Thursday, November 8, 2018 / by Joe Corbisiero
Are you in the position of wanting to buy a new home, but need to sell your current home first? Then listen up, this was written for you and I hope to answer all your questions. I won't lie to you. This can be very difficult to do. If you do it wrong, you could find yourself in a place that you don't want to be......homeless! That's right, Homeless! So pay very close attention because I’m going to show you how to do this right. If you find yourself in the position of owning a home, but you need to sell your existing home before you can close on the new one, this blog is for you!
You need to be strategic if you're planning on doing this. The smallest hiccup could have you pulling your hair out, trust me. Timing and planning in real estate are the most important components to a smooth transaction and it’s because of expertise like this that Dream Homes Team is here.
If you find yourself in this position, YOU NEED A PROFESSIONAL TO HELP YOU WITH THIS. Trust me, I’ve seen plenty of people who thought they could do it on their own end up wishing they never tried.
Recently a new mortgage rule called TRID went into effect. This is essentially another government regulation that just makes the process less friendly with more headaches. The main thing you need to know about TRID is that you need to plan accordingly because now there are certain timelines that buyers and sellers must adhere to.
If you miss one thing you were supposed to do, it could end up causing a domino effect of headaches relating to your move.
Let’s get started, shall we?
Step 1: What Do You Qualify For?
The first thing to do is to contact a mortgage lender to confirm that you need to sell your existing home in order to obtain financing to buy your next home. Some people are surprised that they do not need to sell their current home to buy another one. If you are able to qualify to purchase a new home without selling your existing one you have more options with flexibility.
The reason this is so important is
- When you sell your existing house ALL of your stuff must be out more than likely for the new buyer to take possession.
- Where do you put all your “stuff” in between?
- Would you want to sell your existing house in the morning and close on the new one in the afternoon?
- Do you need temp housing?
- Do you need temp storage?
If you don’t have to sell your existing home, then you could move out and make the transition more comfortable generally. The headaches come when the timelines are tight with nowhere to go in between closings.
Step 2: Prepare A Net Sheet For Your Existing HomeSomething that we always do is prepare a net sheet for our sellers. Your real estate professional should be able to create one for you so that you can get an idea as to what you can expect to pay at closing, or how much you're going to make.
The value your agent gives you should allow you to determine what your net proceeds will be after all closing costs. This will allow you to get an idea of how much of the proceeds you may be using for your next purchase (considering you are walking away with money). Many people use a large chunk of these proceeds to determine what their next purchase price will be. This number will give you an idea of what kind of down payment you will have. Now you can begin doing some homework for new homes now that you know what numbers you are working with.
Step 3: List Your Home For Sale
You should list your house for sale with a true online marketing plan using proper pictures, video, and positioning. There is no need to aggressively look for homes to buy right now since you will be needing to sell your existing home to buy a new one, but it is wise to start doing research online to get a good idea of what’s out there. The last thing you want to do is fall in love with a house you cannot yet buy, only to see it sell to someone else.
*TIP* You most likely will not get aggressive on your home search until you feel you feel like an offer is coming in. A good agent will let you know when it’s time to get aggressive. If you are getting 5-7 showings a week you are usually pretty close.
The reasoning for not starting to view properties too early
If you do not have your house under contract and try to buy another house you would enter into what’s known as a house to sell contingency. This means that your contract to purchase your new home is contingent upon you finding a buyer for your house.
Sellers do not like to accept these kinds of terms since they have no idea how long it will take for you to get a buyer.
What if you are overpriced?
What if your house can’t sell?
You've got to think about it as a seller. Accepting an offer with a house to sell contingency would lessen your exposure on the market. The only time I would advise a seller to take a house to sell contingency in this market is if you received an offer way too good to pass up.
For example, a seller receives an offer with a buyer that needs to sell their house first. The seller does not know about the buyer having a house to sell and they verbally agree on a price of $400,000. The buyer decides to then let the seller know they must sell their house prior to buying the next one. Once the seller finds out about the house to sell contingency, they come back to the buyer and counter to $415,000 because of the terms. They can also just flat out reject it and tell you to come back after you have a buyer(most likely to occur).
In other words, you as a buyer will most likely pay in some way, shape, or form for having a house to sell contingency in your offer. Sometimes you can pay for it with terms or sometimes with a price.
When you go to buy your next house, you want to get a good deal right? Having a house to sell can affect the terms and price you may negotiate, therefore I advise to get your current house under contract before entering into a contract to buy a new house.
it’s ok to start looking around and see some houses, but you want to either have your house under contract or be very close to receiving one once you decide to put an offer on a house you would like to buy.
