Yes, you can use home sale proceeds for a down payment, and lenders treat that money the same as any other verified asset once it lands in your account. What matters is knowing how much cash you’ll actually clear after your mortgage payoff, closing costs, and any taxes, and then lining up the timing so your new loan doesn’t stall waiting on the old one to close.
What You’ll Actually Walk Away With
Start with your expected sale price and subtract everything that gets paid at closing. The biggest deduction is your remaining mortgage. Ask your servicer for a payoff statement rather than working from your monthly statement balance; the payoff includes interest accrued to the anticipated closing date on a per-day basis, so it runs higher than the principal you see online.
Transaction costs come next. Real estate commissions have traditionally been 5% to 6% of the sale price, split between the two agents. After 2024 changes to MLS policies, sellers have more flexibility over what, if anything, they offer a buyer’s agent, but the seller-side commission alone is still a meaningful hit. On top of that, plan for transfer taxes (which vary widely by state and locality), title insurance, recording fees, and settlement agent fees.
Concessions negotiated during the contract phase come out of the same check. If you agreed to cover part of the buyer’s closing costs or fund repairs flagged in the inspection, subtract those too. What’s left is your net proceeds, and that’s the figure your new lender will use.
Check for a Prepayment Penalty
Most residential mortgages originated after January 2014 can’t carry a prepayment penalty under Consumer Financial Protection Bureau rules. Where a penalty is allowed, it applies only during the first three years and is capped at 2% of the outstanding balance in years one and two, then 1% in year three. If your loan predates those rules or falls into an exception, read the note before you list. A penalty reduces your net proceeds dollar for dollar.
Taxes Can Take a Bite Before You Get to Closing
Not every dollar of profit is yours. If your gain exceeds the federal exclusion, capital gains tax on the excess reduces the cash available for a down payment.
Federal law lets you exclude up to $250,000 of gain from the sale of your primary residence if you file as a single taxpayer, or up to $500,000 filing jointly.1Internal Revenue Service. Topic No. 701, Sale of Your Home You must have owned the home and used it as your main residence for at least two of the five years before the sale.2Internal Revenue Service. Sale of Residence – Real Estate Tax Tips The two years don’t have to be consecutive, but they have to fit inside that five-year window.
Anything above the exclusion is taxed at the federal long-term capital gains rate. For 2026, those rates are 0%, 15%, or 20% depending on taxable income; a single filer with taxable income above $49,450 but below $545,500 pays 15% on the excess gain.3Tax Foundation. 2026 Capital Gains Tax Brackets and Rates State income tax may add to that. If you bought years ago in a market that has since surged, run this math before you commit to a down payment number.
How Much Down Payment Do You Need to Hit?
Whether your proceeds are enough depends on the loan you’re using.
- Conventional loans typically start at 3% to 5% down. Below 20%, you’ll pay private mortgage insurance, which usually adds 0.3% to 1.15% of the loan balance per year.
- FHA loans require 3.5% down with a credit score of 580 or higher, or 10% down with a score between 500 and 579.
- VA loans allow eligible veterans and active-duty service members to buy with no down payment.4U.S. Department of Veterans Affairs. VA Home Loans
On a $400,000 home, 3% is $12,000 and 20% is $80,000. That range is wide enough that it decides whether sale proceeds alone cover you or whether you need to add savings. Many sellers aim their proceeds squarely at the 20% mark to skip PMI and cut hundreds off the monthly payment.
Buying Before Your Current Home Sells
The awkward case is finding the next home before the current one is under contract. Two things bite at once: you don’t have the cash yet, and the existing mortgage payment is still counted against you.
Fannie Mae’s standard rule requires lenders to include both your current principal, interest, taxes, insurance, and association dues and your proposed new PITIA when qualifying you.5Fannie Mae. Qualifying Impact of Other Real Estate Owned You can get the existing payment excluded by giving the lender a fully executed sales contract on the current home with financing contingencies cleared. Without that, the lender assumes you’re carrying both mortgages, and the combined debt-to-income ratio (typically capped between 43% and 50%) can sink the new approval.
