Buy Before You Sell Programs: How to Buy a House Before Selling Yours

Buying a new home while trying to sell your old one can be a tricky, often challenging process. There are a lot of details to line up to avoid paying two mortgages.

Buy-before-you-sell programs (or trade-in services) offer a solution. By providing you with a short-term bridge loan based on your current equity, you can make an offer on a new house before selling your old one. You then repay the loan with the proceeds from your home sale.

These programs can be helpful if your budget is tight or you live in a competitive market. A bridge loan essentially lets you make a cash offer, which can be very appealing to sellers. Most buy-before-you-sell companies will also buy your old house for cash if it fails to sell after a certain period.

But they typically charge hefty fees and interest rates for their services.

Why use a buy-before-you-sell program?

Most people need to sell their current house to fund their new home purchase. But it’s often difficult to get the timing right.

“If you sell before buying, you may be scrambling for temporary housing,” said Jacob Naig, a real estate agent and owner of We Buy Houses in Des Moines, Iowa. “If you buy first, you are doubling your financial exposure.”

Here are some of the main challenges you could face when trying to buy a house while also selling:

• Home sale contingencies. If you're depending on the funds from your current house to buy a new one, you typically need to write a home sale contingency into your offer. This indicates you won't be able to close unless your home sale goes through. In competitive markets, you may be competing with cash — a safer bet for sellers. The fewer contingencies, the more leverage you have in a bidding war.
• Double housing payments. If you buy before you sell, you’ll have to pay two mortgages. Similarly, selling before buying means you’ll need to find and pay for temporary housing. You’ll also have double the utilities, insurance, and other expenses.
• Moving twice. Moving is a hassle, and the cost can add up. Depending on the distance, you could pay several hundred to thousands of dollars to hire movers.[1] You may also need to rent a storage unit, which costs an average of $180 per month.[2]
• Difficulty getting financing. To determine how much funding you qualify for, your lender typically considers the proceeds from your home sale — especially if your debt-to-income (DTI) ratio is high. Generally, your DTI should be 36% or less[3] of your gross monthly income.
• Declining home value. In a fast-moving market, your home’s value could drop, leaving you with less money from the sale than expected. If you’re counting on the proceeds to help you pay for your new house, you’ll be left in a real bind.

Buy-before-you-sell programs help you avoid these challenges by freeing up your cash equity so you can move on your timeline.

"These are pretty much reversing the order of the transactions," says Naig. "They enable home owners to unlock equity, buy a new home upfront as a non-contingent buyer, and sell their old home after they have moved out — eliminating the madness of showings, delays, and overlapping logistics."

This keeps your moving costs down, saving you money. Some loans also cover mortgage payments or repairs for your current home, removing some of the pressure to sell your house fast or for less money.

How do buy-before-you-sell programs work?

Each buy-before-you-sell program operates a little differently. Generally, they involve using a short-term bridge loan to tap into your current home’s equity so you can make a cash offer on a new house. Here’s the basic process:

1. Determine if you’re eligible. The amount of cash you qualify for typically depends on the equity you have in your existing home. So, if you’ve only owned your current home for a short time, you may not qualify.
2. Make an offer. Once your loan is approved, you can use it to make cash offers on a new home.
3. List your old home for sale. Any fees will be deducted at closing, and your bridge loan will be refinanced into your mortgage.

It’s important to understand what different buy-before-you-sell programs offer.

Services like Knock let you use your bridge loan to cover your down payment, moving costs, listing expenses, and current mortgage payments. Other companies, such as Homeward, give you an upfront cash offer for up to 84% of your current home equity. You can then list your house for sale and keep the additional profit, minus program fees and selling costs.

Some companies, like Orchard, require you to use their in-house realtors to purchase a new house, while others let you choose your own. Companies like Flyhomes have in-house mortgage options that you must use to either qualify or reduce your service fees.

How much does a buy-before-you-sell program cost?

The costs of a buy-before-you-sell program vary. Some companies charge a service fee, usually as a percentage of the old home’s sale price. Others charge loan origination fees and short-term interest on your bridge loan. On top of these fees, you’ll need to pay real estate commission and closing costs just like with a typical transaction.

Every company structures its costs a bit differently, but the most common costs associated with a buy-before-you-sell program include:

• A service fee. The company charges a percentage of the purchase price for you to conduct the trade. This sometimes includes the agent’s commission, but not always.
• Closing costs (buyer and/or seller). You’d also be responsible for these in a standard real estate transaction. With a trade-in service, you may have to pay closing costs as a buyer, a seller, or both. Buyers usually pay 3–5% of the purchase price in closing costs, while sellers pay 1–3%.
• Loan origination fees. These are fees you’ll need to pay your mortgage lender. Remember that if your lender is the trade-in company, you’ll have to pay this fee directly to them. The average loan original fee is 0.5–1%.
• Rent or mortgage payments. Some buy-before-you-sell services charge rent on your new home — either daily or prorated monthly — until you close on the sale of your old house. Others carry the cost of your mortgage until your old house sells and let you repay it at closing.
• Cash repayment. Because the trade-in company fronts the cash to buy your new house, you have to buy it back from them once your old home sells.

