How do you sell your primary residence to buy another?
Are you planning to sell your primary residence to buy a new one ? This type of real estate project is quite common and entirely achievable, provided you understand the pros and cons of the different strategies available. Whether you choose to sell before, after, or handle both simultaneously, each option has its advantages… but also its challenges! From bridge loans to chain sales, there are several approaches to managing the sale and purchase of a house or apartment. In this article, discover how to succeed in this project without the stress, by making informed decisions to optimize your finances and protect your peace of mind.
Why sell your primary residence before buying another?
Pros and cons of selling your home before buying another
Starting by selling your home lets you know exactly how much you can invest in a new property. This way, you know your down payment and borrowing capacity before committing to a new real estate buying process. This helps you properly prepare your financing plan and understand the type of property you can afford.
By selling your house first before buying another, you simplify the financing of your future acquisition. If your current home is still tied to a mortgage, selling it allows you to pay off your loan and start a new real estate project with a healthier financial situation. This makes it easier to secure a new mortgage with favorable terms.
Selling before buying a property also lightens your mental load because you don't need to manage two fronts at the same time, namely the sale and buying a primary residence. Once the sale is finalized, you have peace of mind to focus entirely on finding your new nest. If you come across a rare gem, you are ready to submit an offer immediately, without waiting for your old home to sell. Plus, this saves you from having to carry the costs of two properties at the same time.
However, the main drawback of this strategy is that between the sale of your home and the purchase of the next one, you need to find temporary housing. In most cases, this means renting a place during this transition period, which can last anywhere from a few weeks to several months.
Since you aren't really settled in during this transition, you might be reluctant to unpack all your boxes, which can lead to an uncomfortable logistical situation, especially if some of your belongings are in storage.
Financially speaking, selling your home before buying another can lead to additional costs, such as:
- the cost of rent for temporary housing,
- the price of an extra move,
- the cost of a storage unit.
To ease the transition period, a cost-effective solution is to stay temporarily with a friend or family member. If that isn't possible, you can ask the buyer of your home if you can stay in your old place for a few months after the sale while you find your new primary residence. Of course, this agreement must be formalized in a contract, including financial compensation and a reasonable deadline for vacating the premises.
"I just purchased my second property and Maison Kyka handled everything from A to Z.
From the search to the renovations, the architect managed to capture exactly what I needed, but even better than I had imagined!
The team is responsive, which allowed me to free up time for myself and hand off the renovation work with complete peace of mind!
Thanks again, I highly recommend them!"
Adrien Balikdjian
Tips for selling your house before buying another?
Giving yourself the means to sell your primary residence at a good price
It is nearly impossible to know in advance when your property will sell or at what price. Some homes sell in just a few days, while others can stay on the market for several months.
Trying to sell your primary residence too quickly risks forcing you to lower your asking price, which in turn reduces your purchasing power for your next home. This is why we recommend taking the time to sell without rushing. By doing so, you maximize your chances of selling your house or apartment at an attractive price.
It can also be wise to carry out a few minor renovations to make your property more appealing to buyers. In the weeks leading up to the sale, take the time to do some home staging to highlight the best features of your rooms (or your garden, if applicable).
For example, repainting walls or window frames, fixing a broken light switch, or adding a mirror or some fresh flowers are small improvements that can win over potential buyers and add value to the property.
Anticipate the additional costs associated with buying a new property
As with any real estate project, it is essential to include the additional costs related to your new purchase in your financing plan, starting with notary fees. For existing properties, these fees represent between 7% and 8% of the purchase price, while they range from 2% to 3% for new builds.
As mentioned earlier, other expenses may also apply, including:
- Moving costs and expenses related to renting a storage unit, if necessary.
- Early repayment penalties for your mortgage.
If you sign a buyer's agent agreement to benefit from the services of a property hunter, remember to also include their fees (typically 2% to 4% of the sale price).
At Maison Kyka, we support homeowners in the purchase, sale, and renovation of their properties. Our project managers are at your disposal to help you sell your primary residence and quickly find the home of your dreams.
Buying before selling with a bridge loan
Pros and cons of buying a new property before selling your primary residence
If you wish to purchase a new home before selling your primary residence, a bridge loan can be a smart solution. This short-term loan allows you to finance the purchase of your new property without waiting for the sale of your current home to be finalized. In other words, the bridge loan covers the cash flow gap between the two real estate transactions.
A bridge loan gives you the purchasing power to buy a new property while giving you time to sell your previous primary residence. It is a short-term credit that offers you the freedom to buy with peace of mind, even before you have found a buyer for your current home.
A bridge loan is an option available to all property owners, whether they bought their primary residence or are rental investors. First-time buyers are therefore not eligible for this type of loan.
Generally, the bridge loan amount represents between 50% and 80% of the value of the property for sale, and its term does not exceed 24 months. That said, the loan can be renewed once.
One of the major advantages of this type of loan lies in how it works: as long as your primary residence is not sold, you only pay the interest. The principal is paid off once the final deed of sale is signed, and no early repayment penalties are charged. This is a significant benefit for those who wish to purchase a new property without the risk of being financially overextended.
Buying before selling also offers the logistical advantage of avoiding a double move. You can move directly into your new home without having to go through a temporary rental period.
Finally, it is an ideal option if you wish to buy a property that requires renovation work (to optimize the comfort and real estate value of your next home). In this case, you can stay in your current home for the duration of the work and avoid staying in temporary housing for too long.
