Four Ways to Buy a New Home Before Selling Your Current One

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Mortgage and Lending with Guaranteed Rate, Marin County, CA NMLS: 22343
https://activerain.com/droplet/55XX

Four Ways to Buy a New Home Before Selling Your Current One

 

We here in the San Francisco Bay Area --- and from what I'm gathering, in many other areas of the country as well --- have dealt firsthand with the virtual impossibility of the "contingent offer."  That is, when a buyer must sell his current home first in order to close on the new one, and when the purchase offer on the new home is specifically written to alert the seller that the two transactions are interdependent, it is said to be "contingent."  Another, less subtle, way to describe contingent offers might be, "dead on arrival."  This is because the seller knows that if the buyer of the new home cannot sell his existing home (in time or at all), the new deal would likely be off because our buyer would either not have the down payment, the qualifying income, or both.  It stands to reason that in a high-demand seller's market, few of those looking to quickly sell their property at top dollar would be inclined to complicate their sale in this manner.

But are there any ways and any programs that a buyer in this situation can use to get out from underneath having to make a contingent sale offer?  Indeed there are.  

 

#1:  Qualify "All In"

As implied, this buyer can produce a down payment for the new home AND can support, from a debt-to-income (DTI) perspective, the housing payments on both homes.  As you might suspect, this would be a stretch for many buyers so it is not especially common.  But where possible, this might be the simplest and best way to move forward.  If the departure home later sells, the borrower can take some/all of the proceeds and either refinance or recast the loan on the new property.

 

#2:  Use a Specialized "Departing Residence" Program

You might think that the homeowner who is looking to buy could just tell his mortgage lender that he plans to rent out the current home.  In lending parlance, this would be considered a "departure property," and it brings with it approval tests that can introduce a lot of risk and stress into the transaction.   To counter this we can sometimes use a program that allows a buyer to use proposed rent on the departure home but DOES NOT require a rental agreement in place, a security deposit from the renter AND, often, an equity test on the home to be rented (usually at least 30% equity).  Our departing residence program will instead use an appraiser's rental survey on the original home.  If the property could produce $2000 per month rent, for example, we will allow 75% of this amount ($1500) to offset the borrower's debt service on that property.  A departing residence program still requires that the buyer can come up with the down payment for the new home, so in short, departing residence programs work where the buyer has the down payment, but not the income, to support the two homes.  If even temporarily.

 

#3:  Use a "Cross Collateralization" Program

As we just covered, where there is a down payment but not the income, the rental survey piece can be a lifesaver.  But what if we have the opposite?  We have the income but not the down payment?  Sometimes we find that the equity in the departure property would make a great down payment but the problem is that it's "landlocked" until the sale of that home.  With a cross-collateralization program we will "monetize" that equity by having our mortgage "cross" both homes, thereby tapping the down payment before the sale.  When our borrower does eventually sell the current home, a "release amount" will be applied to the full balance of the mortgage, thus essentially recasting the note and making it a permanent loan on the new home.  So for cases where the buyer has the income, but not the down payment, a cross-collateralized loan may do the trick.

 

#4:  Use a Bridge Loan

Bridge financing may seem identical to a cross-collateral loan, but it is not.  And bridge loans come in a few varieties.  We offer one that I cover specifically here in THIS blog.  The program requires
"ability to repay" and is in keeping with conventional mortgage guidelines and thus qualification is more stringent.  And then there are private money bridge loans.  A private money bridge is used in cases where the buyer has neither the income nor assets to purchase the new home, but does have a lot of equity tied up in the existing home.  Private money bridge financing falls outside of many of the mortgage regulations and therefore can be closed very quickly and with very little qualifying documentation.

 

I am convinced that if more Realtors and buyers understood these options, and became even conversant in their characteristics, it would at least have a subtle positive impact on the scarce inventory scourge that has dictated the pace of our market over the last few years.  But if you find yourself confronting the common situation where you must buy before selling your current home, get in touch and we'll see if any of the four approaches here prove the best fit.  If so, you might be closer to success than you have been led to believe. 

 

Four sure, 

 

 

Robert J. Spinosa
Executive Loan Advisor
NMLS: 22343 
Cell/Text: 415-367-5959 Fax: 415-366-1590
rspinosa@rpm-mtg.com    www.rpm-mtg.com/rspinosa 
1058 Redwood Highway, Frontage Road, Mill Valley, CA 94941

 

LendUSA, LLC dba RPM Mortgage NMLS #1938   Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act. 

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Ron Barnes 07/20/2017 05:12 AM
  2. Chuck Mixon 07/20/2017 09:43 AM
  3. Lottie Kendall 07/21/2017 08:24 AM
Topic:
Home Buying
Location:
California San Francisco County San Francisco
Groups:
Realtors®
The Lounge at Active Rain
San Francisco Real Estate
Addicted to Active Rain
Bananatude
Tags:
relocation
inventory
home loan
move
down payment
purchase
sale
contingency
bridge loan
real estate
dti
qualification
contingent offer
mortgage
rental survey
departure residence
crosscollateral

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Rainmaker
301,367
Shirley Coomer
Keller Williams Realty Sonoran Living - Phoenix, AZ
Realtor, Keller Williams Realty, Phoenix Az

Good information.  I find that often if clients do qualify for both loans, few buyers really want that risk.  However, it is good to have options to offer!

Jul 20, 2017 06:55 AM #17
Rainmaker
289,414
Patti Irwin
HomeSmart Lifestyles-Fountain Hills AZ Real Estate - Fountain Hills, AZ
No Pressure, No Sales Pitch, Just Expert Advice!

