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Author: Ryan Ginther
Owner/Agent & Loan Officer NMLS #1147279

1/21/2021

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How to Buy a House While Selling Another

(knowing your options)

It's time to turn that new chapter in your life and you are looking for that new, perfect home. The problem is, you have a house to sell, so "How do I buy a house when I have to sell my current home?" Knowing your options could be the difference in getting that dream home that you desire!

Now, more than ever, buyers need creative ways to be competitive, and having to sell a home as well can make it difficult. Below you will find the most common options for buying a new home while selling your own.

!

First off: Get Help

There are many things a real estate agent paired with a great loan officer could provide. You'll need someone that will sit down with you and extensively go through your options that you will find below. Navigating the different options is not easy, but narrowing it down to just 1-2 can give great clarity on what it will take to make a smooth transition from your current home to the next.

  • Give you an idea of how quickly your home would sell

  • Give you a good sense of what your home would sell for

  • Determine the estimated proceeds from the sale of your current home after fees

  • Set timetables and scenarios

  • Get you prepared to sell at any moment if the right home pops up

  • Forecast the competitiveness for your desired location & price-ranged homes

  • Help you with "rent back" options

A Real Estate Agent Can...

A Loan Officer Can...

  • Determine your buying power with or without your current home

  • Tell you of limits you will have if you go non-contingent

  • Give you payment scenarios with various down payment amounts

  • Help "recast" your new loan later if you buy before you sell

Quick Real Estate Definitions:

Contingent; means your new home purchase is subject to your current home sale closing first

Non-Contingent; means you do not have to sell your home first in order to purchase a new home

Recast; means you still lock your rate and term on a purchase loan, but later you add more money to the down payment, adjusting your balance, amortization schedule, and payment

Debt-to-Income Ratio (DTI); by simple measure, your debt cannot exceed 45%-55% of your total income in most scenarios (this is the basis for determining contingencies)

Buying Before Selling Options

(purchasing "non-contingent" - closing on the new home before your current)

1

Just Buy It & Limit Risks

This is a scary thought for most, but in a HOT seller's market, the pros outweigh the cons in most scenarios. You will be the freest to shop and make competitive offers on homes without the seller worrying about the sale of your place.

Ways to Minimize Chances of Making 2 Mortgage Payments: (You will skip your 1st 2 payments on your new place!)

(*Best for those who qualify for 2 mortgage payments "non-contingent")

  • Have your house "ready" to sell (repairs & touch-ups done, marketing prepared)

  • List it right when you go under contract with your new home

  • Extend closing on your new property to 45-60 days

  • Try to close on the new property on the 1st of the month to skip an entire 2 months of mortgage payments on your new home

  • It makes your offers more attractive to be non-contingent

  • Greater odds of getting the home you want (offers carry less risk to sellers)

  • Reduces stress with the option to move in before you HAVE to move out
  • Avoid a same-day move (both buyer and seller moving out and on the same day)

  • You can take your sweet time getting out and avoid mover costs

  • You can later recast your loan

  • You may have to make 2 payments in the future (very rare if done right)

  • You won't definitively know what you are netting on your home sale until a later date (make sure to have a conservative forecast)

  • Large money-sucking repairs could be found on your current home after you are already under contract on the new place (pre-inspect to limit risks)

Non-Contingent Timing Scenarios

Less Risky Route: Let's say on July 15th, you go under contract with a new home and you are set to close in 45 days on September 1st. Within 2 weeks you list your house (on August 1st) and conservatively you have estimated your home to go under contract within 2 weeks (August 15th) with a 45-day contract that closes on October 1st. Your 1st payment on the new property is not due until November 1st. This was approximately a 60-day window from listing your house on August 1st to closing it on October 1st with an additional 30-day window for wiggle room for selling or closing delays. *You could increase the wiggle room by listing faster.

Less Stressful Route: This is for those who wish to completely move out of their house and into the new before listing. In this scenario, your offer was accepted on August 1st under a 30-day contract (faster the better) and closed on September 1st, and you take an extra week to move completely out (Sept. 7th). Since you are all cleared out, you list that day, take 2 weeks to go under contract (Sept. 21st), and accept a 45-day contract that closes on October 21st. Your new mortgage payment is due November 1st. This was approximately a 54-day total window from listing your house on September 7th to closing it by October 31st (including 1-week wiggle room). *You could increase the wiggle room by listing it faster as well.

