Selling a House and Buying Another: 7 Tips From a Realtor

Buying your next home is an exciting step forward in your journey as a homeowner, but it comes with a new set of challenges. While buying your first home often involves a steep learning curve, purchasing your next property while you own one requires a different set of considerations, from leveraging your existing home equity to navigating the logistics of selling and buying simultaneously.

Here’s a closer look at what makes buying a second home unique compared to your first.

1. Building on Your Home Equity

One of the biggest advantages of buying your second property is having access to your home’s equity. Some think of it as the profit you make when you sell your home. If you bought your first home several years ago, you could have tens (or even hundreds) of thousands of dollars in equity that you can use as a down payment.

Unlike the first time you bought when you likely scraped together every dollar for a down payment, equity can allow a larger homebuying budget or lower out-of-pocket costs.

However, accessing that equity can present challenges and complicate the buying process the second time around. You should consider how you will get your equity: a cash-out refinance, a home equity loan (HELOC), or by selling first and using your proceeds directly as a down payment.

Additionally, market conditions matter.

If property values in your area have risen significantly, your equity will be higher, but the cost of homes you’re looking to buy may be higher as well. You also have to consider how interest rates may have changed since you first bought versus now and how that can change your purchasing power.

2. Goodbye, First-Time Buyer Benefits

When buying your first home, you might have taken advantage of first-time homebuyer grants, programs, or tax credits. These programs are specifically designed to help people get into their first home, offering assistance with down payments, closing costs, or lower interest rates.

As a repeat buyer, you’re no longer eligible for these perks unless significant time has passed since owning the property (though some programs have exceptions). This means you’ll need to budget differently and explore other financing options. There may be a large down payment required and, without grants or first-time buyer loans to offset costs, saving for a down payment might feel more challenging this time around. Additionally, certain loan types, like FHA loans or low-down conventional loans, may not be as accessible unless you sell your first home.

While this may feel like a disadvantage, the trade-off is that you now have experience and possibly more financial stability, making it easier to navigate the process.

3. The Juggling Act: Sell First or Buy First?

One of the most significant challenges when buying your second home is deciding whether to sell your current home first or purchase your new home before selling. Both approaches have pros and cons, and your choice will depend on your financial situation, the current real estate market, and your long-term goals.

Selling first provides financial stability and avoids juggling two mortgages. You’ll know exactly how much equity you have for your next home. However, it may require temporary housing and could create pressure to buy quickly.

Buying first offers a smoother transition since you won’t need temporary housing. However, it requires the financial ability to own two properties simultaneously. You’ll need additional savings for a down payment and be ready to pay two mortgages if your first home doesn’t sell quickly.

Coordinating a simultaneous closing combines the benefits of both options but adds the stressors of both as well. Finding a seller willing to accept a home-to-sell contingency can limit your choices, and scheduling challenges may increase stress.

4. Deciding Whether to Sell or Rent Out Your Current Home

Another decision for second-time buyers is whether to sell your current home or keep it as a rental property. Each option has distinct financial and lifestyle implications.

Selling your home first is the most straightforward way to fund your next purchase. If you can get top dollar for your property, it may make the most sense.

But if you are looking to diversify your investment portfolio, renting has great benefits. It can provide a steady stream of passive income while allowing you to benefit from long-term appreciation. However, there are additional nuances to consider.

Owning two properties requires additional savings to cover maintenance, vacancies, and other costs. Even the best tenants can cause unexpected damages that you’ll be on the hook for. Being a landlord also involves time, effort, and sometimes stress. Hiring a property manager helps, but there are still things you will ultimately be responsible for. You also want to consider if there is enough demand in your local rental market to make becoming a landlord financially feasible.

If you choose to rent your first home, you’ll need to find the funds for a new down payment without using the proceeds from a home sale. Plus, you’ll need to qualify to keep a mortgage on both properties. You should also consult with a tax advisor about how capital gains tax may affect you when you finally decide to sell your rental property.

5. Increased Focus on Long-Term Goals

When buying your first home, your primary goal was likely to get a foot on the property ladder. For your second home, your goals may be more specific and important. You might be upsizing for a growing family, moving closer to work or better schools, or making your second purchase a vacation or investment property.

You’ve likely got a much clearer picture of what you like, don’t like, and what truly matters in a home. When you buy the next home, consider that the experience might feel a little different as your priorities have now changed. It may be less stressful, but it may also take more time to find the truly perfect fit.

6. Logistics and Timing Are More Complex

Buying a home when you already own one involves balancing more moving parts.

For example, aligning the closing dates can be tricky. Financially, you may need to work with your lender to explore bridge loans, HELOCs (Home Equity Lines of Credit), or other financing options to make the process go more smoothly. And moving can be emotionally charged, especially if your first home holds sentimental value.

The stakes may feel higher the second time around because the financial and logistical challenges are more layered. Proper planning and working with experienced professionals, such as realtors and mortgage brokers, are crucial to ensure a smooth process.

7. Leveraging Your Experience

Buying your next home offers a major advantage: experience. The lessons learned during your first home buying journey will serve you well this time. Now you know how to navigate the mortgage process, understand closing costs, and evaluate neighborhoods and homes, you’ll be much more confident.

In addition to having a better idea of what to expect in terms of costs, timelines, and the overall process, negotiating and identifying red flags will likely come more naturally to you. This will help you up front when you review homes and submit an offer, but also as you go through the inspection and appraisal periods.

If you worked with professionals you liked and trusted the first time around, you can build on those existing relationships with them to help you this time, too. Knowing you’re working with someone you can trust will take a lot of stress out of the process and allow you to focus on dealing with the other complexities that come with buying your second home.

Final Thoughts

Buying your second home is an exciting and rewarding milestone, but it comes with its own unique challenges and decisions that differ from purchasing your first. From leveraging home equity to deciding whether to sell or rent out your first property, the process requires careful planning and strategy. But with some homework and help from professionals, it can be a smooth process.