combined financing is commonly limited to approximately 80% of the home's value. The home generally cannot already be listed for sale when establishing the HELOC.

Many HELOC programs allow for interest-only payments during the initial draw period, which can help minimize the monthly payment and improve cash flow while temporarily carrying multiple mortgages.

Once the current home sells, the existing first mortgage and HELOC are paid off from the sale proceeds.

Important considerations:

  1. You will generally need to qualify for the new mortgage while accounting for the payments associated with your current home, the HELOC and the new home.

  2. PLAN EARLY - Most lenders will not allow if your home is already listed. You should put the line in place well before you think about your move. It is also not a bad thing to have regardless and can be viewed as an emergency fund for a variety of needs.

Best suited for: Homeowners with substantial equity who can qualify while temporarily carrying the financing on both properties.

OPTION 2: Buy With Less Down — Then Recast

What if you don't actually need to access your existing equity before purchasing?

Instead of waiting to make a large down payment, you may be able to purchase the new home with a smaller down payment—even if that means initially putting down less than 20%.

After your existing home sells, you can use the proceeds to make a substantial principal reduction on the new mortgage and request a mortgage recast.

A recast recalculates your monthly principal and interest payment using the new, lower loan balance while keeping the existing loan and interest rate in place.

If the original loan has Private Mortgage Insurance (PMI), you can also request that PMI be removed once applicable equity and other requirements have been satisfied.

Timing is important: Recast and PMI-removal requirements vary by lender and loan program. In many cases, the borrower must first establish a timely mortgage payment history. A typical scenario may involve approximately 60 days before requesting the recast, followed by additional processing time that can take approximately 45 days.

That means you should be financially comfortable making the original higher mortgage payment for a period of time after the sale.

Best suited for: Buyers who can qualify for the new home with a smaller down payment and don't need the proceeds from their current home to complete the purchase.

OPTION 3: True Bridge Loan / Buy-Before-Sell Program

A true bridge or specialized Buy-Before-Sell program is designed specifically to solve the gap between purchasing your next home and selling your current one.

These programs generally work best when there is a strong equity position in the departing home.

One example is a program that can:

  • Provide funds to pay off the mortgage on your current home and an existing equity line, if applicable

  • Provides up to 75% of either the list price or fair market value determination, whichever is less. Back up offer is typically 80% of fair market value.

  • Provide up to $35,000 for eligible repairs

  • Provide up to $5,000 for moving expenses

  • Allow up to six months to sell the departing home, interest-free under the program's applicable terms

  • Take over eligible mortgage payments on the departing home, potentially allowing those payments to be excluded when qualifying for the mortgage on the new home, subject to underwriting and program requirements

What Does a Buy-Before-Sell Program Cost?

This flexibility comes at a cost, and it is important to understand that before deciding whether a bridge program makes sense.

Using one current program as an example:

Program Fee: 2.25% of the departing home's estimated list price
Estimated Closing Costs: $1,850

For example, on a home with an estimated list price of $600,000:

2.25% Program Fee = $13,500
Estimated Closing Costs = $1,850
Estimated Total Cost = $15,350

For some homeowners, that cost may make another strategy more attractive. For others, the ability to purchase without a sale contingency, move once, prepare the existing home properly for sale and potentially eliminate the existing housing payments from mortgage qualification may make the cost worthwhile.

Potential Benefits

  • Make an offer on the next home without a home-sale contingency

  • Access equity before the existing home sells

  • Potentially eliminate the departing home's eligible mortgage payments from qualification

  • Move into the new home before listing the old one

  • Make repairs and prepare the existing home for market

  • Allow for easier showings of a vacant home

  • Avoid temporary housing and a double move

  • Provide additional time to sell rather than feeling pressured to accept the first offer

Best suited for: Homeowners with substantial equity who place a high value on flexibility, need help qualifying while carrying the existing home, or want to avoid making a contingent offer.

Knock Program - How It Works Video

OPTION 4: Asset-Based Lending

Home equity isn't the only potential source of short-term funds.

Buyers with substantial eligible investment assets may be able to establish an asset-backed line of credit or similar short-term financing using those investments as collateral.

The funds can then potentially be used toward the purchase of the new home. Once the existing home sells, the sale proceeds can be used to repay the short-term loan.

This can provide access to funds without selling investments or waiting for the existing home to close.

Rates, eligible assets, lending limits and risks vary significantly by financial institution and account type. Borrowers should consult with their financial and tax advisors before using an investment-based borrowing strategy.

Best suited for: Buyers with significant eligible investment assets who need temporary liquidity and prefer not to access their home equity before selling.

Which Option Makes the Most Sense?

There isn't one Buy-Before-Sell strategy that works for everyone.

The right approach depends on several factors, including:

  • How much equity you have in your current home

  • How much cash you need to purchase the next home

  • How much you plan to put down

  • Whether you can qualify while carrying both properties

  • Your available investment assets

  • How quickly you expect your existing home to sell

  • Your tolerance for carrying two properties temporarily

  • The cost of accessing your equity

  • How important it is to make a non-contingent offer

Sometimes the simplest and least expensive solution is a HELOC. In another situation, putting less down and recasting later may make more sense. And for a buyer whose existing mortgage prevents them from qualifying—or who places a high value on the convenience and flexibility of moving before selling—the additional cost of a bridge program may be worthwhile.

Start With the Financing Strategy — Before You Make an Offer

If you're considering buying a new home but feel like you need to sell your current home first, don't automatically assume that you do.

We can look at the numbers, compare the available strategies and determine whether there is a practical way to buy first and sell second.

Program availability, qualification requirements, loan-to-value limits, fees, timelines and other terms are subject to change and may vary by lender, loan program and individual borrower circumstances. This information is for educational purposes and is not a commitment to lend