The fees and expenses for a buy-before-you-sell program typically come out of the sale proceeds of your home. This means you don’t pay up front, and you’ll only pay out of pocket if the costs exceed the profit from the sale.

"While you could probably do it cheaper yourself if everything goes perfectly, what you’re buying is peace of mind and leverage," says Naig. "For certain clients, not having the risk of a contingency clause denied is absolutely priceless."

What if your house doesn't sell?

If your existing home doesn’t sell within a set timeframe, you can usually sell it directly to the buy-before-you-sell company or one of its partners. The amount offered will have already been agreed upon at the start of your transaction, and it will almost always be below market value.

This backup offer assures you that you can sell that house even if the right buyer doesn’t come along. The backup offer’s timeline varies by company but generally ranges from three to six months.

Pros and cons of buy-before-you-sell programs

Buy-before-you-sell programs can be a good option if you want to move quickly but take your time selling your current place. By using one of these programs, you can avoid many risks of buying first and selling later, such as paying two mortgages.

"My clients who utilize this process have had a lot of success," says realtor Jessica Wade of eXp Realty, LLC in Gainesville, GA. "They were able to buy, move out, fix their house up, and then sell. In many cases the buyers/sellers have children and pets and having a vacant house to sell is much easier than trying to balance showings while juggling the busy schedules of families."

But the convenience comes with risks. Fees and interest rates may be high, and there may be restrictions on who you can use for your agent or lender.

Let’s look at some of the most common pros and cons of buy-before-you-sell programs.

Pros

✅ No double mortgage

You won’t have to worry about synchronizing your home sale with your new purchase. A buy-before-you-sell program takes the pressure off so you can focus on one thing at a time. First, use the bridge loan to make an offer on your next home, then sell your current one.

✅ Backup cash offer

Many trade-in services give you a backup cash offer, which guarantees that they’ll buy your home if no one else does. While the offer will likely be below market value, some companies will pay you the difference once they sell your house.

✅ Flexible timeline

After purchasing your new home, you can take your time selling your old one. This gives you the flexibility to make home improvements on your timeline so you can (hopefully) fetch a higher sale price.

✅ Equity advance use options

Most people will use their equity advance to make a cash offer on a new home, which can be more attractive to sellers. But you can also use the advance to make home improvements, cover your mortgage, or pay moving costs.

Cons

❌ High service fees and other costs

Buy-before-you-sell program fees can add up quickly. Service fees can range from 1.9% to 7%, and some companies charge loan origination fees and brokerage fees of about 6%. You may also face additional costs, such as rent or daily carrying charges, on your new home until the old one sells.

❌ Lender and agent restrictions

Some companies require you to use their real estate agents or mortgage lenders to even qualify for their programs. Others will offer to reduce their fees if you use their in-house services. This can limit your ability to negotiate better rates and commissions.

❌ Time limits

Most buy-before-you-sell programs give you three to six months to sell your current home. What’s more, your cash offer might be delayed if your home doesn’t sell quickly, requiring you to cover ongoing mortgage and utility costs.

Best buy before you sell programs

Alternative: Get a backup cash offer

A buy-before-you-sell program isn’t your only option if you want to buy first and sell later. Companies that buy houses for cash can make you a quick cash offer and typically close in 1–2 weeks. They can be excellent alternatives if you’re selling a home that needs work.

But there are downsides to consider, mainly how much an investor will pay for your house. You’ll likely receive only about 70% of your home’s after-repair value. That means that if your home is worth $400,000 after being repaired, a cash buyer will offer about $280,000.

An iBuyer company like Opendoor can also help you move on your timeline by paying in cash and letting you choose your own closing date. You can even opt to sell your home with one of their partner agents using their cash offer as a backup.

iBuyers also tend to pay closer to market value, but they also have stricter purchase criteria, so not all homes will qualify. If your house does need to be fixed up first, the repair costs will be deducted from your profits. iBuyers also charge service fees of 5–8%, which further reduce your earnings.

How to choose a buy-before-you-sell program

When it comes to buy-before-you-sell programs, there are numerous options to consider so you can find the best deal for your situation.

“It is always so important for the seller to compare different service providers before choosing,” said Brett Ringelheim, a Compass real estate agent in New York. “It is a big step, so understanding the full picture is most important.”

