Buy Before Selling? Four Sure Four Sure!

By
Mortgage and Lending with Guaranteed Rate, Marin County, CA NMLS: 22343

Buy Before Selling?  Four Sure! Four Sure!

 

In strong sellers' markets, like the San Fernando Valley, the San Francisco Bay Area and many other areas across the country, making a contingent offer is a virtual impossibility.  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 sellers' 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 real estate professionals 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. 

 

OK fine, 

 

 

Robert J. Spinosa

Vice President of Mortgage Lending

Guaranteed Rate
NMLS: 22343 

rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709
 

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate's Human Resources Department.

 

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 - (866) 934-7283

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Re-Blogged 5 times:

Re-Blogged By Re-Blogged At
  1. Fred Griffin presently on Leave of Absence 08/23/2018 08:09 PM
  2. Joe Jackson 08/24/2018 04:34 AM
  3. Marney Kirk 08/24/2018 06:50 AM
  4. Bruce Kunz 08/24/2018 08:45 AM
  5. M.C. Dwyer 08/26/2018 02:57 PM
Topic:
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Tags:
home loan
down payment
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offer
bridge loan
qualify
real estate
california
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rob spinosa
crosscollateral
departure property

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Rainmaker
146,370
Eva B. Liland with Century 21 Doug Anderson
Century 21 Doug Anderson - Lancaster, CA
Glad to be of Service

Where there is a will, there's always a solution. Thank you for your suggestions.

Bookmarked!

Aug 23, 2018 07:14 PM #11
Rainmaker
3,216,948
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello Rob --- anything can be possible if properly prepared and if matched by savvy loan officer. 

Aug 23, 2018 07:34 PM #12
Rainmaker
2,726,625
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

I enjoy a good joke on titles and puns, But I definitely do also enjoy some good content to go with it! :)

Aug 23, 2018 11:03 PM #13
Rainmaker
2,726,625
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Michael, I absolutely love that and celery and I wish you all the best in all success that will probably come with it Michael Jacobs

Aug 23, 2018 11:04 PM #14
Rainmaker
3,165,412
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce

This post gets a bookmark and high praise for great advice in a Sellers Market !

Aug 24, 2018 02:29 AM #15
Rainmaker
1,389,285
Kat Palmiotti
Grand Lux Realty, Monroe NY, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

This is a very useful overview of the various financing options for a person who owns a home and wants another. I actually wasn't aware of the cross-collateralization option and have bookmarked this for future use!

Aug 24, 2018 03:31 AM #16
Rainer
341,158
Muhammad Mushtaq
Weichert, Realtors® - SBA Group - Fall River, MA
Broker/Realtor

Well thought and crafted piece of advice for today’s real estate market. I will share this in my coming office meeting .

Aug 24, 2018 05:03 AM #17
Rainmaker
2,415,383
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Only those in the know can speak/hear the language of this decent posting...

Aug 24, 2018 06:29 AM #18
Rainmaker
1,827,949
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Rob Spinosa - you really covered it here.  No one of these is without stress but you would be the go to person for mortgage financing.

Aug 24, 2018 06:30 AM #19
Rainmaker
376,923
Marney Kirk
Cummings & Co. Realtors - Towson, MD
Towson, Maryland Real Estate

Robert, I came across this post right after I had a discussion about possibilities with a past client. Though I think they are planning to stay where they are for now, I am going to share these four thoughts with them! Thank you!

Aug 24, 2018 06:48 AM #20
Rainmaker
740,632
Jill Sackler
Charles Rutenberg Realty Inc. 516-575-7500 - Long Beach, NY
LI South Shore Real Estate - Broker Associate

This happens most often here on Long Island. Selling one to purchase another is usually the way it's done and always comes with the difficulties you mentioned in your educational post. Some good options.

Aug 24, 2018 07:59 AM #21
Rainmaker
475,391
Bruce Kunz
C21 Solid Gold Realty, Brick, NJ, 732-920-2100 - Howell, NJ
REALTOR®, Brick & Howell NJ Homes for Sale

Thanks SO much for sharing this Rob Spinosa. When buyers, sellers, and good loan officers work together so much good stuff can happen!
Bruce

 

Aug 24, 2018 08:15 AM #22
Rainer
37,655
Marc St Martin
United Real Estate Infinity - Cape Coral, FL
Your friend in the business!

Not for everyone but some great options to have in our toolbox. Thanks for sharing.

Aug 24, 2018 06:28 PM #23
Rainmaker
436,349
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

Great information! I have bookmarked and will come back to this again.  I will be sharing this with a number of my clients.  Thank you!

Aug 24, 2018 06:38 PM #24
Rainer
171,843
Carol Tunis
Florida Homes Realty & Mortgage - Saint Augustine, FL
Carol Tunis...a "HouseSold" name!

Great information!  Thank you 

Aug 25, 2018 05:04 AM #25
Rainmaker
2,927,192
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of Manchester NH's Leading Agents

A couple of times a week every week i meet sellers who want to buy and sell but their home is not sold. They dont want to buy until the sell but cant buy until they do sell. Great options in your blog today

Aug 25, 2018 05:52 AM #26
Rainmaker
1,138,836
Sheri Sperry - MCNE®
Coldwell Banker Residential Brokerage - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Rob Spinosa - This is a blog that all buyer agents should know about.  I just had 2 very strong offers turned down because of a contingency to sell. 

Aug 25, 2018 06:33 AM #27
Rainmaker
364,417
M.C. Dwyer
Century 21 Showcase REALTORs - Felton, CA
Santa Cruz Mountains Property Specialist

Rob Spinosa I used to live in San Anselmo - lovely Marin.   This is a helpful post to share - reblogging with gratitude!

Aug 26, 2018 02:54 PM #28
Rainmaker
1,503,006
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

Nice to see that there are a variety of options - and that you're willing to make the extra effort to explore them for your clients.

Aug 26, 2018 03:00 PM #29
Rainer
468,735
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

I 've successfully used bridge loans to close a couple of properties in the past and was the lest costly of the other three options. Great post.

Aug 26, 2018 07:18 PM #30
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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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