We chose the rent route and thank goodness we have. Our house has been on the market for 16 months and it still hasn't sold! Boy would we have been in trouble if we had tried to build before selling. We did however work very hard to find an appropriate rental in the same school district as our building lot so that our daughter will not have to change high schools. I have done the sell while building method the last time we built a custom home and that was in much more favorable economic times. It took us 10 months to build and it took us 10 months to sell. When I look back at it, I realize what a true miracle it was that it worked out that way. When you are selling your house, you never can predict exactly when it will sell. Ours could have sold the first time and we would have ended up renting. I'm glad that this time we went ahead and took the time to find a nice rental that my family can live comfortably in.

This is a dilemma I have thought about a lot. I had a starter home and was wondering how I was going to make the transition. I was planning on just having both and selling the old one when moved out, and consider the extra costs as part of the transition costs to be added to moving, etc. The home will sell if priced properly. Of course, being priced properly now means taking a big loss.

Fortunately, my old home got 9' of water during Katrina, so I got insurance and some government money to buy me out, thereby making the transition financially painless.

We struggled with the same dilemma, and although it is going to be a major pain, we decided to sell, rent, and build. We have 3 kids, another on they way, and a very large dog; so, I understand the challenges. We found a very small home to rent near our kids' current school, but we'll have to move school districts once we're in the new house. We tried to find a rental in the new school district, but it was impossible, and it was also very hard finding a place that would accept dogs. We'll be very tightly cramped for the next 7 months, but it'll make us appreciate the new house all the more, and I feel like it will be a good challenge for our family.
Despite the challenges, it is so worth it to have the peace of mind of knowing our house is sold. Last time around, we built and didn't try selling until we started construction. That was very stressful, but ended up barely working out. This time around, with the real estate market the way it is, we didn't want to risk it. It took us 5 months to sell, with a fairly far out closing; so, 8 months from listing to close. If we waited to sell, we probably would have paid 2 mortgates for 4-6 months, which would have been even worse.
Anyway, good luck whatever you decide!

We Remorgaged our home we live in built and are building the new house. When The house is finished and we sell we will be debt free.

We were approved for a loan without selling first (same circumstance: own a home and planning to build). However, I'm REALLY uncomfortable with beginning the build before selling house #1. So, we plan to sell first and rent a very small place during the build. (No kids or pets, so that helps) The builder told us to expect 5 months for our plan, so we'll likely get an apartment with a 6 month lease and then do a month to month if necessary after that. Much of our stuff will go to storage while we rent. DH suggested using the 5 month build time to sell the house, but I need the security of knowing it WILL be sold when we move into the new house.

Our original plan was to build and sell our house once the build was close to completion. With the way the economy is, we decided to sell and rent while we build. We put our house up for sale in April and we had a contract within twelve days. Now we are renting a two bedroom mobile home. Our kids are sharing a room but it's been good for them. I am glad we are taking this route because it removes the stress of paying two mortgages, if our house did not sell nor did we give our house away.

Building a new home while you live in your old mortgage free home is one thing. Building a new home while making payments on the new house and your old home is pretty tough.

If you have any qualms about your ability to carry that kind of debt long term, don't do it. Sell and rent while building. We are in uncharted economic territory. Things could get better fast, or the bottom could drop out of sight. Current indications show an uptick in the resale market, but a lot of external forces that aren't entirely foreseeable could change that. Only time will tell.

You will not be paying the full mortgage payment on the new home until you have your CO and the construction loan converts. Not saying you should or should not, just realize the construction loan payment is based on the amount of money paid out, not the full amount of the loan.

As the build gets close to completion, the construction loan payments may actually be higher than the eventual converted loan payments well before you get a CO and the loan converts. A construction loan may have a higher interest rate than the final mortgage. Our is higher by 0.5%.

Then there is the nightmare scenario of a loan that won't convert because of a low appraisal. It doesn't happen that often, but it does happen, and the bank can no longer seek a second appraisal.

Please take all that into consideration before deciding how to proceed.

In that order. Rent in the area you will be building.
Best wishes

Here's what I think we're working of doing:

Put our current house on the market (tomorrow). Price it right and have it in top notch shape so it will (hopefully) sell as quickly as possible.

We have a builder who will finance the construction of our home, provided we have a pre-approved mortgage application. We are working out the details of the plans now.

We can get pre-approved for a mortgage without selling, but with all the upgrades we really want, we need to sell to get pre-approved for the higher price of the home.

Once our house sells, we will rent in our current location to allow the children to start and finish the school year in the same place. (We may need to transport for the last bit of the school year, but I do work in this area anyway.)

Good luck to you! I agree with the others who recommend selling first. These are just too unceertain economic times; especially real estate, depending on where you live, I guess. We sold first and so glad we did; it took us all of 4 months and we lived in a fairly stable area.
"Creek side" is correct about the const. loan having a higher interest rate and the payments can get very high towards the end of your build.
You will be glad you decided to sell first; it is just that much less stress all the way around!!

We put our house on the market 9 days ago and had a open house the 1st weekend. Only 1 person came to the open house! That has us freaked out that it won't sell quickly or for what we can afford to sell for! The builder is expecting us to build in the fall, but we may have to put him off until spring if we don't get a sale. DH says we can afford dual mortgages, but I don't think that's wise! What if one of us loses a job or something? You never know what could happen!

We are renting our townhouse out until the market gets better and living in it while we build. Luckily only my name was on the mortgage for the townhouse so he was able to qualify for the new house on his own.

A good friend of mine recommended that to me a long time ago. It's a safety net in times like these when families are losing their houses. That way if one person's credit gets ruined due to foreclosure or short sale, the others is still intact. And we knew up front if one of us ever lost their job the other could technically afford the townhouse.