Financing Information

Getting From House To House

It can be very confusing visualizing how to buy a house when you have one to sell. How does everything coordinate?  Sometimes it seems like you are working with smoke and mirrors.  There are basically 3 options depending on the salability of your home and your comfort level.

UP FRONT MONEY

In the first two cases you will need up front money liquid for your purchase.  Even if you have sold your house, the funds will not be available to you until after the closing.  Traditionally you will be putting down 1% of the purchase price of the new house when you make an offer. You will need an additional amount in about 2 weeks when you sign contracts.  This is usually 9% but can be as little as an additional 2%. You will also need money for building inspections on your purchase as well as some upfront mortgage application costs (about another $2,000). Where will you get these funds is your first hurdle. If you have the funds liquid you are in the minority.  Most people need to find these funds usually from the equity they have in their present home. BEFORE you list your home you will need to arrange for a HOME EQUITY LINE OF CREDIT. Usually there are no fees involved with this and you do not start paying on the line of credit until you use it. The bank will approve you for X amount and then give you a checkbook to that line to write checks against.  The interest rate is usually “prime” and will adjust whenever the prime adjusts.  When you close on your home you pay off and close this line of credit.

OPTION 1- BUY FIRST

Your Realtor will assess the salability of your home and the number of homes on the market that will fit your needs.  If you are not looking for a really specific home and currently have a home that is in good condition, in a median price range, with no really limiting factors (steep driveway, busy road, cat odors, clutter) this is definitely the way to go.

1. Get your home equity line of credit in place if needed.
2. Go out and make sure that there are several homes in your price range that would be acceptable.
3. Get pre-approved for your mortgage as well as a “bridge loan” between houses.  The bridge loan is used if the closing dates don’t quite coincide or if your house hasn’t sold by the time you need to close on your new home.  Although your Realtor will have a good comfort level that you won’t need to use this bridge loan, you will need to be pre approved so that she/he can represent to the Seller of your new home that you DO NOT need to close on your present home to perform.
4. Search for your new home and negotiate a purchase price. Do the building inspections and sign formal contracts (usually about 2 weeks).
5. List your home and get a buyer- try to coordinate the closing dates. (Some people choose to use the bridge loan so that they can close on the new house first and then take several weeks to make repairs, refinish floors and move in slowly).

OPTION 2- SELL FIRST A

Your Realtors will actually tell you that this is even MORE stressful than buying first.  What if you sell your house and can’t find a suitable home to buy?  Realtors would rather NOT make you homeless.  However, if you are not really choosey in your next home, or if your present home has some “challenges” as far as its salability this may be your best option.

1. Make sure your upfront money or home equity line of credit is in place. If you do not have enough equity in your home you can also get this up front money via a bridge loan.
2. Preview with your Realtor to make sure that there are homes on the market that would be suitable in your price range.
3. Get pre-approved for a mortgage
4. List your home and find a Buyer. Determine a closing date that gives you enough time to house hunt (90 days). See if the Buyer could close earlier if you found a house right away. This flexibility with the closing date may be more important then any other item.
5. You are not a strong Buyer yourself until your Buyer has completed all building inspections and signed formal contracts.
6. House hunt and negotiate a deal.
7. Try to coordinate the closing dates. It is possible to close on your existing home in the morning and on your new home in the afternoon or the next day.
8. Remember that you need to be OUT of your present home at closing which means holding your furnishings on the truck or putting them in storage (if the closings are more than 2 days apart) until you close on the new home.

OPTION 2- SELL FIRST B

Even if your home is under contract, you may not feel comfortable going forward with your purchase until after your get the money from the transaction. In this case you will need a plan B. The other time when this is necessary is if you have no liquid money for the “UP front” fees and there is not enough equity in your home to get a home equity line of credit.

1. Make sure that there are homes in your price range that would be acceptable as your next home.
2. Get pre approved for a mortgage
3. List your home and find a buyer.
4. Close on your home and move into a rental or with a friend.  This will usually mean storing your furniture.
5. Search for a new home and negotiate a deal.

Please know that your Realtor and your mortgage lender can be great sources of information.  Realtors  loose sleep and feel even more stress than you over transactions and will not advise you into a situation without defining all of the pitfalls. Your Realtors is not JUST there to find a buyer, they are there to guide you through the process.