Purchasing a home can be tricky if you have a home to sell first. For many, the opportunity to purchase a new home can only come from the sale of the home they currently own. Here are some tips to help navigate hurdles of buying a home when going in “contingent.”
You want to purchase a new home, but the home you currently own needs to be accounted for. Let’s say you are looking to put down 20% on a new home, but you don’t have the cash. Here are some things to consider:
Do you have the cash to purchase a new home and still qualify?
Talk to a lender. Qualifying might be easier than you think. Guidelines have loosened and lenders are able to be more empathetic to borrowers who have property to sell first. Generally, at least 5% down on a Conventional loan would be a healthy place to start.
If you are going to make an offer going in contingent – spruce up your offer by making a shorter close-of-escrow time frame. Reducing your appraisal and loan contingency time frame could also help. Even going so far as writing in your purchase contract that if the property comes in lower than the purchase price, you agree to pay the difference up to a certain dollar amount.
Rent back – Perhaps you can agree to rent back the property to the buyer of your home? Doing so can make a contingent offer situation easier. Everyone would also get what they wanted in the transaction. Note for lending purposes: Banks typically don’t want to see a rent back longer than 30 days.
Moving twice – While the idea of moving two times may not seem appealing, picture this: being able to put your best foot forward on the house that you really want for many years of happy memories. Is that worth the inconvenience of having to pack up and move two times? If it is, go for it! Any realtor will tell you, making an offer without contingencies such as the property being sold, is a big advantage. Be strong, competitive and increase your odds of getting the home that you really want. Granted moving two times is not convenient, but you can close on the new purchase well under 30 days and assuming you are well qualified from the finance perspective, as in this scenario you would have no roadblocks other than securing mortgage financing.
If you are thinking about purchasing a new home, figure out how much you think your house is worth. Take that figure and multiply that number by .06. This represents estate agent commissions. Next: deduct that figure from the estimated amount you anticipate selling your home for. Finally, subtract your current mortgage payoff. This net figure represents the amount of money you would have to purchase the new property. You will want to have a conversation with an experienced mortgage professional, who can help you determine how much of that money would need to be earmarked closing costs and how much money would go towards your down payment.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.