Should I Purchase a House Before the Sale Of My Old One?

by Jessica Brita-Segyde

First things first: start by getting prequalified. This way you’ll know if it is an option to purchase a home before selling your existing property. Also, this will give you time to weigh your options before pricing your home and putting it on the market. The experienced loan team at Ruoff can help with this. Get started here.

Making a Contingent Offer

All real estate offers have some basic contingencies built-in. For example, the purchase is contingent on the home being delivered to the buyer in the same condition or better than it was in at the time the offer was made. When Realtors refer to a “contingent offer” they usually mean that the offer requires the sale of existing real estate. As a buyer making a contingent offer, you are probably offering to buy your next home only if the sale and closing of your existing home go through. In other words, you will close on your home first to obtain the proceeds for a down payment. Sometimes buyers make a contingent offer out of necessity: the lender requires the sale of existing property before extending a loan offer. In this case the lender’s contingent preapproval necessitates a contingent purchase offer.

Contingent offers are not popular in a seller’s market when inventory is scarce.

Wait Until You Sell to Buy

One alternative to making a contingent offer would be to sell your home, then move into a temporary living situation such as an apartment or parent’s home while you shop and make a non-contingent offer on your next home. This often a financially sound choice but may be difficult to accomplish. Buyers who move twice sometimes need to put their furniture and other belongings into a storage facility or sell some of their belongings in the interim. Also, if you have been independent for some time or are combining families the adjustment of cohabitation can be burdensome.

Buying a Home Outright Before the Existing One Sells

If you make an offer and close on your new house before selling the old one, one of these three scenarios could happen:

  1. You take out a bridge loan. Some buyers opt for a bridge loan to finance the purchase their next home, which they payoff or refinance after the closing of their existing home. This scenario is more common in a seller’s market when inventory is scarce. If you need funds for a down payment or if your loan-to-value ratio with two mortgages would be too high for the underwriter to approve, talk with your loan officer about a bridge loan. Also, know that bridge loans have a better shot at getting approved when your existing home is listed, properly marketed, and accepting offers.
  2. Own two primary residences for a brief period: You may be stuck with two mortgage payments for a few months. Some homeowners choose that risk so you they make a non-contingent offer in a competitive real estate market. Non-contingent offers (as discussed above) give buyers more room to negotiate other terms and may even result in the seller agreeing to a slightly lower purchase price. Also, in a high-demand real estate market where properties move fast, contingent offers are not attractive to sellers.
  3. If you own your existing home outright, good for you! You could wait until your existing home sells to buy if you want to avoid a new mortgage or wait for down payment funds. This is not always necessary. You might still consider a bridge loan for the down payment on your new house with the intent of paying-off or adjusting your new mortgage when your old home sells. Also, when mortgage rates are low it might make financial sense to finance at least some of your next home to retain control over your capital, regardless of whether you need a mortgage to buy your next house.

If you do plan to own title to two properties simultaneously, consult with a tax professional regarding how you can legally hold title and claim tax exemptions for your properties. Depending on the length of time that you incur dual ownership, you may need to adjust the way you file taxes and report your real estate.

 

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