Coordinating the Sale and Purchase of Your Home
Usually, it is easier to buy a home than to sell a home but that isn’t necessarily the case currently. In today’s market, it can be scary to sell your home before buying another because you could find yourself without a home.
Most sellers will not accept a contingency on the sale of a buyer’s home in today’s market. So, let’s look at some of the alternatives that homeowners are using to facilitate the transactions.
If you have the income, credit, and cash available, the replacement home can be purchased with a new 80-90% loan-to-value mortgage and sell the existing home after you have moved into the new home. This would require making two payments for a while but probably gives the seller the least amount of pressure to find the replacement property before the existing one is put on the market.
If the mortgage on the new home has the option to recast the payment, additional down from the equity in the previous home after it sells would lower the payments without causing any additional expense to refinance.
Another alternative may be available if your home has enough equity to borrow against it in a Home Equity Line of Credit or a bridge loan. This type of loan is generally made by banks who will loan qualified owners up to 80% of the appraised value less the current mortgages on the property. Freeing up the equity in your existing home will give you a down payment for purchasing the new home before you sell the previous one.
If a seller has assets in qualified retirement programs, it is possible to do temporary loans against them to facilitate the interim purchase. There can be penalties on some of these if they are not repaid in a timely manner. It would be good to investigate with your tax professional to see if this is a viable option.
Hard money lenders provide a source that will be more common to investors than homeowners. These types of loans are generally approved and funded quickly, have less requirements than bank loans and provide funding for projects that cannot be financed elsewhere. Interest rates are higher than bank loans, are written for short terms (1-2 years), and usually require 25-30% down payment or equity.
Power Buyers and iBuyers offer to purchase your home for cash and provide a quick closing. Deeper investigation into these options may reveal that you will not receive the full equity of your home because they have to discount the home to cover the expenses they will incur as a seller.
In today’s very complicated market, the value of a real estate professional representing your best interests, providing you advice, options and experience has never been greater. While there are similarities in transactions, each one is unique, and you certainly need a professional to be guiding you through the process.
Agents are trained and experienced in coordinating the purchase and sale of homes. This can be especially beneficial in navigating unfamiliar waters.