JUGGLING a SALE and a PURCHASE
S Y N O P S I S
Selling one home and buying another at the same time requires solid financing, careful planning, and creative crisis management.
The Long-Distance Deal.
Juggling two transactions can be much easier if the homes are in the same town. But what if you're relocating to a city 2,000 miles away? Your top priority should be to have a trustworthy representative at the other end; a real estate agent who handles relocations is the best option. Most legal documents can be handled by fax, so you don't even have to be at the closing.
Stretching the Money.
Be prepared to deal hard with your money when you manage a home purchase and a sale at the same time. First, it's wise to have cash reserves sufficient to cover your down payment and two or three months of mortgage payments. If not, you may have to take out a loan or borrow your down payment. In order to qualify for a second mortgage, you need enough income. Some lenders are more lenient on your qualifying ratios if you use the loan to purchase another home.
Always sell before you buy! It may sound like common sense, but if you're like many sellers, you probably started attending open houses before you even thought about what it would take to sell your current home.
Why Sell First?
Most experts agree that you should close the sale of your home before committing to another piece of property. Doing this virtually eliminates the financial risk: You'll know how much money you have for your down payment, and you won't have to arrange for interim financing.
If you can negotiate a sale-leaseback, you can rent your home from the buyer for a month or two while you look for your next house. If you can't arrange to rent your current house, you will probably have to rent a home temporarily but it's usually cheaper to pay rent plus moving costs than to pay two mortgages plus taxes and insurance for several months. It is almost always better to sell your current home first, and your lender may require it if you can't qualify for interim financing. Start managing the two transactions in tandem.
Selling Before You Buy.
If you've started looking for another house and your own home isn't already on the market, stop shopping and start preparing your house for sale.
1. Know your home's value.
Get an estimate of your home's value online, and back it up with three comparative market analyses from three prospective listing agents (or an appraisal if you're selling the house yourself) to determine your home's approximate value.
2. Get pre-approved.
Estimate the minimum amount of cash you can expect from the sale and get pre-approved for a loan.
3. Get an inspection.
Order a pre-sale inspection of your home and make the necessary repairs and decorating changes.
4. Launch your sale.
Now you can start shopping in earnest for your next home.
5. Mind the timing.
If you haven't yet found your new home by the time you accept an offer, negotiate a long escrow, completion date, or after- sale "leaseback". If the buyer wants to close quickly, arrange for temporary housing. Avoid making an offer on a new home until most of your purchase contract's contingencies have been satisfied.
6. Close your sale.
Deposit the proceeds while you look for your next house.
Buying Before You Sell.
If circumstances have placed you in the position of buying before you sell, managing the two transactions becomes more complicated. If you've already made an offer on a new home:
1. Structure your offer.
Negotiate to include a long escrow, or make the purchase contingent on the sale of your current home. Such a contingency is a seller's nightmare, but in a slow market the seller may be willing to accept the offer. More important, it gives you an escape if your house doesn't sell. You may want to consult a real estate attorney on the exact wording of your contract.
2. Start preparing your house for sale.
Consider pricing carefully. You may need to list at a lower price to speed your sale. You also may have to offer incentives such as a home warranty.
3. Find a lender.
Secure interim financing so that you may purchase your next house while your current house is for sale. So-called bridge loans are made against the equity in your current house and cost more than traditional home loans.
4. Focus on selling your house.
Help the agent any way you can, and maintain the home's appearance. If you get an offer you want to accept, verify the buyer's creditworthiness, avoid any contingencies that could delay closing, and try to schedule a closing date before the closing of your other purchase contract to avoid interim financing.
5. Follow through with your purchase.
If you have not sold your house, and your purchase contract on your next house does not have a contingency that allows you to back out, you are still committed to the purchase. Consult with your agent and a real estate attorney. If you proceed with the purchase, adjust your budget and consider more drastic action to sell your current home.
Close on both sales, or close on your home purchase only. If the latter, continue your sales efforts until the market slows. Consider taking your home off the market and renting it out until the next shopping season.
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