Is This Your Situation: Buying a House While Selling Another One?
November 22, 2021 | amandasearlerealtor
Everyone talks about the steep learning curve of buying your first home, and they’re right to. But your first purchase is also the easiest home purchase you’ll ever make. After that, you need to not only find a new home but also find a buyer for your current home. Most confusingly of all, if you’re like many people, most of your wealth is tied up in your home. Does that mean you can’t get preapproved for a mortgage until you’ve sold your home? Where do you live in the meantime?
Fortunately, you’re not the first or last person to face the same situation. Here are a few options for people who are buying one home while selling another:
Buying with financing
If you need your home equity to purchase a home, then you’ll need financing to buy before you sell. A bridge loan is a popular option. It’s a high-interest loan intended to help you fund your down payment and other costs that you’ll repay when you make your sale. However, because of the high interest rate, a bridge loan is a bet on a fast sale.
The other major financing option is a home equity loan, which creates a lien on your property. In other words, the bank has the right to repossess your home if you can’t pay it back. Reducing the equity in your home and simultaneously increasing your debt won’t look good on a mortgage application.
Less risky is a new program called Knock. Here’s how it works:
- They’ll get you fully underwritten for a new home loan with Knock including a down payment advance so you can start making offers fast.
- Put down a winning offer on your dream home with no sales contingency, and move in right away. You’ll pay the mortgage on your new home, immediately building equity, and Knock will pre-imburse you for your old mortgage payments with the Knock Equity Advance for up to 6 months.
- They’ll advance up to $25,000 to get your old house ready for listing on the open market so it sells fast and for top dollar. When your house sells, you simply pay Knock back for the loan provided.
You do need a Knock Certified Agent to do this – let me know if you want to work with one as I am certified.
Selling with a delay
The most foolproof way to get approved for a mortgage is to have a buyer lined up for your house, but that’s where the timing gets tricky. Your buyer is already ready to move and won’t want to wait for you to find a new place. However, you may be able to get the buyer to agree to a rent-back clause, which is a clause in the home sale contract whereby the buyer agrees to let you rent your old home from them for a short period while you look for your new place. Just beware, not all buyers will be on board.
The other option is to fudge the closing date by dragging your feet. Contract reviews and home appraisals take time anyway, so buyers may agree to a relatively long closing period. If you still don’t find a new place by the deadline you’ve set, then you may end up storing some of your things and staying in a hotel for a little while.
The contingency clause
You may make the purchase of your new home contingent on the sale of your old one. You will then have to find a buyer within a specified time frame or the deal is moot. You’ll still be responsible for the down payment, but you’ll get it back if the sale falls through. Unfortunately, this isn’t a very good deal for the seller, who may be trying to manage the timing on a home purchase as well. You may have to show that your home is priced competitively to persuade the seller to accept your purchase offer.
If you’re trying to make a home sale and a home purchase at the same time, the best option for you will depend on your circumstances. Contact a real estate agent today to talk through your options.