NOTE: Sellers are able to show their home to other buyers when they accept a house to sell contingency, but in actuality, buyer showings will strongly decrease as the status change will be marked on the MLS. When this occurs many buyer agents and buyers overlook the property because of its status, which must be disclosed.
I do not recommend starting to look for a house until after you received an offer to purchase yours.
A Seller Will Accept A House To Close Contingency!
The difference between a house to close contingency and a house to sell contingency is this. A house to close contingency means you already have a buyer for your house and their contract is contingent upon financing vs. saying I don’t have a buyer or know when I am going to get one.
Sellers know you have an offer on your house and that it’s moving forward. This alleviates any anxiety a house to sell contingency may give them. You are also more
Step 4: Your House Is Getting Traction… Offer Coming Soon….
As your home is being shown to potential buyers your agent should get a grasp if an offer is going to come in or not. If you are receiving 5-7 showings a week then you typically are very close to getting something. If you are showing over 10 times a week you most likely will get an offer soon. If you are not showing at all it is more than likely either your marketing or price. Most times
You need to use your judgment to see how to proceed with your home buying search. If your agent advises you they feel like an offer is coming in soon, you should trust their opinion and get more aggressive with your home search. If your agent says you are not going to move at this price then you should relax your search a bit.
You must remember that inventory is always coming on and off the market. What you see today might be sold tomorrow and the good deals go fast.
Step 5: Accepting An Offer On Your House
Once you receive a contract for the sale of your house, things start to happen. You want to negotiate a longer closing date with your buyer. Closing dates are negotiable and I recommend not sooner than 60 days from the date of acceptance. The reason for this is two-fold.
You must allow time to find a new home so you are not settling on anything. You also need time for your home buying process. You will do an inspection, apply for financing, and wait for that financing to be fully approved. Usually, 30-40 days from a contract acceptance is more than enough to get this done but can vary based upon which lender you are working with. Setting your closing date for 60 days from the time you accept a contract should allow you 2-3 weeks of house hunting time. As long as you find a house in those 2-3 weeks, you will still have 30+ days to close on your next home purchase!
The buyer needs to do their diligence on your house. Typically the first five business days of a purchase contract allow the buyer to do their diligence on your property. They will do an inspection and any other necessary diligence so they understand everything they are buying.
If you reside in a property with an HOA, they will request all condo association documents to make sure it’s in good status. After ALL potential issues are cleared, you want to be in full buying mode. This is important because if something is wrong with your house, the buyer can still cancel the contract. If this occurs then it would certainly affect your upcoming purchase. In a perfect world, your buyer would have already done all inspections by the time you would be doing an inspection on your new home.
Step 6: Find Your New Crib And Get Contract Accepted!
Once your house clears inspection, it’s time to put your next home under contract. You should aim to have your home purchase under contract no sooner than 35-40 days from the anticipated closing date.
It’s very likely that you will sell your existing house in the morning and close on your home purchase in the afternoon if you are buying and selling
You only need to make the closing date the same day as the sale of your existing house if you are planning on selling and buying on the same day. If you have a temporary housing situation set up, then the timing is not as crucial, but if not you want to follow this plan exactly. You could also see if the buyer on your property would be willing to lease it back to you for a few days so that you can close and not feel rushed.
Make Sure Lender Has Everything They Need
This is not something you can procrastinate. You want to be as proactive as possible with your lender. A good real estate agent will also help you with this and should be staying on the lender to make sure your file has an appraisal ordered and gets into underwriting immediately. Underwriting is the process your loan gets submitted through once your lender has everything they need.
Make Sure Your Buyer’s Lender Is Doing Everything On Their End
One of the ways to blow this up is if your buyer’s lender decides to take a nap. You want to make sure your buyer’s lender is doing their job. The appraisal should be done within the first 7-10 days after you accepted the contract.
You also want to make sure their file is in underwriting shortly after the appraisal takes place. Your buyer will have a mortgage contingency in their contract. This means that the contract is contingent upon securing financing by a date specified. This date is referred to as the mortgage contingency date. This means that your buyer will have received a clear to close from their lender by the date specified. That date should be no later than 35-45 days from your acceptance of your sale (considering you have a 60-day closing). This will allow your buyer’s financing to be 100% approved 2 weeks or more before the closing date. This ensures no last-second hiccups because you can always count on one. I like to mitigate as many “what if’s” as possible.
Step 7: Close And Close
I think now you can see how much coordination goes into planning a sale and purchase of a house. There can be a lot of moving parts especially if the person buying your house is in the same situation as you are! Planning ahead of time with a good strategy will help avoid any headaches. I would be lying to you if I said it was 100% stress-free because it’s not. However with the right team in place you can plan this the right way. I hope this article helped you understand how to sell and buy a house.