Thursday, December 12, 2019 / by Jessica Nager
Do you currently feel stuck because you want to buy a new house, but need to sell your old one first? If you’re confused by the process, you’re not alone—but that’s why I’m here to help you navigate. If you find yourself in the position of needing to buy a new home and sell your existing one simultaneously, then this information is for you. By timing your steps and planning ahead, you’ll be able to save thousands of dollars and avoid being temporarily homeless.
You might be thinking, sure, homeless…it’s not that serious, is it? The truth is that the crucial period between closings could lead you to couch surfing if you don’t execute your timing correctly. Timing your sale and your purchase at the same time is what will enable you to come out of this successfully.
Since most Americans who own a home will find themselves in this position, I’ve created a 7-step plan that will prepare you for your upcoming move. Before you pop open your bottle of champagne and start celebrating your new dream home, it’s important to be prepared for the challenges you’ll face.
Step 1: Figure Out What You Qualify For
The first step you should take is to find out if selling your house before you buy is even necessary. Talk to your mortgage lender and see if you actually need to sell in order to obtain financing. If you can qualify for your new home purchase without selling, you’ll be in a more flexible, advantageous position. Why? Consider the logistics.
The person buying your house needs to obtain their own financing to close on your house. You can’t close on your new home until they close on theirs. If anything goes wrong with their sale, it will affect your upcoming purchase. That’s a lot of moving parts and a lot that could go wrong.
You’ll also need to consider what you’ll do if you close on your first home but aren’t yet in your new home. Some things that will need to be done include:
- Moving all of your possessions out of the house before the new buyer moves in
- Figuring out where to store all of your stuff in the meantime
- Timing your closing—will you want to sell your existing house in the morning, and close on the new one in the afternoon?
- Finding temporary housing or storage if needed
It’s simple to conclude that your experience will be much easier if you don’t have to sell your home before buying a new one. So make sure to talk with your mortgage lender and be sure of how you should proceed. If you do need to sell before you buy, you’ll want to be as prepared as possible with all the information you need. You’re going to need perfect timing for this route.
Step 2: Prepare A Net Sheet For Your Existing Home
A net sheet helps you determine your final profit after you minus all closing costs on your home sale. Your realtor can easily create this sheet for you. You’ll get a realistic idea of the value of your property, which will help you make the best decisions. Online calculators are really just guesstimates, so avoid using them if you’re looking for accuracy. Your agent will be able to give you an honest analysis of what your house is really worth. Regardless of what you think your home is worth, don’t forget that the market will dictate the value of your home. This amount cannot be changed by a real estate agent, an investor, or you. Trust the opinion of your agent, who knows the market best, and the market itself.
Once you have a breakdown of your net profit, you’ll know what you can afford ahead of time. This will help you narrow down your home search and save you hours of internet browsing.
Step 3: List Your Home For Sale
When it’s time to list your home, make sure you have a true online marketing plan in place. This includes proper positioning, high-quality pictures and video. Since you’ll need to sell your existing home before purchasing the new one, you don’t need to aggressively look for houses right away. Feel free to research online to get an idea of what you want, but don’t set your heart on anything just yet. If the property you’re eyeing sells before you have a chance to make an offer, you’ll just invite disappointment into the process.
PRO TIP: Don’t worry about aggressively searching for your new home until you feel like an offer is coming in. Once you’re getting 5-7 showings a week, a good agent will alert you that a sale is coming soon.
You’ll also want to be aware of entering into a house to sell contingency, which happens if you try to buy another house while your current home is not under contract. What does this mean for your home purchase? Your contract to purchase the new home will be dependent on finding a buyer for your current property. Most sellers will not be excited to accept a house to sell contingency offer. How long will it take for you to get a buyer? What if your house is overpriced or doesn’t sell? Conversely, accepting an offer that includes a house to sell contingency would lessen your exposure on the market. Only agree to take this kind of offer if it’s just too good to pass up.
Let’s break this down with an example.
Let’s say that a seller receives an offer from a buyer that needs to sell their house first—but the seller doesn’t know about this big detail. They verbally agree on a price of $450,000, but later the buyer lets the seller know they need to sell their current home first. This house to sell contingency can change everything, with the seller easily countering at $465,000 because of these additional terms. They may even reject the offer completely until you have a buyer—which then means you might lose out on the house you want to someone else who has the funds available.
