As the saying goes, "Timing is everything." And this saying particularly holds true if you're planning to buy a new home but also need to sell your existing home. It can be tough to decide whether to first buy your new home, or hold off on that purchase until your old home has been sold. Each approach has its pros and cons.

Buy First or Sell First?

Should you sell your old home first, or instead concentrate on buying a new one? Only you can decide what makes the most sense for your situation and your family.

Selling Your Old Home First:

  • Con: Run the risk that you'll have to find temporary housing
  • Con: Likely to incur extra moving costs and storage costs
  • Con: Difficult to set a specific moving date until your house is sold
  • Pro: Know exactly how much you'll be able to pay for your new home
  • Pro: Will only have to pay the expenses of a single house

Buying Your New Home First:

  • Con: May need the cash from your old home to use for the deposit, down payment and closing costs on the new house
  • Con: Will have the expenses associated with two homes until the old one sells
  • Pro: Can move straight from your old home into your new home
  • Pro: Minimizes upheaval and disruptions to your household

If You Decide to Sell Before You Buy

If you decide that it's important to sell your home before buying a new one, you should be prepared for the fact that there may be a period of time during which you own no home, and will have to find a place to live.

If you are unable to stay with friends or relatives, find a short-term rental home that's suitable for you and your family (including pets, if you have any). Or, consider asking the buyers if they'd be willing to let you live in the home (paying rent, of course) until you buy a new home. If you do have to move into temporary housing, you'll also want to get quotes from several moving and storage companies. Moving can be a large expense, and you may be able to save some money if you can find a mover that also offers storage services.

It's also important to decide how to handle the money you receive from the sale of your home. After you pay off any existing mortgages, you'll presumably have a significant amount of cash to use toward the purchase of your new home. Find an investment that is low-risk, such as a short-term CD, or savings or checking account, and one that gives you easy access to your funds without penalizing you for early withdrawals.

If You Decide to Buy before You Sell

If you decide to buy a new home before selling your existing home, you should still take the time to get your existing home ready to sell. Make any necessary repairs and cosmetic improvements, plus find a real estate agent so the home is ready to be listed as soon as you're ready to sell it.

You'll also need to analyze your finances to determine whether you can afford to own two homes simultaneously. You should be prepared to cover the expenses of both homes for at least 6 to 9 months. It may make sense to arrange for a bridge loan, home equity loan or other short-term financing.

A bridge loan, sometimes known as a swing loan, is a short-term loan that allows you to temporarily cover some of the expenses of buying your new home while waiting to get money out of your old home. A home equity loan or line of credit allows you to use the equity that's been built up in your home to cover necessary expenses.

Contingencies

Whether you first buy a new home or sell your existing home, you may be able to insert a contingency clause into the purchase contract that gives you some flexibility so you're not temporarily homeless or saddled with the expense of owning two homes. For example, you can write a clause into the purchase contract for your new home that says the purchase is contingent on the sale of your old home. Or, you could write a clause in the purchase contract for your old home that says the sale is contingent on your ability to find a purchase a new home within a reasonable amount of time.

Your ability to insert these types of clauses into a contract will depend on whether it's a buyer's market (which means demand is low and sellers are eager to accommodate buyers in an effort to make the sale) or seller's market (which means that demand for homes is high, and buyers are more likely to agree to a seller's demands in order to buy a home). Not all home buyers and home sellers will agree to such clauses, but it never hurts to ask.