One of the common logistical hurdles in selling your current home and buying a new one is the fact that the bulk of your down payment is likely tied up in the equity in your current home. Which means you need to sell first, so that you have cash available to close on your new home.
Here are some options that you have.
Contingent on Listing
When making an offer “contingent on listing”, you will find your new home first. When making the offer, you will make the offer contingent on you listing (and selling) your current home. In the offer, you will state a specific time period in which you will list your home (usually a certain number of days). You will also specify a period of time you have to find a buyer and ratify a contract on the purchase of your home.
During this time the seller may be able to “kick-out” your contract. The seller must provide notice of the intent to kick-out the contract, often 3-7 days. By the end of the notice period, you would need to remove the contingency that requires you to sell your home, or provide evidence that you have a contract to sell your home. This does not impact any financing and appraisal contingencies that remain.
BEWARE! This type of contingency is one that a seller is least likely to accept in a strong housing market. The Northern Virginia area is a very tight market, meaning there are more buyers than sellers – many homes will have competing buyers. This puts sellers in a position of power to reject offers that might leave them open to risk. For instance, when accepting a contingent-on-listing offer, the seller is effectively removing the home from the market, while they wait for you to prepare your home for sale, list it, ratify a contract and close. There are a lot of reasons why your sale may fall through. In the meantime, the seller has missed opportunities to sell to another buyer without the contingency. You are effectively asking the seller to absorb this risk. It’s not impossible, but the seller’s market makes it less likely you’ll find a seller willing to do it
Contingent on Contract
This contingency means that you have already listed your home, and you have accepted an offer from a buyer. While there are still reasons why the sale might still fall through, this type of contingency provides some level of comfort to the seller of the home you are trying to buy. It eliminates the time it takes for you to prep, list and find a buyer, thereby shortening the time the seller has to wait to close. However, with this type of contingency, then seller of your new home does have to wait for your sale to close first. The contingency protects you if the sale of our home falls through and you have to go back on the market. Unfortunately, if you do have to relist your home, you will likely lose the contract on the home you want to purchase. Which means you’ll be back at square one searching for a home. It’s not ideal, but it’s financially better then being stuck paying two mortgages.
Not Contingent on Sale
These are the kinds of offers sellers like most, because they don’t have to wait on you to sell your home first. Unfortunately, it also means you need to have sufficient income to qualify for carrying two mortgages at once. It’s important that you check with your mortgages lender first, before making this type of offer, to ensure that you will be approved.
If your previous home is not sold by the time you close on your new home, some homeowners may opt to rent out their old home, while others may continue to list until they find a buyer. The good news is, in Northern Virginia, homes that are priced correctly don’t tend to languish on the market (another reason why you need a high quality REALTOR® on your side) . Buy choosing to not have a contingency on sale, it gives you the optimal flexibility to choose and close on the home you want, without the risk of losing the contract because your home didn’t sell quickly enough. The time carrying two mortgages is usually minimal, and you only have to coordinate one move.
Risks with Selling First, then Buying
One of the challenges of being a buyer in the Northern Virginia market is that many homes are snapped up within days of listing, if not hours. There is a slight risk if you list your home first, you may get a contract before you find a home that you want to purchase. In some instances, this may mean you have to move out of your old house before you close on your new one. If you do run out of time, that would mean you need to find temporary housing (and storage). Temp housing could be an extended-stay hotel, or maybe moving in with a friend or family member’s house. If you are lucky, you may find a 2-6 month lease, but this is rare. Less than 12 months is typically a challenge for a lease.
The best way to mitigate risk when selling first then buying is to disclose to potential buyers of your home that you want a “rentback.” This is also called a “post occupancy.” The lender of your future buyer will limit your rentback period to 59 days or less. While rentback does give you some additional time to find a home, it has limits.
Keep in mind that once someone makes an offer on your current home, you often have 30-45 days between ratifying that contract and closing on the home. So if you take that period + 59 day rentback, you have up to 100 days between accepting an offer and moving. That translates to about 60-70 days to find a home, ratify a contract, then you still have 30-40 days to close on it.
IMPORTANT NOTE: In a rentback situation, you are often paying the purchaser’s carrying costs and they are deducted at settlement. So for example, if their mortgage is $3,000/mo, and you are renting back for almost 2 months, then that will be around $6,000 you pay them at settlement.
If you are ready to start the process, or just have questions, we are here to help!