However, while the bridge loan has clear advantages, it also carries risks and drawbacks that are crucial to consider:
- It is a short-term credit, ranging from 12 to 24 months.
- If your property is difficult to sell, you could find yourself in a delicate situation.
- Interest payments begin immediately, even though the principal is only paid after the sale.
- Bridge loan interest rates are generally higher than those of a standard mortgage.
“I was supported by Maison Kyka in carrying out my project and I am very satisfied with the result! The entire team listened to me and perfectly understood my expectations. I am delighted to have been supported by the Maison Kyka service and I recommend anyone who wants to carry out a custom and innovative real estate project to go for it with them!”
Olivier Dhalluin
Tips for buying a property before selling your own
Assessing the value of the property you are selling
You will need to establish your financing plan without knowing the exact sale price of your current home. That said, you must estimate the value of your property as accurately as possible because its price will be a deciding factor in calculating your purchasing power.
However, be careful: the real estate market is constantly fluctuating. For your property project to be a success, it is essential not to overestimate the value of your home.
Several criteria should be considered:
- The location of your home
- Its type (apartment, detached house, etc.) and age
- Its energy performance (EPC)
- Its living area, number of rooms, bedrooms, etc.
- The surroundings (proximity to shops, transport, etc.).
To obtain an accurate estimate and avoid unpleasant surprises, it is highly recommended to call on a real estate professional, such as Maison Kyka. Book an appointment with one of our project managers to discuss your real estate project in detail.
Anticipating all administrative procedures related to selling your home
As soon as you are the owner of your new home, and as soon as it is ready for you to move in, it is in your best interest to sell your previous residence as quickly as possible. As long as this is not done, you are carrying the costs of two properties and continuing to pay interest on a bridge loan.
To maximize your chances of sell your property quickly, it is advisable to get a head start on all administrative procedures, as the sooner you gather all the documents required for the sale, the faster it can be finalized. For example, remember to have your latest property tax notice ready so you can provide it to buyers who wish to review it.
Furthermore, potential buyers will ask you many questions during the viewing of the apartment or house you are selling. It is therefore important to prepare all mandatory property diagnostics in advance, particularly the Energy Performance Certificate (EPC).
How can you buy without a bridge loan?
If a bridge loan does not suit your needs or if you prefer to avoid taking out an additional loan, other alternatives exist to finance the purchase of your new home. For example, you could rent out your current property to generate income that covers part, or even all, of the costs associated with purchasing your new home.
You can also opt for a rent-to-own arrangement. This mechanism allows you to rent a property with an option to buy, providing a smooth transition between your old and new property. During this period, you will receive occupancy payments for a maximum of 3 years. At the end of the contract, the tenant can become the owner of the property by paying the sale price to the seller, after deducting the amount of the occupancy payments already made.
Finally, another option is to coordinate the sale of your property with the purchase of your new home. This solution is ideal, but it requires careful preparation and strong negotiation skills.
How can you buy and sell simultaneously?
Selling your primary residence while buying a new property is a perfectly feasible operation, although it requires flawless organization. This process is even known as a "chain sale."
The principle is to perfectly align the sale and the purchase, down to the very day, which often requires flexibility and patience. Indeed, it is rare for the buyer's and seller's schedules to coincide perfectly. Several solutions exist to help you align the sale and purchase of your primary residence:
- Buying between the preliminary sales agreement and the final deed
- Adding a contingency clause to the preliminary contract
- Negotiating a payment delay with the buyer of your property
- Taking out a bridge loan
Using the time between the preliminary agreement and the final deed
One of the most common strategies is to take advantage of the time between signing the preliminary sales agreement or the purchase contract and the final deed. Once the preliminary contract for the home you wish to buy is signed, you have 2 to 3 months to finalize the sale of your current residence.
Similarly, if you choose to sell your current residence before committing to the purchase of the new property, it is imperative to ensure that all contingency clauses have been satisfied.
For example, the buyer of your house must have secured their financing, and any urban planning certificates must not reveal any easements. An oversight at this stage could jeopardize your project.
If all these conditions are met, it is even possible to schedule the signing of both deeds (sale and purchase) on the same day, provided there is good timing and coordination between all parties involved.
Adding a contingency clause to the preliminary contract
Another solution is to include a contingency clause in the preliminary sales agreement or purchase contract for your new property. This clause stipulates that your purchase will only proceed if you succeed in selling your primary residence.
However, this option requires the seller's agreement, and they are not obligated to accept this condition. You must therefore negotiate carefully to find common ground that works for everyone.
Negotiating a payment deferral
In some cases, you can negotiate a payment deferral with the seller of your future home. This agreement allows you to delay payment for the property until you have finalized the sale of your current house.
This gives you the time you need to release the funds required for your new purchase while avoiding unnecessary financial pressure.
Taking out a bridge loan
You’ve likely heard of a bridge loan, but did you know there’s a more flexible alternative: the buy-to-sell loan?
Introduced in 2014, this credit option combines a bridge loan with the refinancing of your current mortgage. This allows you to keep your mortgage after the sale, manage only one monthly payment, enjoy a two-year window to sell your property, and benefit from an interest rate that is often lower than that of a traditional bridge loan.
This solution can be particularly useful if you want to buy and sell your primary residence simultaneously while maintaining the flexibility to find the right buyer or complete renovation work on your new home.
To successfully purchase your new home without the stress, call on Maison Kyka! One of our project managers will help you track down that hidden gem in need of renovation, and our interior design studio is here to turn it into a living space that reflects your personality and makes you proud.
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