Home Sale Contingencies
A home sale contingency in your purchase contract gives you a window to close on your current home. If it doesn’t sell in time, the purchase contract voids and you get your earnest money back.6Freddie Mac. Understanding Contingency Clauses in Homebuying Sellers dislike this clause and usually insist on a kick-out provision that lets them keep marketing the home; if a cleaner offer comes in, you get roughly 72 hours to drop your contingency or walk. In competitive markets these offers are often rejected outright, which is what pushes buyers toward bridge financing.
Bridge Loans
A bridge loan is short-term financing secured by your current home to cover the gap. Most lenders cap the combined loan-to-value ratio around 80%, so you need at least 20% equity to qualify. Rates run higher than a standard mortgage, terms are usually 6 to 12 months, and the bridge loan payment itself counts against your debt ratios.
HELOCs
A home equity line of credit lets you borrow against your equity through a revolving line, with a draw period (typically 10 years) where you pay interest only on what you’ve used, followed by a repayment period. Underwriting requires income verification, an appraisal, and a title search.7Consumer Financial Protection Bureau. What You Should Know About Home Equity Lines of Credit The flexibility is real: draw only what you need, pay it down fast after the sale, and the total interest stays low. The catch is timing. Opening a HELOC takes weeks, so if there’s any chance you’ll buy before selling, apply early. An unused line costs nothing.
When Both Closings Fall on the Same Day
Simultaneous closings work but leave little room for error. The settlement agent on your sale has to record the deed transfer before the proceeds are available. Once recorded, the agent wires the net to the title company handling your purchase. These wires move through the Federal Reserve’s Fedwire system, which settles in real time with final, irrevocable transfer.8Federal Reserve Financial Services. Fedwire Funds Service Product Sheet Your purchase can’t close until that wire is confirmed.
Build slack into the schedule. Set the sale closing as early in the morning as the recording office allows, and don’t stack both closings on a Friday; a slip pushes you into Monday, possibly without a place to sleep in between. Some buyers negotiate a short post-closing occupancy agreement with the seller of the new home as backup against exactly that gap.
What Your New Lender Will Ask For
Sale proceeds are large deposits, and large deposits get scrutinized under federal anti-money-laundering rules. Expect the lender to want documentation that the money is really from the sale and not a disguised loan.
The core document is the Closing Disclosure or ALTA Settlement Statement from the title company handling your sale.9American Land Title Association. ALTA Settlement Statements Underwriters look at the “amount due to seller” line to confirm exactly what you received. If your new mortgage application goes in before the current home closes, give the lender a fully executed sales contract and evidence that financing contingencies have been cleared, so the existing payment can be excluded from your debt ratios.5Fannie Mae. Qualifying Impact of Other Real Estate Owned
If gift funds are filling any gap, FHA requires a signed gift letter with the amount, the donor’s name, address, phone number, and relationship to you, and a statement that no repayment is expected. The lender also needs a paper trail: withdrawal slips, canceled checks, or bank statements showing the funds leaving the donor and arriving with you. If it comes by cashier’s check, the lender wants proof the donor’s own money bought it.
If the Proceeds Don’t Quite Cover It
Sometimes the numbers just miss. After commissions, closing costs, and any tax on gain above the exclusion, your net can land under the down payment you were aiming for. A few options keep the purchase moving.
The simplest is putting less than 20% down on a conventional loan and accepting PMI. On a $350,000 mortgage, PMI might run $87 to $335 a month depending on credit score and down payment size. It’s not free, but it drops off automatically once the loan balance reaches 78% of the original home value.
You can also combine sale proceeds with personal savings, retirement funds (some plans allow penalty-free withdrawals for a first-time purchase), or family gift funds. Document every transfer; underwriters will trace the money and reject it if the trail has gaps.
And it’s worth asking whether a slightly less expensive home leaves you in a better financial spot. Stretching to hit a down payment usually means starting the next mortgage with thin reserves, and that’s a fragile place to be if a repair or income change lands early.