Non-Contingent Offers vs. Mortgage Guidelines

As of April 20th, 2018

So…all of sudden…when you least expect it…Bam! 

The perfect home comes on the market, and you can’t pass it up!  It’s located right where you’ve been looking, it has everything you want, and you know you can afford it. You want to make an offer. The only problem is, your house isn’t for sale yet. Doh! What do you do?

“Do we have to sell our home first before we buy the new one?”

This is a common question that we often hear. How then, do you navigate the logistics of closing on the home you’ve always dreamed of, but you haven’t even begun to think about selling your current home? The answers to buying before selling may depend on the following factors:

1.  The type of mortgage that you have on your current home?

2.  The type of financing that you are eligible to apply for on the new home?

3.  The amount of equity you have in your current home,

4.  The amount of savings, retirement account loan ability, or gift money you have access to?

Convenience & Strength of the Offer:

The idea of making a non-contingent offer when you still have a house to sell is twofold:  For one thing, a non-contingent offer will almost always be considered the stronger offer; and therefore, usually beat out a comparable “contingent” offer. This is because the seller viewing your non-contingent offer does not have to worry about potential time delays that may be caused by you getting a qualified buyer at the price you want to sell at. Nor, do they have to worry about any potential hiccups that could occur with your buyer’s financing. And, for another thing, let’s face it, many repeat home buyers don’t want to list their home until they have found the next home they want to buy. So, for convenience reasons, being able to purchase a new home prior to selling your current home can make life a little easier in some respects. Furthermore, some (not all) homeowners have an easier time staging and getting their home ready to market after they have moved out, and may be able to get a better price for their home as a result. Each case can be different. A discussion with your Realtor should be made prior to your listings for tips and ideas on updates, improvements, and staging techniques.

Qualifying for Financing:

In the event that you will be purchasing a new home prior to selling your current home, you will need to qualify with both the monthly payment on your new home, and the monthly payment on your current home.  If there will be a 3rd loan, such as a home equity loan accessed, or “bridge” loan, then you would need to qualify with all 3 payments calculated in your debt ratio in most cases.  Although, you obviously don’t want to carry 2-3 house payments, the obligation would be very temporary, and only until you sold and closed on your current home.  Consequently, many people are surprised that they do in fact qualify for 2 house payments at the same time.

Source of Down Payment on New Home prior to closing on your current home:

Traditional means such as savings, loans against retirement accounts, or gift money from relatives can always be used. If you have a fair amount of equity in your current home, you may be able to access some of the equity for the down payment from a HELOC (Home Equity Line of Credit), or apply for a bridge loan.

Not to fear…not all of these examples are as tricky as they may sound. But, they do demonstrate the advantage of having done some pre-planning before re-entering the market to purchase a new home. Therefore, if you are contemplating buying another house in the next 3-6 months, these are just some examples of all the more reason to get pre-approved.
Even if your credit history is top notch, your work history is solid, and you’ve come a long way from some of the special financing needs that you may have had as a first time home buyer, today’s housing market may possess some twists that still make it worthwhile to do your homework upfront.
For some repeat buyers who are willing to sell, and move into temporary housing; they might be able to put themselves in an optimum position for both the sale of their current home, and then the purchase of their new home. Granted, some individuals and families can have arrangements that may make them it easier equipped to accomplish this. On the other hand, by simply negotiating an extended closing and possession date for the sale of their current home, it becomes easier for many repeat buyers to successfully find, buy, and close on their new home without having to move twice. Even in today’s market, with lower than normal inventory, this is still the best and most common method of selling, and repeat buying for most people.

The point is, there are professionals who can help you maneuver through this current housing market from both the lending side, and the Real Estate side, to reach your goals. Contacting an experienced, knowledgeable and helpful Loan Officer and Realtor in advance is of great benefit. It never hurts to get pre-approved, plus you gain some great insight. And…it won’t cost you a dime!