How can we buy a home without taking out a mortgage? See details...

Yes you can sell one property and buy a new one that is equal or is less than the proceeds from the first.
There maybe federal tax implications.
But you don’t need to get a mortgage on the new property.

Why not? You will have a capital gain but there is a huge exemption (can’t remember how much) so unless your current home is worth 500k more than the new one it shouldn’t be a problem.
Keep in mind that you will have to pay $$ in costs and commissions.
I would also consult your tax advisor to make sure I’m right about the exemption. There might also be a tax burden on the state level that you should check out.

I did this. I sold my house in a metropolitan area, and bought a much better place in the sticks. I had about $32,000 left, and lived on that for a while.

Sure you can do it. If you are married you can profit up to $500k and there is zero federal tax on the profit if you have owned the property a minimum of 2 years, and it is your primary residence. If you aren’t married the exemption is $250k. Just to clarify further regarding what @Judi wrote, only the profit amount matters. If you bought the house for $200k and you sell for $240k, your profit is $40k and the $40k is what the IRS would be concerned with. If the house was purchased for $700k and you sell for $740k, again, the IRS only looks at the $40k. In both cases if you lived in the house as your primary residence the $40k would not be taxed, because it’s lower than the $250, $500k exemptions no matter what your marital status is.

There will be more than one person, especially over the age of 40, who might tell you you can only sell one time in your life and get the tax exemption, but that is absolutely false. It was changed many years ago. You can do it every two years for the rest of your life; until they change the law again. If you have not been living there as your primary residence the tax law is a little tricky. If that is your case let us know and I can explain some basics on the taxes and exemptions.

If your state has homestead exemptions that carry forward there might done rules regarding that on how fast you need to purchase to directly carry the homestead exemption.

Typo: couldn’t edit “done rules” should be “might be some rules.”

This all sounds too easy. If we sell our home, when do we actually receive the money from the sale? Because until that point, we obviously wouldn’t be able to purchase a new one. I’m worried about the timelines not matching up. Will we get the money from the sale of our home with enough time to find and move into a new home? Or will there be in an in between period where the new owners will need to move in here and we would have nowhere to stay?

You will get the money at the closing so you need to close on the old house before closing on the new. You will need to be able to show the sellers of the new house that you will have the money to buy it so you will need at least to have a firm contract on your old house before going into contract on the new. There is also something called a bridge loan that you can take out from a bank or mortgage company that is a short term loan to cover the gap between buying a new house and closing on your own if you want to go that way.

When I have done this, yes there has been a time gap. I got the money at the closing, as @janbb says, and once there was only a short gap (a few days) where I stayed with some friends, and stuff was in storage.
Didn’t know about the “bridge loan”, @janbb, thanks for the info!

Can you make an offer on a new property conditional on the sale of your current one? I got a bridging loan to get into my new place before my old place sold but then you are really locked into a loan and are desperate to get a certain price for your old property as soon as possible because bridging finance is more expensive.

@cazzie You can do that but some sellers won’t accept an offer with a contingency clause and also as you say, it is risky because then you are feeling pressure to sell.

Worst case scenario, maybe we put our things in storage and stay with family for a bit? Ideally we want to avoid a loan if there’s a way. What about this scenario: We sell this home. Shortly before closing we search and find our potential new home. We close. Take that money and buy the new home. Explain how this does or does not work. (We have gone through the official home buying process. This home was much easier because we purchased from a family member, so I apologize if I seem completely uneducated!

@ItalianPrincess1217 Sure. If you can live with family for a while that would work. If you are not getting a mortgage, your wait time for closing on the new house should be less but there still will be some things like a home inspection and CO to get that will take a little time. My friend just bought a house for cash and the closing was about three weeks after she had had the accepted offer.

I would not go to contract on a new house in your scenario until you have the money in hand if you do not want to take out a bridge loan.

You can try to put your closing date some months into the future to give yourselves time to look but then the pressure is on to find a place because you sold and have a ‘must be out by ” date. Some people rent until they find a place to buy for cash.

Thanks @janbb. I was wondering an approximate time frame if there’s no mortgage. 3 weeks is reasonable. 3 months, not so much.

@ItalianPrincess1217 , you make the offer on the new home contingent on the closing of your current home. People do it all the time.

(can’t edit and it wasn’t been two minutes! Ugh!)
A seller usually won’t have a problem if you make the offer after you go into escrow.

@Judi Thank you!

Yes. Why not go one step further and downsize? Downsizing is often done by senior citizens, looking to simplify their lives, but anybody can get on board. A well-planned downsize can end in no mortgage plus a nice nest egg. People forget that there’s great freedom in living below one’s means.

@Love_my_doggie We would like to downsize in both price and size but upgrade the amount of land and privacy. Luckily there are country homes within 45 minutes of us that offer this option.

The least amount of headache might be to sell, and then start doing your new home search. Especially, if you have family to live with. Then you don’t have to panic if your home you are selling doesn’t close. Maybe do it one step at a time?

@JLeslie has a point. A ash offer can close very quickly and you are likely to be able to negotiate a better price by offering cash. Just beware, a lot of the inspections required by lenders aren’t required in a cash offer. You might want to have some of those inspections done anyway.

A bridge loan is primarily used to cover the gap between closing the mortgage on the first house and opening one on the second. Since you don’t have a mortgage now, it might be better to look at the terms of a regular mortgage on your new house. Once the old house closes, you can pay off the mortgage. Make sure there are no prepayment penalties.

You would not have to worry about matching up time lines, but there would be origination fees for the mortgage and interest until you sold your first home.

Since you aren’t paying a mortgage, can you afford to move into an apartment on a short lease or month to month. Nothing elaborate needed. I would sell my home and once a date has been settled, (usually takes a month) move all my stuff into storage minus a few things I need into an apartment. That will give you time to look for a home without feeling pressured to find something fast. You will already have the money, and it is true that you have to pay taxes on the profit amount of the house. But you will have a better idea of how much you can spend on your next house. Now if you move in from one house to another, I’m not sure if you have to even pay taxes on the profit amount if your next house swallows the profit. I know my mom didn’t . She made over 60 thousand on the sale of her house and didn’t have to pay taxes on the profit, but it may also have to do with her being a widow and a senior citizen.

This was over 12 years ago, so I do not know if the laws had changed but she was told she would have to use up all the money on the house within a year. She bought a house 3 months later and the new house was 60 thousand more than what she had so she and my sister took out a loan for the extra amount.

@Pandora Yes that’s definitely an option to consider. In our area short term leases and month to month apartment rentals are very hard to find. If it’s not possible we have considered checking monthly rates at a local hotel.