Buy on contingency: An ideal way to ensure against getting caught in between transactions is to have a prior-sale contingency included in the purchase contract on the new home. The contingency provides buyers the opportunity to withdraw from an offer if their current home does not sell by a certain date.
Consider whether to buy or sell first: There is still a possibility of getting caught even with a prior-sale contingency in the purchase contract. Therefore, homeowners should consider whether it is better to buy or sell first. Given the current market conditions where property values are leveling off, it may be better to find a buyer first to determine your net profits. Most people need to sell their current home in order to qualify for a loan to buy their next home, which is usually more expensive.
Coordinate a lease from the buyer: Many people find themselves in a situation where the sale of their current home has been finalized but the purchase transaction is still not completed for their new home. One way to bridge the gap is to lease their current home from the new owner until it is time to move into their new property. An attorney should draw up a contract or lease agreement. Coordinating a lease is effective because it alleviates financial concerns and removes the hassle of having to go to a temporary residence.
Look into renting: The buyer may not always be able or willing to lease back the home, so another option to consider is renting another property. Although relocating twice in quick succession is not ideal, renting serves as a quick fix and can be a necessary option before moving into one’s dream home.
Consider bridge loans: Getting a bridge loan may enable homeowners to move ahead with the purchase of a new home while still waiting to sell their current home. A bridge loan means borrowing from the current home’s equity until the proceeds from its sale are obtained. With some bridge loans, the requirement is to pay just the interest. Other bridge loans require a single payment of interest and principal at the time the loan needs to be paid back. There are times that bridge loans can be extended, but as they can be expensive if protracted, it’s best to use them for overlaps of a few days between closings, or at the most, a few months.
Review home equity options: If it’s necessary to borrow for a longer period than a few months, the best option is to use home equity, particularly if a sizable equity has been built up. Options include a fixed-rate home equity loan and a home equity line of credit. In most cases, you will need to apply before listing you’re home.
Anne-Marie McKenzie is a Realtor with Coldwell Banker Residential Brokerage in Yarmouth. She has written articles for various newspapers, works exclusively with buyers, sellers and investors and teaches free buyer classes. Contact her at 847-1725 or AnneMarie.McKenzie@NewEnglandMoves.com.