Building a new home from the ground up can be one of the most thrilling yet overwhelming experiences in the life of a homeowner. But before the ground is broken and the ribbon cut, one critical question looms: Should you sell your current home before you build your new home? This decision involves several factors, including evaluating your finances, understanding the current real estate market, planning for temporary housing, and managing your emotions while being temporarily displaced. In this article, we explore the pros, cons, and nuances of selling your home before you build. We intend that this article will help you make a confident, informed decision regarding this next phase of your life.
Understand the Financial Pieces of the Puzzle
One of the biggest advantages of selling your existing home before you build a new one is financial transparency. This is because you will know exactly how much equity you can pull from your current property. Knowing this information allows you to budget for your new build.
According to the National Association of Realtors, the average homeowner has $199,000 in equity. That money can go directly toward your down payment, construction costs, or reducing your overall mortgage. Selling first can also prevent you from having the headache of qualifying for two mortgages at once.
However, selling early means you will need temporary housing and a place to live for several months. Renting racks up additional costs that can chip away at the finances you acquired from selling your home. Some families choose to tap into a bridge loan or home equity line of credit (HELOC) to finance the construction of their new home while staying in their old one. Alternatively, if your current home does not sell as quickly as expected, you could be saddled with high-interest debt and multiple payments.
The key is to compare the value of liquidity against the cost of temporary displacement, unless you can temporarily stay with friends or family. If you are fortunate to have family and friends who would agree to host you during this period, we recommend this option. Even if you are renting from them, you could pay a lower monthly rate than a stranger. Of course, this depends on your relationship, their financial situation, and other factors; however, this is an option to consider.
Navigating the Local Real Estate Market
Timing your sale also depends heavily on the condition of the real estate market. In a seller’s market, where inventory is low and demand is high, homes tend to sell quickly and often above the asking price, which is ideal. Selling your home before building in such a market might allow you to capitalize on peak prices.
In contrast, a buyer’s market can slow down your plans. If your home sits on the market for too long, it could delay your build timeline or complicate your finances. And if the market dips after you sell and before you build, you might not get as much house for your money, which can complicate matters even further.
“Market timing is critical,” says Sarah Nguyen, a real estate analyst at Redfin. “If you sell too early in a cooling market, you risk buying into a higher interest rate and tighter construction costs. But wait too long and you may miss out on your home’s peak value.”
Researching your local market, getting a professional home valuation, and talking to a real estate agent can help you make a strategic decision. Pay close attention to interest rates, inventory levels, and how long comparable homes in your neighborhood are staying on the market.
Is Renting in Between Worth It?
Selling your home before your new one is built almost always means moving twice. While that may not seem like a minor inconvenience, the logistics and potentially stressful situation can be overwhelming.
As previously discussed, temporary housing options include short-term rentals, extended-stay hotels, or moving in with family or friends. While these options give you the financial freedom to build without juggling two mortgages, all require a high level of dexterity.
Families with children or pets may find temporary moves especially challenging. Changing school districts, downsizing to smaller living quarters, and dealing with storage logistics can be disruptive and stressful. This is the reason some homeowners choose to rent. Renting removes the issue and financial burdens of home maintenance. While renting, you can direct your energy and attention to overseeing the construction process and moving it forward.
It is important to keep in mind that rental costs vary widely by region. Researching inventory in your particular area is an absolute necessity. A short-term lease that aligns with your build timeline is most favorable; however, this can be a challenging and expensive proposition. According to Zillow, median U.S. rents in 2024 reached $2,045 per month, with major metros averaging even higher. Before you navigate the middle space, make sure to include this estimated cost in your budget and timeline.
Managing Construction: Staying on Time
Selling your home before building allows you the freedom to build at your own pace. However, it can also add pressure to meet deadlines, because you have to move, and in some cases, find storage and a place to stay. When you are out of your old home, every construction delay becomes inconvenient and disadvantageous.
Weather delays, supply chain issues, and permit backlogs can all push back your move-in date. A 2023 survey by the National Association of Home Builders reported that 64% of new builds experience significant delays, with material shortages being the most common reason. I can personally attest to how material unavailability prolongs construction time, which can be very frustrating, and in the case of a new build, potentially a costly situation.
If you are leasing month to month, extending your stay might be an option instead of moving from one temporary place to another. One strategy some homeowners use is including a buffer in the schedule. This adds an extra two to three months to the construction timeline to account for potential delays. Another option is to choose builders who offer fixed-completion dates with penalties for delays. However, these contracts tend to be more expensive, but the builder is more apt to stay within the deadlines.
