Think back to the time when you bought your first home.
There was a tinge of excitement in the air. Maybe you felt like you were finally putting down roots. “Perhaps you thought to yourself, “I’m going to live here FOREVER.”
Then, you moved in.
Life goes on, and things change. Your current house is no longer a home because it no longer suits your needs.
You are now thinking about selling your house and buying a new home and selling your existing house.
No need to worry,
Buying and selling a home at the same time happens every day in the Northern Virginia Real Estate market.
When I wrote this article, 1,079 homes were contingent on the sale of another home in the Northern Virginia area. 790 homes were under contract without a contingency and 4,783 are actively on the market. *
(Northern Virginia = City of Alexandria, City of Arlington, Fairfax County includes Herndon, Mclean, Chantilly, Reston, Fairfax Station, Alexandria, Springfield, Burke, Annandale and Lorton, city of Fairfax, and the city of Falls Church)
With a little planning and guidance from an experienced real estate agent on your side, you will be on your way to your next destination without a hitch.
Everything you need to know about making this a smooth transaction is in this guide. I will walk you through the three ways to complete this transaction.
Reference Materials:
I’ve already prepared extensive guides to Selling Your Home and Buying a Home. Each guide contains 20+ steps and answers any questions you may have about either process.
Key Players
Before we jump into the article, let’s cover the professional involved with this transaction:
- Seller – Current House (you)
- Buyer – Current House
- Listing Agent – Current House (me)
- Buyer Agent – Current House
- Lender – Current House
- Settlement Company – Current House
- Seller – Future House
- Buyer – Future House (you)
- Listing Agent – Future House
- Buyer Agent – Future House (me)
- Lender – Future House
- Settlement Company – Future House
As you can see from this list, there’s a lot of information traveling between parties throughout this process. This list doesn’t include the home inspectors, pest inspectors, radon inspectors, insurance agents, and other professionals that could be involved in this process.
At the end of this post, you’ll get to hear from 20+ lending professionals that service the Northern Virginia real estate market. Feel free to contact a lender on the list to answer any questions you have about financing your dream home.
Questions to Ask Yourself before you start the process:
- Have you been paying attention to the local market?
- Do you know what your neighbor’s houses are selling for in today’s market?
- Do you know the condition these properties?
- Do you know if they gave the buyers any credit or cash back at the closing table?
- Is it a buyers or sellers’ market?
- Do you know and the current interest rates and available loan programs?
Chances are you answered NO to one or more of these questions.
And,
That’s perfectly fine. Now you have a baseline to work from to make an informed decision. Coordinating a simultaneous sale is not the place for an unproven agent.
Option One – Buy First, Sell Later
This is the dream scenario.
And, it is also the most uncommon.
If your finances allow, you will buy your future home before you sell your current house. You would settle on your next home before selling or your current residence. Some clients move into the following property and sell their existing house vacant or with staged furniture.
This puts you in complete control of the process.
Talk to your lender about carrying two mortgages at once. Ask them,
“Can I get funding approval to carry two mortgages based on my current liquid assets?”
If the answer is yes,
You can select a lender and start working through our buyer’s guide to Buying a Home.
If the answer is no,
Proceed to Option Two or Three
Option Two – Selling, Moving, then Buying a New Home
Selling your house before buying a new home takes away some of the stress from the process. It removes the urgency of having to find a home within a limited time frame. You have the luxury of time to look for the perfect property that fits your household needs.
The process isn’t as busy as Option Three because you’re doing one transaction at a time.
After selling your house, you will have the increased expense of moving twice and possibly incurring the cost of a short-term rental. Most short-term rental properties do not provide ample storage to fit an entire home’s worth of furniture and personal belongings. Add the cost of storing these items during your short-term rental into your moving expense calculations.
Option Three – Selling and Buying at the Same Time (Most Common)
Less risk and reduced cost make this the most viable for many consumers in the market. When the closing is dependent on another, it is called a “domino transaction.” For the next house to close, the current one must close first.