It’s therefore best to have your current house under contract before purchasing a new home, since a house to sell contingency can affect your negotiation tactics, terms, and pricing. Again, you’re free to browse and research properties, but you’d ideally want to have your house under contract (or be very close to finding a buyer) before putting an actual offer in on a house.
PRO TIP: Sellers can show their homes to other buyers while they’ve accepted a house to sell contingency, but their status on the MLS will change and showings will be affected. Buyers and their agents will likely pass on scheduling a showing, so it’s best not to start looking for a house until after you receive an offer to purchase yours.
While sellers usually steer clear of house to sell contingencies, they’ll usually accept a house to close contingency. This means you already have a buyer and the contract is only contingent on financing. This situation is far more secure than a house to sell contingency, and sellers will be less worried about accepting this type of offer. You’ll also come in with better terms, which will lead to a better deal for you.
Step 4: Prepare For Incoming Offers
Your agent should know that you’re close to receiving an offer once they’re showing your property 5-7 times per week. You may need to adjust your marketing or your price if showings come to a standstill. It’s always best to make a price change before your market time accumulates, as your best chance of getting asking price is within the first 2 weeks of listing.
Your agent can help you to navigate this intricate timing. Follow your agent’s advice on when to start aggressively looking for your new home. Houses are always coming on and off the market, and what’s here today may be gone tomorrow. Remembering this fact will help you do two things: avoid disappointment by not picking your dream home before it’s time, and be confident that great properties are always popping up. If you miss out on one, there will always be another.
Step 5: Accept an Offer On Your Home
Once you get a contract for the sale of your house, the moving parts are going to speed up. Work closely with your realtor; they’ll be able to help negotiate a longer closing date with your buyer (ideally not sooner than 60 days). This will help you accomplish two vital things:
- You’ll have more time to find a home you really love, which includes the complete process of house hunting, scheduling inspections, applying for financing, and getting that financing approved. The 30-40 days from a contract acceptance is plenty of time to get all of these things done, leaving you with a good 2-3 solid weeks of house hunting.
- Your buyer will have the time they need to do their diligence on your house, including the inspection. This way, they’ll have a full understanding of everything they’re buying. If your property has an HOA attached, you’ll also need to provide your buyer with all condo association documents so they know the home is clear of issues and in good status. If something is wrong with your home, the buyer can still cancel the contract—affecting your upcoming purchase.
Once these things are accomplished, you’ll be able to launch into full buying mode and find the house of your dreams!
Step 6: Find Your New House And Get The Contract Accepted
You’ll need to put your new home under contract once your house clears inspection. Try to have your home purchase under contract no sooner than 35-40 days from your anticipated closing date.
PRO TIP: If you’re planning to sell your existing house in the morning and close on your new home in the afternoon, make sure your title company or real estate attorney provides the lender with all pertinent documents to ensure that sure the transaction goes smoothly.
You won’t need to close on the same day as your sale if you have a temporary housing situation set up, and your timing won’t be as crucial. If that’s not the case for you, you’ll want an exact plan with your lender for the transaction. You’ll need to make sure your appraisal is filed and gets into underwriting immediately—which is the process your loan goes through once your lender has all pertinent information. A good real estate agent should help you be proactive with your lender and facilitate this process.
On the reverse side, make sure your buyer’s lender is doing everything they need to do so your transaction doesn’t fall through. Their appraisal should be completed within the first 7-10 days after accepting the contract, and their underwriting should be submitted shortly after the appraisal is complete. With a mortgage contingency in their contract, the buyer must secure financing by a specified date (or the mortgage contingency date). That date should be no later than 35-45 days from your acceptance of the sale.
Making sure these details are taken care of will guarantee that your buyer’s financing will be 100% approved before the closing date. You’re going to want time to deal with any last-minute issues, and eliminating as many “what-if” scenarios as possible will only be to your benefit.
Step 7: Close…And Close!
When you’re buying and selling a house at the same time, timing and planning are crucial. Having a strategy in place ahead of time will help you avoid stress, enabling you to get into the home you really want. The key is having the right team to back you up, people that are knowledgeable and committed to your success.
Here at the Ryan Nager Group, we have that passion and drive to help you succeed. Please don’t hesitate to connect with us and take advantage of our resources. If you have any questions, we’re happy to assist!