Making the Transition
If you are making a transition from a home that you will be selling to a new home know your risks, and please, work with a Realtor who will track both transactions from start to finish. This will minimize your risks and give you a better chance for a smooth transition. Based on your personal comfort level, the market condition, and your financial situation you will have either a number of options or your options may be limited. If this is part of your plan it will be very important to:
Be well informed, realistic, and conservative about what
your current home is worth.
Know in advance what the best strategy is for your
particular situation.
Get your financing in place.
Buy first and then list your home.
- You must be financially able to qualify for two mortgages. You have
three options if this is your desired route:
Equity Line/ Bridge Loan
Rent current home out and have enough savings to put down on purchase.
Financial ability to close and carry two mortgages without
either of the previous options.
List your home first and then purchase.
- The upside to this is that you will know exactly what money you will
be able to put into your new home.
- The downside is that it may put you in a position in which you may need to move twice. If you close on your current home and have not found a replacement home you may need to rent short term. If renting is not an option then you may be limited in what you can purchase due to the time constraints of moving when your current home closes, not when you want to.
- Rent back - If it is a strong Seller’s market you may be able to work it out so that you can rent back short term after the closing of your home. The one downside to this is that typically a buyer will want you to cover their mortgage cost during your rent back period. With the cost of housing today that can be a substantial amount of money. In most cases a Seller does not see the benefit in this option.
Purchase Contingent
The upside to this option is that it limits your financial risk.
The downside is that many times a Seller will not be inclined to take a contingent offer. It also puts you at a disadvantage if you were competing with non-contingent Buyers for the home.
Simultaneous Close
It is always the ideal situation to do a simultaneous close wherein you can close on your current home and then close on the home you are purchasing on the same day or within a few days of each other.
The upside is that you can eliminate the need for a bridge loan or an equity line.
The downside is that if there is a last minute problem that inhibits you from closing on either property you may be in a tough situation. If you do not close on the home you are selling and you can not qualify to carry both mortgages it may force you to either default on the contract on the purchase or lose the home you want to buy. If the current home closes but you can not close on the new purchase you may be out of a place to stay for a short period of time.
It is so important to know exactly where you stand financially and what your best options are. It is also critical that you are working with someone who understands the importance of alleviating any potential or real problems far in advance of closing. These steps will minimize your risks thereby increasing your opportunity for a successful transition with far less stress.
