Are you planning to sell your old house and buy a new one? Well, that’s entirely possible. We are taking the liberty to outline your options for buying a home in Florida. Read them to determine the one that works for your case. Follow these tips to create a plan that ensures the process runs smoothly.
A. If You Buy You Sell
Buying your house before selling the old one is the trickiest of all methods. While it is not impossible, it requires more financing than you already have.
If you want to buy a house before selling a new one, you’ll face various risks and roadblocks. The common ones are:
- How do you come up with an adequate deposit/down payment?
- How do you manage your debt to income ratio while owning the two properties?
Keep in mind that many options that seek to solve the first problem will impact negatively on your resolve to answer the second. Work with your real estate agent or financial advisor to evaluate your options before taking any action.
At times, you may get your ideal house at an early stage of your search. If this happens, consider the following options.
1. Make Use of a Home Sale Contingency
Including a home sale contingency in every offer you make is the easiest way to deal with this case. The contingency plan offers you an opportunity to look for a buyer before settling in your new home. Where you can’t get a buyer, you’ll have the option to seek a contract extension or back out of your deal.
Does this option seem too right to be true? Unfortunately, the offer is too good to be true. Home sale contingency plans aren’t much of a thing these days. Sellers don’t like them as they offer little or no reassurance that you can buy their property. However, you’re free to include this clause in all the offers you make. But don’t forget, the phrase may impact your strength to make an offer negatively.
2. Get a Loan
At times you’ll need a loan to finance your new home before selling the old one. One option to consider would be the bridge loan. So, how does a bridge loan work?
It’s a short term financing option that makes it easier for you to pay your mortgage loan. With this, you don’t need to carry the mortgage costs.
When your house sells, you’ll use the money to pay the bridge loan.
As you can see, a bridge loan is essentially a gamble. It comes with strict payment terms and a higher interest rate. For the investment to work, the payments need to be on time. Therefore, if your old home sells at a lower price or doesn’t sell on time, you’ll be responsible for ensuring you make the payments on time. Remember, foreclosure can be a problem especially if you have financial problems for example if you lose your job or failing to sell your old home on time.
3. Keep Two Properties for Sometime
Holding to the two houses can be a stretch financially. But where you can afford the option, it is your best bet. The option allows you to shop and buy a new house without taking a loan or using a home sale contingency. Alternatively, you can consider a short sale depending on certain factors like current market conditions, location and offers from potential buyers.
B. If You Sell You Buy
Selling your old house before purchasing a new one offers you a financially secure option. In this way, you’ll know the amount of money you need to buy a new house.
However, the method has a share of inconveniences. For example, where do you stay after selling your house and before buying a new one? Plus, how do you deal with the stress of moving twice? Well, here is how to go about it.
1. Make Use of the Settlement Date to Your Advantage
It’s the easiest way to avoid the hassles of moving twice. Where possible, try to align the closing date on your old house with the settlement date on your new home. In this way, you can quickly move directly from your old house to your new house without looking for shelter in between.
It’s important to note that giving or writing an offer is part of the negotiation process. If you want to have matching settlement dates, you should be ready to be flexible with other parts of your contract. It’ll act as a gesture of good faith which may make them agree to your offer.
2. Request for a Rent Back Contingency
A contingency is a simple way in which a buyer or seller protect their interest. Before closing on the sale for your old house, you may request the buyer to offer a sale-leaseback contingency. It will buy you some time to look for a new home after selling yours. The parties should agree on the leaseback terms and the rent payable per month.
A leaseback contingency is beneficial to all parties. As the seller, it allows you to close on the sale, get the finances you need to purchase a new house without having to relocate.
Remember, with a leaseback policy, you’re requesting a favor from your buyer. Remember, the person buying your house isn’t obliged to honor your contingency plan. After all, a buyer may be working on a buy then sell the idea. However, it doesn’t hurt to make an offer. So, be sure to include it.
3. Look for a Short-Term Rental Unit
At times, things don’t work according to plan. If this happens, look for a decent rental unit to stay until the time is ripe to occupy your new house.
The point of concern is, being a renter for a short period can be expensive than long-term renting. Plus, you’ll need to look for a storage space that can hold your excess belongings.
Buying a new home while selling the old one and trying to close the deal at the same time is not easy. It’s not only a matter of coordination and logistics, though these are the main challenges. It’s also challenging because someone- the person selling you a new home- is taking a risk.
Two Ways to Save When You Buy a Home
Buying a home is probably the largest investment you and your family will ever make.
Unless you’re wealthy, few people buy homes and pay cash. Rather, they make a small down payment and obligate themselves to a financial lender for a term of usually 30 years. In this case, the lender determines the interest rate and gives you a thorough financial background check.
There are at least two other ways to buy the home of your dreams and probably save money: assuming the existing mortgage or owner financing. Either method usually saves you time, trouble and money.
If you’re trying to assume a mortgage first make sure it’s assumable and transferable. Many mortgages have a due on sale clause that states if the owner sells all or part of a house the entire balance becomes due and payable on demand. A lender may be willing to overlook a non assumable mortgage is you’re able to make good any overdue payments and agree to do further business with the existing lender.
If a house is selling for $100,000 and the owner still owes $60,000, you could pay the owner the equity of $40,000 and assume the debt of $60,000 with the existing lender.
This is good for the buyer if the existing interest rate is equal or lower than the current rates for a home loan. A second mortgage may be needed for the equity payment.
There are different ways to assume a loan. You can, as a buyer, assume the legal obligation for payments and usually pay an assumption fee of 1% of the loan balance.
Or, you could take over the payments leaving the seller still legally obligated for payment if you default. If this happens, you lose the property and the seller’s credit is harmed unless he makes payments as scheduled.
Seller (owner) financing is good if a buyer can’t qualify for a traditional loan and if the owner has had trouble selling and is in a hurry to unload the house. In this case, it would be wise to find out the need for the rush selling or why the home has not sold previously.
For the agreed upon price you would begin making monthly payments to the seller usually at a lower interest rate than is being offered at institutions. There is little risk as the home is collateral. If you default, the seller regains possession of the house.
The seller may also need to have an additional stream of income each month instead of getting it in one lump sum. And, he could save on some of the capital gains tax. With owner financing, you as a buyer can avoid some (not all) costly administrative fees and private mortgage insurance (PMI).
Assuming an existing mortgage or obtaining owner financing are two great ways to become a homeowner and save money at the same time. No matter what the current status of the real estate market is or if interest rates are high or low, there are always creative ways to obtain financing.