August 29th, 2011 11:11 AM by Eileen Denhard
Once upon a home, buying a home was as simple as saving some dough, spending a couple of weekends visiting Open Houses and writing up a contract. The time frame from house hunt to move-in was a couple of months, max. These days, super-tight mortgage guidelines, market concerns, distressed sales and appraisal dramas complicate and prolong both buying and selling. If you need to pull both buying and selling off at the same time, it can seem like you're signing up for these complications, squared. On top of that, the very real prospect of spending some time homeless takes the stress of home buying and selling to an entirely new dimension. Fortunately, getting yourself educated about what to expect on today's market and knowing all your options empowers you to obliterate panic with a strategic approach, an amazing logistics plan (and backup plan) and comprehensive preparedness for all possible outcomes. In that vein, here are four need-to-knows for those who want or need to sell their current home and buy a new one, at the same time. 1. Meet with a local agent who actively sells homes in your neighborhood, far in advance of listing or house hunting. You need them to brief you on items like how long you should expect your home to take to sell on today's market, what (if anything) you can do to move it faster, and whether listing after doing some improvements to your home, at a different time of year or at a different price point than you had planned can realistically be expected to make an impact on your time frame. You also need their professional opinion as to what price you can expect to get for your home. This will impact whether you need to consider a short sale (if your home's value is less than you owe on it, for example) which, in turn may affect your ability to qualify for a home loan in the short-term. (Short sales often make it difficult to qualify for a new home loan for a couple of years.) If you need to buy in the near-term, but your home is unlikely to sell except as a short sale, you'll need to discuss the legalities and logistics with your mortgage pro, attorney and/or a CPA, as well. Actually, the information about how long your home will take to sell, how much you can expect to sell it for and whether you're expecting to have to unload it at a short sale is all information you'll need to provide to your mortgage pro, so definitely collect it as early as possible in the process. A year before you need to move is not too soon to have your first meet up with your agent. 2. Meet with your mortgage broker before your start looking for homes or put your own home on the market. Of course, this is something you would have done eventually in preparation for your purchase, but it's essential that you have them walk with you through both your sell and your plans to buy, before you do either. Why? Well, a good local mortgage broker can work with you and your agent to help you: •do the math on what you'll net from your home sale; •help you know how much you (a) can qualify to buy, and (b) will need to come up with for your purchase; •understand whether the sale will impact your credit at all all and by how much, if so; and •time your sale vis-a-vis your purchase. There are dozens of ways the sequence might need to play out, to be successful at both buying and selling, and you'll need your mortgage pro to be a partner in the process of determining how to order things - before you actually do anything. For example, you might be under the impression that you can't buy before you sell, because you can't qualify for both, when in fact your mortgage pro could suggest a solution like a low- or no-cost refi first, to bring your payment down so you can qualify to buy before you sell. Or maybe you ARE in a situation where you can't qualify to carry two loans, so you need to sell first and use your own cash to make up the difference between what you owe on your home and what it sells for to avoid a short sale so you can still qualify to buy your next property. In any event, you won't know what exactly your capabilities are, from a mortgage and timing perspective, until you hear it from the source. So, get that meeting on the calendar, too, as early as possible. 3. Know your options for staying in after closing - or moving in early. Many homeowners try to buy and sell at precisely the simultaneous moment, with very little overlap, because they don't want to throw money away on rentals. The reality of today's market is that very, very few sales close precisely when they are expected to, mostly for reasons entirely out of the control of either party. The seller's bank takes months longer than expected to allow a short sale to close, or the buyer's bank takes eons to sign off on the appraised value of the home. In any event, if you are selling your home, before your purchase will be complete, know that it's okay to ask for a "rent-back" where you can stay in the property for as long as a month or more after the sale closes by agreement with the buyer to pay them rent on the property in the amount of their mortgage payment, taxes and insurance for the time you remain in the home. On the other hand, if you are buying after your sale closes, some sellers will allow you to move in before closing on a similar arrangement - essentially a lease or early move-in arrangement. They may ask you to sign a document waiving their liability for your belongings and anything else that goes wrong while you're there, before closing - you'll have to negotiate and decide what works for all involved. Before you start to freak out at the thought that your 'buy' won't close when you need it to, know that this option might be available, and talk with your home's seller to see if they'll consider it. 4. Plan for gaps - and for overlaps. There is very little in this world we can be sure of, except the high probability of your escrow closing late. Having a backup plan in place just in case you close one or both transactions off-schedule is essential to avoiding the surprise-induced panic attacks so frequently suffered by those intrepid housing consumers who try to buy and sell homes at the same time. And, frankly, sometimes the best defense against these surprises is simply to plan for gaps and/or overlaps. So, if you want or need to buy before you sell, build a cash cushion that can cover double payments for a couple of a months - and just plan on that. If that's not in the budget, or if you'd like to try out your new neighborhood or town before you buy, close your home's sale, then plan on renting a place during your house hunt - if you just need a place for a month or two, you might want to consider a suite hotel or a short-term, vacation-style rental like those you can find on sites like Airbnb.