Emotional Considerations: Home Is More Than a House
While financials and logistics play a huge role, emotions are another major factor to consider when moving from your current home. Selling a home can be deeply personal, especially if it holds years of happy memories. Moving is frequently listed as one of the top 10 life changes, so the prospect of moving twice within a year can be stressful.
For some, the benefits of a temporary dwelling place far outweigh the discomfort. Living in a temporary space can motivate people to move quickly and make wise decisions about their new build. On the other hand, some find the transition more difficult than expected, leading to regret or stress-related health issues, which is something no one wants.
If you consider yourself to be a sentimental person, give yourself space to ease into this life-changing time. Some homeowners create memories of time with their families by taking photos of meaningful places in the home. Others make sure all family members are involved in the planning of the newly constructed home. Anyone who has moved from a beloved home can attest to the gravity of leaving it behind, even if the road ahead is better and has more exciting possibilities.
For those who have children, make moving like a game! Invite your kids to imagine all the fun they will have exploring the new space! Not only that, but talk up the external features in the new area (jungle gym, parks, etc) that you know appeal to them. Speak in an excited tone when describing the new place and the environment! By framing the transition positively, the move can become less stressful and more adventurous!
The Alternative: Building While Living at Home
The most comfortable option for many is staying in their current home while the new one is being built. This avoids the disruption of temporary housing and allows you to sell your old home on your timeline.
However, this approach is not always feasible. Not everyone can qualify for a new mortgage while still holding the old one if the home is not paid in full. Some builders require proof of funds up front. Furthermore, if your current home does not sell in time, you may face closing delays on your new construction.
Staying in your home sometimes leads to procrastination regarding building decisions. Without the urgency of a fixed timeline, some homeowners drag out selections or updates. Delays in making design decisions can bottleneck the builder’s progress.
If you have the financial flexibility and your builder allows phased payments, this approach offers convenience and peace of mind. You can supervise construction more easily and will have only one move.
What Are The Creative Financing Options?
For homeowners caught between the pros and cons of selling first or waiting, creative financing options may offer a solution. Bridge loans, for example, are short-term financing solutions that allow you to use your current home’s equity to purchase or build your new home before selling the old one. These loans often have higher interest rates and shorter repayment periods, but they can provide crucial flexibility.
Another lesser-known option is a rent-back agreement. In this arrangement, you sell your home but rent it back from the buyer for a set period, typically one to three months, allowing you to remain in the home while construction on your new place begins. This can reduce the stress of moving into a rental or staying with family, and also buys you time without needing to pay for interim housing.
Some homeowners even consider buying land and building in phases. This requires using available savings or smaller construction loans to avoid carrying two full mortgages. This incremental approach may extend your timeline, but it can offer more control and fewer financial surprises.
Ultimately, the success of any creative financing option depends on clear communication with lenders, real estate agents, and builders. These arrangements can be complex, so it is vital to understand all fees, risks, and repayment terms before committing. With proper planning and investigation, creative financing can turn a complicated situation into a manageable solution.
Making the Decision: Selling Before or After?
The choice to sell your home before building a new one is deeply personal and depends on a variety of factors: your financial situation, local housing market, family needs, long-term goals, and emotional readiness.
We recommend meeting with a financial advisor to determine your borrowing capacity and equity position. Consult with a real estate agent to understand your home’s current market value and timeline to sell. In addition, obtain expected timelines, penalties for delays, and payment schedules from the builder, when applicable.
Only then can you make an informed decision about the best path forward. Whether you choose to sell first and then rent, or build while staying in your current home, research, planning, and setting realistic expectations are key to a smooth transition.
This is not a decision to be taken lightly! Pay attention to the details and map out your decision tree. Most people spend at least a ⅓ of their day in their home, so make sure whatever path you choose puts you in a beneficial position financially, mentally, and physically.
TLDR: Key Takeaways
- Selling first makes budgeting easier, but may require temporary housing.
- Market conditions play a big role in timing your sale and build.
- Renting in between the sales can be expensive and disruptive, especially for families.
- Construction delays are common, so include a buffer in your timeline.
- Emotional readiness is equally as important as financial preparedness.
- Staying in your current home during construction avoids disruption but may result in procrastination and lagging timelines.
- Creative financing options like bridge loans or rent-back agreements may offer flexibility.
- Evaluate your unique situation and consult professionals before you make this life-changing decision..
If you choose to build a new home, the decision to sell first or wait is one of the biggest decisions you will ever make. Choose the path that is best for your finances, your lifestyle, and your long-term goals.