As you evaluate your options, use these questions as a guide:

• What are the program fees? Service fees can range from 1–3.5% and are in addition to other selling costs. Some companies also charge loan origination fees, short-term interest, or flat program fees.
• Can you use your own agent? These companies list their brokerage fees at 6% — a hefty charge. If you’re required to work with one of their agents, you lose your ability to negotiate a lower commission fee.
• Can you work with your own lender? Again, by requiring that you work with their in-house mortgage lender, you’ll be subject to their rates and won’t be able to shop around for lower ones.
• What’s the listing timeline? Most buy-before-you-sell programs require that you sell your home within 120–180 days. This could be difficult in a slow market.
• Who processes the loan? If the company is a middleman that uses an outside service to process the loan, the transaction could be delayed.
• How are the customer reviews? Do your research to see what real customers say about working with the company. Pay attention to how company reps communicate with sellers and how transparent they are.
• Are they making money off you in other ways? See what they charge in addition to their service fees, such as high brokerage fees. Some may push bundled services that seem like a good deal but may be less expensive when taken individually.
• What’s their plan for the worst-case scenario? It’s important to know the backup plan in case your house doesn’t sell within the company’s given timeline.

More ways to buy a house before selling yours

Using a buy-before-you-sell service is convenient, but it’s not the only way to buy a new home and sell your old one at the same time.

Work with a traditional agent

Experienced real estate agents often have strategies to help you buy before you sell, including negotiating contingencies. For example, an agent can request a sale-and-settlement contingency when presenting an offer to a seller. If the seller accepts the terms, they’ll agree to wait for your home to sell before closing on the new house.

Working with a traditional agent ensures you have someone advocating for you during negotiations, which can be especially important and complex when you’re trying to buy first and sell later. That said, unlike with some buy-before-you-sell companies, you’ll have to accept that there’s always some risk that your agent might be unable to find the house you want with the contingencies you need to buy first.

“A good agent does more than just negotiate — they’re also stress buffers, time managers, and problem solvers,” Naig said. “You have to have someone who can see around corners.

”If you work with a realtor, consider opting for a well-rated low-commission brokerage. That way, you’ll get the expertise of an experienced agent with the added benefit of saving on realtor fees.

Apply for a bridge loan

A bridge loan is a short-term loan designed to help you purchase a new home before your current one sells. However, it can also be used to pay off your current mortgage or make home improvements to get your house market-ready.

Most buy-before-you-sell programs offer some form of bridge loan, but you don’t need to rely on these companies to get one. Many lenders offer them, so you’re free to shop around.

While other lenders may offer better rates than buy-before-you-sell companies, those rates will still be higher than conventional loan rates. So, you’ll want to sell your house quickly to avoid expenses.

You’ll need significant equity in your home to qualify for a bridge loan. Lenders also typically provide bridge loans only to those with excellent credit and a low debt-to-income ratio.

Request a home sale contingency

A home sale contingency is part of a purchase agreement where you agree to buy the property, but only if you sell your current house by a certain date. Similarly, as a seller, you can have a contingency that states you’ll sell a property to a particular buyer as long as you can purchase a new property by an agreed-upon date.

However, not all sellers will be willing to accept a home sale contingency, especially in a market where another buyer is likely to offer a more certain closing. Some types of home sale contingencies also allow the seller to accept a better offer before selling their old house.

Take out a home equity loan or line of credit

Home equity loans and home equity lines of credit (HELOCs) are two types of loans that use your home’s current equity as collateral. The difference is that, with a home equity loan, you make fixed payments on the loaned amount and are usually charged a fixed interest rate (similar to a second mortgage). A HELOC is like a credit card, where you have revolving credit with variable interest rates and minimum payments.

You can use these types of loans however you want, including for a down payment on a new home or for improvements to your current home to increase its market value. Because these loans are secured using your current property, they come with lower interest rates than unsecured loans.

But home equity loans and HELOCs can be risky if you default, in which case you could lose your home completely. Their flexibility can become a disadvantage if you have trouble controlling your spending and use your loan for expenses unrelated to buying a new home.

Negotiate a lease-back agreement

A lease-back agreement (also called a rent-back agreement) is a home sale where the buyer agrees to purchase your home, allowing you to continue living in it as a tenant. While living there, you can search for a new home to buy.

After you sell, this setup takes some of the pressure off finding your new dream home as quickly as possible. Because you’ll no longer own your old property, you won’t risk having to pay double mortgage payments on your old and new houses.

However, you’ll likely have to pay rent to continue living in your sold house. Alternatively, the buyer may demand other concessions, such as a lower sale price. Lease-back agreements prevent the buyer from moving into their new property right away and force them into the role of landlord, so many buyers will refuse to offer them. This means you’ll have a smaller pool of potential buyers.

Make a low down payment and recast your mortgage

Recasting your mortgage is when you make a low down payment but then use the proceeds from your home sale to make a large lump-sum payment toward the new loan’s principal balance.

This won’t affect your interest rate or repayment terms. Your lender will recalculate your mortgage and give you a lower monthly payment. Most lenders charge a service fee of a few hundred dollars. Also, you may have to wait a few months after purchasing the house before you can recast the loan.

While a 20% down payment is recommended, it’s not required. For most loans, you can put down anywhere from 3–10% of the amount you’re borrowing. Just know that if you put down less than 20%, you may have to pay private mortgage insurance (PMI) of about 0.5–1.5% of the loan amount each month. PMI is cancelled when you’re halfway through your loan term or when your mortgage balance is 78% of your home’s original value.

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