When purchasing and selling at the same time, it’s more important than ever to price your home correctly. Using a pre-listing appraisal increases the chances of getting the price right the first time.
With an appraisal, I’ll be able to market and advertise that your house appraised at or above list price. The buyers know that the appraisal is an unbiased estimate of the value of your house.
The appraisal does not guarantee your house will sell at the appraised value price and it provides me with another tool in my arsenal to get your house under contract and sold quickly.
Pairing the pre-listing appraisal with the comparative market analysis, you’ll be primed to select the right price to market your house. Picking a price that will cause your house to sell is crucial if you find your dream home before you receive an offer on your house.
Ideally, I would like to see both houses under contract within weeks of each other. I recommend looking for your next home as soon as your house is on the market.
Why so soon?
Each house is unique, and your dream house may be one in a million. If that’s the case, it may take longer to find the house of your dream than you’d imagined. Starting early in the process gives you ample time to find the perfect house that fit your needs.
Assume we find your dream house before receiving an offer on your house:
If we ratify a contract on the property you plan to purchase before you accept an offer on your house, they’ll be an addendum included in your offer.
This addendum will specify the number of days you’ll have to accept an offer on your house before your dream house goes back on the market, becoming available to another buyer.
There are two types of contingent offers. Our goal is to negotiate a Contingent Offer with No Kick Out. A kick out clause would allow someone else to place an offer on the property. Once an offer has been received, the seller of your new home will notify us, and we’ll have a limited amount of time to respond.
Unlike a backup offer that waits until something happens, the kick out clause would force you to prematurely perform on the transaction or risk losing your contract on your new home.
One more reason why pricing your home right the first time is so important. Time is of the essence.
After you receive an acceptable offer on your current house, the countdown begins to close on both properties.
With two transactions, settlement can be delayed for several reasons. Minimize delays by using the same title company for both closings. It cuts down on the paper trail, and it speeds up the processing of the settlement funds from the old property to the new home.
Let’s face it:
With all the planning in the world, there will still be the occasional curveball. Don’t let the thought of the inconvenience of moving twice deter you from making the best decision for your household.
Keep these two questions in the back of your mind as we go through the transaction:
- How long can you carry two mortgages?
- What will you do if you cannot sell your house at your desired price?
We can only control what we can control. Thinking about contingency plans before they arise helps my clients breathe easy when we need to switch gears.
Pro Tip:
You will have a hurdle or two to jump over with this process. Whatever the case may be, work with all parties to find a win-win solution and keep the things moving forward.
I’ll educate you on any changes as they arise and help you navigate through each of these scenarios as necessary.
During a seller’s market, many sellers will choose to sell their homes with a post-settlement occupancy agreement also known as a rent back.
Addressed at the time you receive the buyer’s offer; the rent back would allow you to stay in the property after settlement until a specified date. Many times, I’ve negotiated post settlement agreements for clients with favorable terms for all involved. Sometimes this will include prepayment of a daily rental rate to the new owners. All parties must agree to this and depending on the buyer’s timetable, this may or may not be an option.
Learn from the Pro’s: 17 Mortgage Professional share tips for Selling and Buying a home in 2018
Now let’s hear how mortgage professional consult their clients on navigating the Selling and Buying process.
“Selling before buying is usually the easiest financially but can be more difficult logistically. This can help with personal budgeting, along with qualifying for a higher mortgage on the new property. If you sell before you buy, the mortgage payment on your old home will be excluded from the equation. On the downside, if you are moving from one primary residence to another, you may need to consider where you will live and store your items in between the two transactions.”
Hillary Cochin | First Home Mortgage | NMLS ID#113185
“Communication is key when buying and selling simultaneously. There are 88 points of turbulence in a real estate transaction and in this case you will have 176 due to having two transactions happening at the same time.”
