If you?re thinking of buying a new home in the near future, there?s something you need to think about first. Before you even sign a purchase offer to buy a new home, you first need to sell your house – as in the one you own now.
During the brighter days of the real estate market?the 1980s, 1990s and even the early 2000s?people got very accustomed to the high degree of liquidity in the market. It was possible, and even common, for a buyer to schedule ?back-to-back closings??the closing on the new home and the closing on the old home, one right after the other. Often, both closings would happen in the same office. It doesn?t get any better than that right?
I saw a lot of this during my many years in the mortgage business; people often confidently bragged of their ability to sell their old homes in between the time of the contract signing and closing on the new one.
But a few things have changed since the good-old days. Engineering a simultaneous close in this market is an entirely different undertaking.
The mortgage lending game has changed
Even if you?ve carried two house payments in the past?or even if you?ve done it more than once?don?t be so sure you?re lender will be willing to do it again.
One of the biggest reasons people end up in foreclosure is carrying two house payments, and lenders are well aware of this. It?s not that they didn?t know about it in the past?they did?but low default rates and the near religious reliance on automated loan approvals and credit scoring models caused them to turn a blind eye. There were always really high credit scores or miracle bridge loans to enable borrowers to get around the sticky little problem of a double house payment.
The housing meltdown changed all of that. People who were sure they could sell their old houses in a matter of weeks, or no more than a couple of months, suddenly found that they still had it a year or more after closing on the new home.
Something totally predictable happens when you carry two house payments for too many months: you run out of money! Suddenly, owning two homes was no longer a closing convenience, but a trap?one that many homeowners are in right now.
My point: you can no longer count on your lender being as willing to work with your optimistic assumptions on how quickly you?ll be able to sell your old home after closing. They?ve been burned and the rules have changed.
The real estate market has changed
If you?ve been paying even a little bit of attention to the news media you?re well aware of the troubles in the housing market. Now add to this knowledge the fact that it?s always been much harder to sell a home than it is to buy one, even in a strong market. This is because as a buyer, timing is within your control; as a seller, timing is within the buyer?s control. In addition, a real estate transaction is actually a fairly complex event where any of a number of details can cause a sale to come unhinged.
All of those issues are magnified in the current housing market. It now takes months to sell a house, and sometimes a lot longer. In this kind of real estate market, timing is rarely on the side of the property seller.
The consequences when you don’t sell your house first
How important is it to sell your home before you put an offer on a new one? Let?s consider the ways if you don?t.
- You may be turned down by a lender for a mortgage loan in today?s lending environment
- The seller of the house you want to buy may decline your offer or include a provision to accept back-up offers if you?re offer is contingent on the sale of your home
- You may not get as much on the sale of your old home as you expect, setting off a last minute scramble to raise cash?I?ve been to enough closings to know that that?s the LAST thing you want to be doing
- If you try to set up a simultaneous closing on both the old home and the new one, the sale of your old home could fall apart at the last minute for reasons you never thought of
- Instead of enjoying your new home, you?ll be consumed with selling the old one, and that will get more uncomfortable as the months pass
- If you?re house takes too long to sell you could be forced into becoming a landlord?and then you?ll be facing a whole new set of problems
Feel free to look at homes you might want to buy, but be sure to sell and close on your old home before you buy the new one. Then you can present a contingency free offer?and a known down payment?to the seller of the home you want to buy and the entire transaction will be as close to stress free as the home buying experience can get.
Still another option is to sell your current home, then move into a short-term rental. There are companies who provide short-term rentals to people for exactly this purpose.
The idea is to make a clean break by selling your current home first – this removes a major obstacle from the buying process, including the mortgage on your new home. Free from the? burden of selling your current home, you’ll be better prepared to buy a new one. And here’s a bonus: You will be a stronger buyer if you don’t have a house you need to sell. That can give you more room to negotiate on your new home.
In the past 5-6 years have you been in a position where you had a house to sell in order to buy a new one? How did you handle it? Older stories don?t count?everything has changed in just a few short years!