Selling & Buying Simultaneously
Many home buyers today still need to sell their current homes and use the sale proceeds for their next purchase. Often, there is a closing in the morning on the “sell,” and a closing in the afternoon on the “buy.” This is called a “piggyback” or “back to back” sale.
Back in the boom days, we were doing piggyback transactions all the time, and lenders were able to offer special programs, like bridge loans, to facilitate these back to back transactions. The days of bridge loans, no-docs, and 100% financing may be over, but piggyback transactions are still going on, but in a changed market.
There are numerous factors and variables to consider when doing a piggyback transaction, from a legal, financial/lending and marketing perspective. There can be at least 11 different people involved – buyer, seller, 2 agents, up to 3 attorneys, loan officer, appraiser, home inspector and contractor. Coordinate and communication is critical, and the Realtor often takes on the role of the "Project Manager."
Sales/Marketing
There are a number of considerations on the sale/marketing side. When to put the lisitng on the market so as to ensure a quick sale? Many families want to get settled before the summer and back to school season ends. Getting a pre-sale home inspection and comparable market analysis before putting your home on the market are two good tips.
Lending
Lenders are no longer offering bridge loans or 100% financing, which helped cash strapped sellers to close on their new purchases. Also, home equity lines are tougher to qualify for. No income verification and stated income loans are just about long gone for the recently self-employed. The days of “washing the rent” on income properties is over. You need a 2 year history of rental income for qualification purposes. You also need to factor in the required real estate tax and insurance escrow reserve in your mortgage payment affordability analysis.
Bottom line, coordinate with your client's loan officer and financial planner as early as possible in the process before putting the listing on the market! Get those financial ducks lined up before the application process.
Coordination & Control
The piggyback transaction works best when one person takes on the role of “project manager.” Communication and coordination is the recipe for a successful piggyback transaction.
On the legal side, the overriding goal is to keep your buyer’s feet to the proverbial coals on the sale while protecting your deposit on the buy. It may seem like common sense, but it’s best to hire the same attorney to handle both transactions. An experienced attorney will line up the two mortgage contingency deadlines so that your buyer will obtain a firm loan commitment as soon as possible (with no contingencies, especially the sale of other property), and you have sufficient time on your purchase to get your own firm commitment while protecting yourself from any worst case scenarios like job loss, defective title, etc. The attorney should always be on top of these important deadlines so he or she can ask for extensions and otherwise exercise any opt out rights. Failure to do that can result in the loss of your deposit. Delays are common today in the tighter lending environment.
The Big Day
As the closing day approaches, everyone gets into high gear, with the agents coordinating smoke certs and pre-closing walk-throughs, the attorneys drafting preliminary HUDs, deeds, and coordinating wires, and loan officers sending closing packages. Speaking of wires, your attorney should be able to coordinate a wire of your sale proceeds into the IOLTA account of the purchase closing attorney, so you have good funds to close.
The closing day is about as hectic as you can get. I suggesting giving your attorney a power of attorney so he or an associate can attend the closing on the sale, get on record, coordinate the funds, and you can deal with moving and attending the purchase closing in the afternoon.
Best of luck on your piggyback transaction!
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