Markita Woods | Fairway Independent Mortgage | NMLS # 196099
“I would highly recommend doing a 1031 exchange with their title company to save themselves some money on taxes if they are using the proceeds from the sale of their former home to put down on their new home.”
Joshua Tullis | Movement Mortgage | NMLS ID#
“Apply for your mortgage loan before you put your house on the market, and make sure you provide all the documentation and information requested by your loan officer right away. It’s important to plan ahead so that your loan officer has time to identify and correct any issues that may arise well in advance of your closing date.”
Victoria Kiser | Eagle Home Mortgage | NMLS# 190918
“In the DMV area (where real estate can move quickly) buyers who make an offer that is contingent on the sale of their existing home are most often at a disadvantage vs a non-contingent offer. A bridge loan loan will help a buyer to obtain the down payment for the new home from the existing homes equity.”
Rob Ross | MVB Mortgage | NMLS ID# 189110
“Having a contingent contract is not always the most “appealing” when it comes to seller evaluation”
Jay Hoffman | Movement Mortgage | NMLS ID# 709691
“It’s important that the buyer doesn’t remove the financing contingency on their purchase until their home closes. When you have a contingent contract based on the sale of the current home, you can’t remove the contingency until that home sells because the contingency could be based on the use of the net proceeds, the need for that liability to be off the credit to qualify, or a combination of both. If the client does not need the funds from closing and if they have sufficient liquid assets to meet the loan requirements there would be no need for the contingency in the first place. This is why a very complete evaluation of the borrowers qualifications is essential so the home buyer can put their best offer forward without significant risks.”
Patrick Holland | Embrace Home Loans | NMLS ID#2184
“I always advice my client that the selling settlement should take first usually a week or two before the purchase settlement will take place. This way you are guaranteed of the funds.”
Arnold Flores | United Nations Federal Credit Union | NMLS ID#296434
“Every customer that is selling a home needs to know their options if it doesn’t sell in time to remove the finance contingencies.”
Charlene Jones | JG Wentworth Home Lending | NMLS #448003
“Make sure the proceeds from the former home are calculated correctly. A good rule of thumb would be to use the 10% rule, 10% of the sales price will be used to pay fees and closing cost.Remember the balance is not the same as the payoff, (a good rule of thumb for figuring out the payoff is the balance of the loan PLUS one full month’s payment combined).”
Joshua Tullis | Movement Mortgage | NMLS ID#
“Allow a minimum of 24 hours between the closings. The Deed and new Mortgage have to be recorded for the sale before funds can be dispersed by the title company for the purchase. If possible, allow 48 hours in case there is an unforeseen delay on the sale.Some moving companies will hold your furniture on their trucks for up to a week (in slow season) if planned ahead of time.”
Victoria Kiser | Eagle Home Mortgage | NMLS# 190918
“To ensure a smooth process for loan preapproval make sure you give your lender all the requested documents upfront before searching for a new home. To include federal tax returns and W-2 for last two years, pay stubs for 30 days, and most recent bank statements with all pages. Once pre-approved don’t make any large purchases on credit, quit or change jobs, and do not depositing large sums of money into your bank account without proper documentation or source of funds.”
Markita Woods | Fairway Independent Mortgage | NMLS # 196099
“A general rule of thumb is that every $500 in monthly liability will reduce your purchasing power by roughly $100,000. If you have a mortgage on the home you are selling after buying, that payment is being counted into your debt To income ratio. There is a good chance this will have a sizable impact on your purchasing power.”
Hillary Cochin | First Home Mortgage | NMLS ID#1131858
“Communication with all parties is key to a smooth process. The agents, Loan Officer, buyers and sellers should all be in consistent communication throughout the process.”
Gleyde Schatz | Prosperity Home Mortgage, LLC | NMLS ID #240840
“For clients age 62 or over there is a remarkable FHA purchase money program that is much easier to qualify for than traditional financing. The program qualifies buyers only for the taxes, insurance and HOA or condo fees on the new home. If the departure home is free and clear they only have to qualify for the taxes, insurance and HOA or condo fees on that property to keep both homes.”
