How to Build a House While Selling Yours: 5 Steps to Take

Building a new house while selling another isn’t easy, but it’s doable if you plan well. I know because I built and sold a home simultaneously in 2019. Without careful planning, the expenses can add up quickly and keeping track of all the moving parts can be overwhelming.

Finding the right help to juggle the logistics is crucial. I recommend working with a vetted agent from Clever Real Estate. They’ll sell your current home for 1.5%, which will save you thousands that can go toward your new build while still giving you top-tier service. Clever Real Estate has a 4.9 rating on Trustpilot.

Aside from getting a professional to help you navigate the process, here is a step-by-step list to follow that I found helpful in my own experience of building a house while owning another.

Should I sell my house before building a new one?

Whether or not you sell your house before building a new one depends on your finances and housing market conditions. If you sell your house before your new one is finished, you’ll likely need temporary housing. But if you wait to sell your house, the market might drop or it may be tricky to find financing without the equity from your previous home. Any number of challenges can arise. 

Construction on our home in Louisiana began while we were still living in Mobile, Alabama, and trying to sell our house. We needed to sell and move within about five months. There were two things in our favor: we found an excellent selling agent and worked with a knowledgeable builder rep.

But as our search for a buyer for our current home drew out and our home construction faced delays, the stress started to build. Extra costs piled up, and our tight timeline threatened to burst.

Save yourself unnecessary worry by being prepared and learning from my experience. Here are the steps to take as you build a home while owning another and what timeline to expect:

Timeline for building a new home while owning another

Step 1: Choose a builder and land for your new home.

This first step to building a house while selling yours is pretty straightforward if you’re building in a new subdivision like I did. In general, there’s only one builder and a set number of floorplans when you’re joining a development. The land is often included in the home price, and you’ll typically find an experienced builder sales rep to guide you through the process.

If you’re building on land you own, you’ll need to find your own builder. Try to get in-depth quotes from several contractors and be clear about your expectations, needs, and timeline. Building a new home can take a while, so be sure you and the builder agree on the cost and when you plan to move in.

Buying land gets a bit more complicated. Most home-buying websites list vacant land, or you can work with a local real estate agent. Look for one that specializes in new home construction and land deals.

Contact your local zoning office to check for zoning restrictions on the land and existing water and sewer connections. Also, ask which private companies (if any) provide gas and electricity and contact them directly. A good real estate agent can help you with these tedious but necessary tasks.

Step 2: Get financing for your new construction.

Building a home costs about the same as buying a home. But most people don’t have that much money lying around, especially if they have a mortgage on their current house. It’s essential to put together a budget and seek financing options.

Here’s what you’ll need to consider for your budget:

• Downpayment: This is generally 20% of the cost to build or the home’s appraised value, although it depends on your loan.[1] Putting 20% down will prevent you from paying mortgage insurance.
• Cost to build: The cost to build a home typically falls between about $138,000 and $526,000, with the average at $317,786.[2]
•  Cost to sell: Expect to pay about 9.04% of the sale price (the average is $32,529), which includes real estate agent fees. It could cost more if your home needs repairs.
• A second mortgage: If your new home is finished before you sell your old one, you could have two mortgage payments. The median mortgage payment is $2,617 a month.[3]
• Temporary rent or storage costs: If you sell before your new home is complete, you may need temporary housing or storage. The average rent for a two-bedroom apartment is $1,812/month,[4] while a storage unit is typically $100–$450/month.[5]

Types of loans for building a new home

Building a new home requires careful planning, and selecting the right financing is a crucial step in the process. From construction loans that cover building costs to conventional mortgages for long-term financing, understanding your choices can help you make an informed decision. Let’s take a closer look at some common loan options for financing your new home build.

Bridge loans

A bridge loan covers expenses between two transactions — i.e., funding the downpayment on your new build before selling your home.[6] These loans borrow against the equity of your current house, so they’re really only worth it if you have significant equity in your home along with a good credit score and a low debt-to-income ratio.

Bridge loans are ideal for those who expect their home to sell fast. You’ll need a good credit score and debt-to-income (DTI) ratio to be approved. However, bridge loans have high interest rates, which can add up quickly if it takes you a while to sell.

New construction loans

There are two options for new construction loans:

• Construction-only loan: You must pay the entirety of the loan once your home’s construction is complete. Buyers typically use these to fund the building process and then refinance into a mortgage once the home is finished. These loans are good if you think you can find better mortgage terms after your new construction is complete.
• Construction-to-permanent loan: This loan provides financing for the construction of your home and becomes a mortgage loan once your home is built. It’s a more streamlined process than a construction-only loan because it’s not separate loans, but you’ll be locked into the rates upfront. But you’ll also save more money on fees since you won’t have to do two separate loans.

For both types, lenders will look for a good credit score, stable income and employment, a low DTI, and at least 20% down. If you qualify, an FHA construction loan offers lower down payments, typically 3.5–10%, based on your credit score.[7]

Home equity loan 

A home equity loan or home equity line of credit (HELOC) may be a good option if you have enough equity in your current home.[8] The amount you can borrow is based on the difference between your home’s value and how much you owe on it.

You receive a home equity loan as one lump sum to pay back over time. A HELOC is a line of credit that you can draw from as needed for a set time and then pay back.

Step 3: List your current home.

Listing your home for sale can take at least 2–3 weeks or longer, depending on the repairs needed. A real estate agent can help you decide which repairs are necessary and whether to sell your home as-is.

If you hire an agent to help with your new construction purchase, they may also be able to help you sell your home. But if you work directly with the builder or their sales rep, you might want to find a listing agent. Bonus: you may be able to save on agent commission fees if you use a free agent-finding tool like Clever Real Estate (1.5% vs. 2.5–3%). Find local Clever agents in your area by zip code.

A listing agent can also help you set sales contingencies to secure your financial stability and security while selling your home. In this situation, a suitable property contingency could be helpful. This allows the seller to revoke a purchase contract if they haven’t found housing while their new home is under construction.

Step 4: Find temporary housing while your home is being built.

If your home sells before your new one is built, you may need to find temporary housing or a storage unit. Depending on your area, finding an apartment or short-term rental could take up to 60 days.[9] Look for a rental with flexible lease options in case construction is delayed.[10]

A rent-back agreement could be a good temporary solution if you can’t find short-term housing. This agreement between buyers and sellers allows sellers to live in the house for a set period after selling their home. An agent can help you negotiate this, and you’ll likely have to pay the buyer rent for the time you stay in the house after closing.

Storage units are relatively abundant in most towns. Take stock of what you have to determine how much space you’ll need.[11] For instance, a three-bedroom house typically requires a 10-foot x 25-foot unit.

Step 5: Sell your home and move to your new build.

In a perfect world, you can find a buyer, close in about 1–2 months, and move into your new home. But we all know things rarely go this smoothly. If you’re ready to move and need to sell, you might try a buy-before-you-sell program. This allows you to list your home on the open market for the best possible price while building a new one.

Basically, these companies tap into your current home’s equity through a short-term bridge loan and offer you cash for a down payment. You can avoid double mortgage payments through this option, plus they’ll help you sell your home. But you may also have to pay service fees of up to 6%. These companies can also buy your home directly, although the offer will likely be below market value.

If you need to sell quickly, iBuyers are another option. They make fast cash offers on your home — again, typically below market value — and can close in two weeks or less.

With your old house sold, you’re ready to settle into your new newly built home. Be sure to do a complete walk-through with the builder (preferably before you move in) to catch anything they might need to repair.

FAQ about building a house while selling your current home