Selling Your First Home to Buy a Bigger One in Monmouth or Ocean County

Most people buy their bigger home with the equity in their first one, so the plan starts with what your current home will sell for and works forward to what you can buy and how to time the two closings. Price the sale right, get approved for the purchase, and line up the dates so you move once.

I'm Dennis Mark Interdonato with The Dennis Mark Group at Keller Williams Realty Ocean Living. If you've outgrown your first home in Monmouth or Ocean County, you know the list: another bedroom, a real office, a garage that fits the car or a yard you can use. And you know the worry that comes with it: "What if I sell and can't find the next place in time?" Here's how we figure out a plan together.

How much house can your first home buy?

Start with the number that funds everything else: what your home will sell for today, minus what you owe and what it costs to sell. That's your equity, and for most move-up buyers it's the down payment on the next home.

• Get a real market evaluation. Not a guess from a website, but a number built from recent sales near you. Start with your home's value.
• Get your payoff figure. Your mortgage servicer can tell you what it takes to pay off the loan, plus any home equity line.
• Subtract the cost of selling. Seller closing costs, any repair credits you agree to, and the move itself. I put estimates in writing before you list.
• Take that number to a lender. Your lender tells you what you're approved for and what the monthly payment looks like. That's their call, not mine.

Do you pay tax on the profit from your first home?

Often not, but check before you count on it. Under IRS Publication 523, you can generally exclude up to $250,000 of gain on the sale of your main home, or up to $500,000 on some joint returns, if you owned the home and lived in it for at least 24 months of the five years before the sale. You can generally take the exclusion only once in a two-year period. Your tax professional confirms how it applies to you.

Should you sell first or buy first?

The Consumer Financial Protection Bureau describes the usual order: "If you want to move, you normally try to sell your home first before buying another one." That keeps you from carrying two homes at once. It isn't the only way to do it.

• Sell first. You know exactly what you have to spend. You may need somewhere to stay in between, or a rent-back that lets you stay after your closing. Here's how a seller rent-back works in New Jersey.
• Buy first. One move, but you carry both homes until the first one sells, and your lender has to approve you with both.
• Line them up. You sign on the next home and set the dates so your sale closes first or on the same day. Here's how back-to-back closings work.

What does a bigger home cost each month?

A bigger house is more than a bigger mortgage. The CFPB reminds buyers that when you own a home, "you pay for repairs, along with any property taxes, insurance, and homeowners association dues that apply." In New Jersey, each town sets its own property tax rate, so two homes at the same price can carry very different monthly costs. Before you fall for a house, compare the property taxes between towns, and budget for heating and cooling the extra square footage and keeping up a bigger roof and a bigger yard.

This is where my background earns its keep. I'm a former New Jersey home builder and residential remodeler. On the next house, I'm reading the roof, the mechanicals and the renovation work, so you know what's coming before you buy it, not after.

How do you get the most for your first home?

The first two weeks on the market set the price. A home that launches at the right number, ready to show, draws its strongest buyers early. A home that sits gives buyers a reason to wait, and when you're buying too, a stale listing stalls everything behind it.

You also get two game plans from me: sell as-is, or make a few targeted updates first, with what each one should bring. One Beachwood seller who was selling and buying at the same time put under $15,000 into updates I picked and supervised. The list price came in $30,000 higher than the as-is plan, and the first-day offer came in $45,000 over list: $75,000 more in total. Here's which upgrades tend to add value in New Jersey.

What if you find the next house before yours sells?

Then we talk about it that day. When you find the right house, buy it. Buyers who find the right home early often hesitate, afraid they'll miss something better. You already know what you want. The real question is whether the money and the timing work, and that's what the plan is for: your lender on the financing, your attorney on the contract, and me on the timing of both sides.

If you're holding off until rates drop, think about who else is waiting. National Association of REALTORS® research found that a one-point drop in rates could add about 5.5 million households, according to NAR, to the pool of buyers. When rates fall, that crowd comes back, and you're competing with it.

How does the timeline work in New Jersey?

1. Value and plan. Market evaluation, lender conversation, and the order of the two sales, in writing.
2. Prepare and list. The updates that pay, staging if it helps, photos, launch.
3. Accept an offer. New Jersey contracts written by real estate licensees carry a three-business-day attorney review, and you don't count Saturdays, Sundays or legal holidays. Here's what attorney review is.
4. Shop with real numbers. Once your sale is under contract, you know your equity, and your offer on the next home is stronger for it.
5. Close in the right order. Your sale first or on the same day, with a cushion of a few days if you can get one.

The bigger picture of how I plan a move around a change like this is on my life events page, and the Life Events Guide walks through the order of operations.

Frequently Asked Questions

Can I use the equity in my first home as the down payment on a bigger one?

Yes, and it's the most common way move-up buyers do it. If your sale closes first, the proceeds can go toward the purchase. If you want to buy first, your lender tells you whether you qualify while carrying both homes.

Do I pay capital gains tax when I sell my first home?

Often not. IRS Publication 523 generally lets you exclude up to $250,000 of gain, or up to $500,000 on some joint returns, if you meet the ownership and use tests. Your tax professional confirms it for your situation.

Should I sell my house before I buy a bigger one?

Selling first is the usual order and keeps you from paying for two homes, but buying first or lining the closings up can work too. We decide together, with your lender, based on your numbers.

What if my sale closes before the next house is ready?

Plan for it before you sign. A rent-back, a short-term rental or a later closing date on your sale can each cover the gap. Your attorney makes sure the contract says what we agreed.

This is general information, not legal, tax or lending advice. Your attorney, lender and tax professional advise on your own situation.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

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• Renovate or move when you've outgrown your home
• Selling and buying at the same time in New Jersey
• Have a question this didn't answer? Send it to Dennis Mark and it may become the next article.