Bob Adams | Retirement Funding Solutions | NMLS ID# 506505
“I would recommend using the same title company for both transactions.”
Colin Wauchope | Academy Mortgage Corporation | NMLS ID#1101426
“Make sure that the purchaser of the home you are selling has a full preapproval from a lender with a local office, not just a prequalification. A preapproval means that the buyers have produced all of their documentation and it has been reviewed by an underwriter.”
Victoria Kiser | Eagle Home Mortgage | NMLS# 190918
“The ideal scenario for a seller/homebuyer would be to have the same lender handle the purchase loan for prospective buyers, as well as your own loan for upcoming purchase. This would be ideal, but since you can not steer buyers to work with your lender, you can at least request that any offer you accept borrowers will need to be prequalified with your preferred lender.”
Markita Woods | Fairway Independent Mortgage | NMLS # 196099
“If you have more than 50% equity in your home, you may be able to consider taking out a new loan against the home. That loan can then be used to pay off your remaining mortgage balance. For this to make sense, the new loan needs to create a large enough reduction in monthly payment for you to then qualify for your target price point.”
Hillary Cochin | First Home Mortgage | NMLS ID#1131858
“Get pre-approved upfront with a reputable lender who can present you in writing with monthly payment options and closing costs. This process can take 24—48 business hours.”
Scott Shelton | Academy Mortgage Corporation | NMLS ID#408137
“Ensure that the lender working with the family that is buying the home is solid, easily reachable and preferably local.”
Scott Davis | Movement Mortgage | NMLS ID#166596
“I also recommend sellers request a rent back for a few days after closing on the sale to give your lender a buffer for any last minute issues….remember the 88 points of turbulence. It’s better to have a buffer and not need it then to not request and need one.”
Markita Woods | Fairway Independent Mortgage | NMLS # 196099
“Something to consider is what you will do if you can’t sell your house at your desired sales price? Are you in the position to keep your current home as an investment property until you are able to get your desired sales price?”
David Le | MVB Mortgage | NMLS ID#1444207
“Timing is critical so you need to be certain that the loan will be delivered on schedule, and to possibly have a bridge loan back-up plan in the event that something goes wrong with the sale.”
Steve Draper | Intercoastal Mortgage Company | NMLS ID#253232
“My one piece of advice would be to ask for a loan commitment (not preapproval) from the buyer’s lender as soon and early in the process as possible. With a loan commitment and a clear appraisal with no repair or value issues, will result in a very high chance that their home will sell with no issues and as a result, their home purchase will run smoothly as well.”
Erica Palacios | HomeSide Financia l |NMLS ID#498130
“An issue may arise in the home inspection for the buyer when selling your home. If it is a big enough issue that they would want repaired prior to closing, that may cause a domino effect in the buy and sell chain.”
Scott Davis | Movement Mortgage | NMLS ID#166596
“Buying and selling a home at the same time is exciting but also can be difficult when working with the real estate team meaning the right realtor, lender, and title company. Make sure you choose wisely.”
Markita Woods | Fairway Independent Mortgage | NMLS # 196099
Hear what other real estate professionals from around the country have to say about this topic:
- What You Need to Know About Contract Contingencies? by Debbie Drummond
- Buying A Home Before Selling Your Existing Property – by Bill Gassett
- How Does A Contingent Home Sale Work – by Warner Robins
- What does it mean then the Property Status is “Contingent”? by Michelle Gibson
Conclusion
You have several options when it comes to buying a new home and selling your current house. Use this guide to understand the process before you take your next step.
Better yet,
Give me a call and I will answer any questions you have about the process. (703)539-2053. You can also shoot me an email at [email protected].
* Data provided by MRIS and calculated on Dec. 17, 2017.
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