I have to agree with Shirley on this, most buyers don't want the risk even though they could afford both homes. I have a client moving from Illinois to Arizona and it took them five months to sell their home in Illinois. The Realtor in Illinois told him it would sell in 3 days, boy was she wrong!!

Jul 20, 2017 07:17 AM #18
Rainer
44,273
shirley cicero
Continental West Realty - Livermore, CO
Northern Colorado Mountain Homes and Vacant Land

Thanks for sharing. Great education on some options.

Jul 20, 2017 07:18 AM #19
Rainmaker
1,087,293
Margaret Goss
Baird & Warner Real Estate - Winnetka, IL
Chicago's North Shore & Winnetka Real Estate

This subject comes up often!  Now I have a (bookmarked) resource to re-read and send to my clients.

Jul 20, 2017 08:26 AM #20
Rainmaker
539,937
John Mosier
Realty ONE Group Mountain Desert - Prescott, AZ
Prescott's Patriot Agent 928 533-8142

Thanks, Rob Spinosa, for your excellent post. One of my clients is "in a bind." They took out a second mortgage in order to buy land on which to build. They paid cash for the land but now have a reduced equity on their departure home. They want to have a new home built on the land and have started to spend on making that happen even though it will be several months until it will be done. They cannot qualify for the loan for the new home because of the debt to equity situation.

Any ideas?  

Jul 20, 2017 10:20 AM #21
Rainmaker
2,809,290
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Rob Spinosa Those are very good tips for buying a new home before selling current one.

Jul 20, 2017 01:44 PM #22
Rainmaker
64,762
Rosemarie Rivicci
Barbara Corregano Real Estate - Staten Island, NY
First time homebuyers, luxury homes, commercial!

Very creative, will bookmark this info!

Thanks for the post!

Jul 20, 2017 06:33 PM #23
Rainmaker
579,524
Pat Starnes-Front Gate Realty
Front Gate Real Estate - Brandon, MS
601-991-2900 Office; 601-278-4513 Cell

It's good for Realtors to know all the different options to help their clients finance their purchase. I'm helping someone at the moment who is looking at a bridge loan because I suggested it as an option in their situation.

Jul 20, 2017 07:31 PM #24
Rainer
158,094
Don Taber
Our Town Properties, Inc., Wilson, NC - Wilson, NC
REALTOR / BROKER / CRS / GRI

Great article Rob.  I have never liked having to sell before I buy but that had become more difficult over these last few years.  We would always buy and do some fix up on the new house.  Then we would move things in and leave the previous house staged as well as possible in order to move the sale of it as quickly as possible.  As long as you can get the financing or have the cash it works.

Jul 20, 2017 09:27 PM #25
Rainmaker
786,193
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Learnt something today, thanks for this post. All good information.

Jul 21, 2017 05:04 AM #26
Rainer
126,363
Stavrula "Sam" Crafa, RNC,GRI, CDPE, PSA
Future Home Realty - Seminole, FL
Providing the integrity and service you deserve.

I was not aware of some of these options. I need to get with my lender partners and discus these. Thanks for the info. 

Jul 21, 2017 07:03 AM #27
Rainmaker
401,273
John Wiley
Right Move Real Estate Group- EXP Realty - Fort Myers, FL
Lee County, FL, ECO Broker, GRI, SRES,GREEN,PSA

Rob Spinosa thanks for sharing some great ideas to move the double process of selling and buying along at a faster pace.

In today's market we need all the tools we can get our hands on.

Thanks

Jul 21, 2017 07:06 AM #28
Rainmaker
1,790,202
Lottie Kendall
Compass - San Francisco, CA
Helping make your real estate dreams a reality

Hi Rob -- what a timely, fabulous post. I plan to re-blog it, and with your permission email it to several people I know who could be helped. I'd love to send buyers your way, and this might just be the impetus to get a few moving.

Jul 21, 2017 08:17 AM #29
Rainmaker
5,044,086
Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
Marketing Agent for The Todaro Team

Good morning, Rob Spinosa congratulations on your feature....and this is a topic that need much discussion ....many agents are not familiar with the options available....

Jul 21, 2017 08:51 AM #30
Rainmaker
1,947,069
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good afternoon Rob-  this a post worthy of the feature.  Realtors should refer their buyers to you.

Jul 21, 2017 10:59 AM #31
Rainmaker
522,916
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

I'm going through this situation with current buyers. Their 'departure' home will sell very fast,  they want to make a contingent offer on second home.  Some sellers won't consider contingent in the hot market. You are offering options!

Jul 22, 2017 03:57 PM #32
Rainmaker
378,961
M.C. Dwyer
Century 21 Showcase REALTORs - Felton, CA
Santa Cruz Mountains Property Specialist

A very Well written post  Rob Spinosa 

that could be very helpful to many sellers in my area as well.    I'd like your permission to reblog?   Thanks!

Jul 23, 2017 10:26 AM #33
Rainmaker
981,221
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

These might be some great tools for the right buyer.  Great post with good ideas!  I've had to cross this bridge lately and it's not an easy one!

Jul 26, 2017 09:01 PM #34
Rainmaker
1,495,051
Georgie Hunter R(S) 58089
Hawai'i Life Real Estate Brokers - Haiku, HI
Maui Real Estate sales and lifestyle info

Really good information for home sellers who don't want to move twice. Thanks.

Jul 28, 2017 07:15 PM #35
Rainmaker
5,428,681
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Congratulations on your feature recognition. This is excellent advice to share.

Aug 01, 2017 09:11 AM #36
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Rainmaker
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Rob Spinosa

Vice President of Mortgage Lending, Marin County
Can I Get a Jumbo Loan with 10% Down?
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