2

Is all of your equity tied up in your current home and you are just shy on the new house's down payment? If income isn't the problem, lenders will often let you borrow the entire minimum down payment and possibly an additional amount to cover your new home's closing costs if the seller doesn't pay them. After you close on the sale of your current home, you can pay back your family member and pay down your balance by recasting if you please.

*Make sure you do not drain all of your savings in case of emergencies and only borrow money from people that won't need it for a while.​

(You Qualify for 2 Mortgage Payments but are Short the Down-Payment)

This option carries the same Pros and Cons as Buying Before Selling Option 1 Above ^^

3

Did you know you could borrow money from yourself? Unfortunately, this is not very well known. Here are 2 of the top ways people borrow money from themselves to buy before having to sell.

401k - Do you have a 401k account? If so, you can likely borrow money from yourself penalty-free! You can pay this back when you sell your home. This is a great, low-risk option for home buyers/sellers.

HELOC or Refi - You are going to have to think of this one in advance as it can take a month or 2 to close on a Home "Equity Line of Credit." With a refinance, it takes equivalent time, but if you sell your house before making 6 payments on your refi, your lender will likely have to pay back every single dollar they made for refinancing your mortgage.

(You Qualify for 2 Mortgage Payments but are Short the Down-Payment)

This option carries the same Pros and Cons as Buying Before Selling Option 1 Above ^^

4

A bridge loan is a short-term loan to essentially free up cash-flow until the permanent purchase can take place (once your current home closes). These loans typically carry higher interest rates and the availability is with your smaller, hometown banks. The availability of these loans has dwindled quite a bit in the past 10 years.

  • These are often faster than a HELOC or refi

  • You can back the loan with other things such as investment accounts and businesses

  • Eliminates your sale contingency

(You Qualify for 2 Mortgage Payments or Have Another Asset to Back the Loan)

  • Short term loan up to 1-year typically

  • Carry a higher interest rate

  • Run the risk of not selling your home quickly and having a higher mortgage payment than you did before

For additional Pros and Cons reference back to Buying Before Selling Option 1 Above ^^

Rent Your Home & Don't Sell It

5

(not for everyone)

This option is totally situational. You could start to diversify your retirement portfolio and add in real estate investing! If your home is a great candidate to profit day-one, this could be a great option. Rule of thumb, you will want to qualify for both mortgages as you will have gaps in leases and maintenance along the way. 

  • You can waive your sale contingency with some lenders if you can produce a signed lease agreement

  • Great way to build wealth long-term
     

  • Some lenders may not accept a signed lease to waive your monthly mortgage payment obligation (may stay contingent)

  • Lenders will want at least 6 months reserves in savings to cover that mortgage if they accept the lease agreement

  • Reduces your short term buying power since you will have another mortgage payment to make month to month

  • May cost you time and energy in the future that you do not have

For additional non-contingent Pros and Cons reference back to
Buying Before Selling Option 1 Above ^^

Selling Before Buying Options

(purchasing "contingent" - must close on current home prior to the new home)

6

Unfortunately, this is a very common, but not a popular option as it can downright stressful! This is your typical "Contingent" scenario where you list your home and then try to find something rather quickly. This has a fair share of cons as there are a lot of "what-ifs" involved. Sellers are often haunted by the thought of their home selling and they were unable to find their new home! It's good to always have a backup plan in place just in case this happens, such as short term renting or staying with family.

Tips:
1) Since it is a "Seller's Market," we always push for a buyer that is willing to provide a flexible closing date so you can move up the date or push it out to give you more time to find a home.

2) Avoid contingent buyers as the dominoes could really fall and that could threaten the strength of your offer on your purchase

3) Pull off a rent-back agreement (more below on Option #8)

(cannot go non-contingent or you don't want to)

  • You'll never have 2 mortgage payments

  • You'll have a clear idea of exactly what you will walk away with financially on the sale of your current home before closing on your new home

  • Your home will be under contract, so your contingency isn't as bad as the 7th option below

  • Going contingent can force your offer, no matter how aggressive to the bottom of the seller's list

  • This can force people into homes that weren't ideal (strangely, this actually rarely happens)

  • Carries more stress with the "what-ifs"

  • May result in a same day move (we push for buyers to give our sellers additional days)

  • May have to pay more and give up more options when buying such as offering above anyone else, waving appraisals, waiving the right to ask for repairs, etc

  • You are left at the mercy of the market that your perfect home will pop up in the near future

7

Pull Off a Purchase & then Sell

Ok, this one is tricky and the most difficult of all to pull off. Unless you are buying New Construction (more below) or you know your seller and they are willing to wait, we have to convince the sellers of your dream home that we can get your home on the market, get it under contract, and past inspections to hit the finish line. That is asking a lot. Would you want all of that risk if the roles were reversed?

Tip: Have your home completely ready to list. If you have met with us already, we have given you a list of things to do to get your home prepared to sell and a timeline of how long we need to put together a Marketing Plan for your home. By building out a beautiful website with a video tour, 3D Tour, and more, we can show potential listing agents that we mean business and we are ready to hit GO on your property at any moment. This isn't as strong as being under contract already, but with our track record of quick home sales and the agent and sellers likely being floored by the detail of your listing, they will feel much more comfortable that we mean business and we will sell quickly.

(go under contract before listing yours)

  • You'll never have 2 mortgage payments

  • You'll have a clear idea of exactly what you will walk away with financially on the sale of your current home prior to closing on your new home

  • Typically, there are no financial risks unless the seller had asked for inspections to be completed and not delayed or ask for a non-refundable deposit

  • It carries less risk than getting a contract on your current home first

  • Eliminates the "what-if we don't find a house" scenario

  • This is the hardest option of them all to pull off

  • You typically only have 15-30 days to get your home under contract. If you do not, you may have to cancel your contract for the new home

  • Sellers will have a "Kick-Out Clause" during the 15-30 day period to accept a non-contingent offer giving you only 48 hours on average to eliminate your contingency

  • Going contingent can force your offer, no matter how aggressive to the bottom of the seller's list 

  • Carries more stress with the "what-ifs."

  • May result in a same day move (we push for buyers to give our sellers additional days)

  • May have to pay more and give up more options when buying such as offering above anyone else, waving appraisals, waiving the right to ask for repairs, etc

  • May require a non-refundable deposit

8

You may have heard of this, but it deserves a better explanation. This is essentially an add-on to Option #6. A simple 2-3 page agreement is executed as part of the purchase agreement between the buyers and sellers who take the roles of lessee and lessor after closing. This is short term lease where the sellers are renting from the buyers at a daily amount that typically reflects the incoming buyer's mortgage payment. The seller still has to keep utilities on and pay them until the day they are out and the home has to be kept in great condition.

Tips:
1) Ask for a flexible daily rent-back agreement instead of locking in for a month or two.
*You may want to consult an attorney on this option.

2) Make sure their lender will allow this upfront. The lease may have to be agreed upon on the side of the purchase contract.
 

(ideal, but hard to pull off)

  • This could eliminate your contingent if your buyers are willing to wait

  • You could potentially get further into the selling process, which makes your contingency less of a risk to sellers if you are past inspections and the appraisal

  • You'll never have 2 mortgage payments

  • You'll have a clear idea of exactly what you will walk away with financially on the sale of your current home prior to closing on your new home

  • This can get tricky if you don't have super flexible buyers on your place

  • Lenders may not allow this

  • You will likely have a limit to the length of your short-term lease (1-2 months at most)

  • You could really start to feel the pressure from your buyers if it takes too long to find something

Buy New Construction

9

(easiest contingent option but high starting price point)

Builders rarely bat an eye at contingencies, even if you haven't listed your house. If most people could buy a brand-new home, most probably would! The primary issue is the price tag for your average buyer and as of 2021, the median new construction price is beyond $400,000 in the Kansas City Area and the lowest you may find is upwards of $275,000. New homes are all about sacrifice. You get less home, but oftentimes nicer finishings and much less upkeep during your ownership.

  • You can often time the sale of your home to match the builder's estimated completion date

  • This option has a lot less pressure attached to it

  • You can take your time selling if needed

  • You mostly avoid any major future expense (always inspect thoroughly)

  • It can be expensive

  • You may be giving up options that were at the top of your list originally

  • Taxes are anywhere from 50%-100% higher on a brand-new home compared to, say, a 20-year-old home

  • Builders rarely include everything you need once you move in, such as garage door openers, blinds, fencing, landscaping, etc

  • There are still additional costs like mentioned above ^

 
 
 
 
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