Feel stuck in your current home? If you are under the impression that you need to sell and move out of it before you buy a new one, think again! You’re not alone in that impression, but the reality is that selling and moving out before you buy is not always necessary. Looking for an alternative route? Read on for three options to consider that may help you succeed with your next home purchase.
1. Sell after you buy your new home
This isn’t your average uber-expensive bridge loan that only wealthy folks can afford. There are several new home loan products out there that specialize in this niche home lending area. We’ve partnered up with one of the best new out-of-the-box-thinking lenders to help our clients buy before they sell. The “elevator pitch” for the Knock Home Swap? It allows you to buy a new home before you even list your current one for sale. Knock will provide up to a 20% down payment on your new home, six months of mortgage payments on your old home, and up to $25,000 to get your old home looking its best before it hits the market! Take a minute (86 seconds to be exact) and watch our quick video explaining the program. Have additional questions? Any of our brokers can help! We’re all Knock certified.
2. Don’t sell, and convert your current home into an investment property
Curious about investing? Why not buy a new home and own an investment property! The good news is that you’ve already got the latter. Most lenders will allow you to convert your current residence into an investment/rental property, provided the following criteria can be met:
- A lease signed by the future tenant who will occupy the home shortly after your new home is purchased.
- A security deposit from your new tenant, safely deposited into your bank account.
- A small cash reserve in an account owned by you. This amount varies between lenders, from 2 to 6 months of the investment property’s mortgage payment.
- Cash for your new home’s down payment.
Once these criteria are met, the debt magically disappears from your debt to income ratio and you qualify for the new purchase! The best part? Your new investment property keeps the same principal and interest payment you had when you lived there, you don’t have to refinance! This is a great way to diversify your retirement portfolio, generate passive income, and increase your net worth.
3. Sell before you buy, but continue living there while you search
If options one and two aren’t going to work for you, then number three has got you covered! Almost everyone who owns a home in Denver knows that it is a very competitive seller’s market right now.We all know if you submit an offer with a contingency to sell your current home, it immediately goes to the bottom of the offer pile. As part of your negotiation strategy, you should definitely employ a Post-Closing Occupancy Agreement, aka seller’s rent back. This agreement means that after you sell your current home, you become a tenant in it and you should have 60 days (or longer, depending on skillful your broker is) to find your replacement home, hopefully at no cost. If you go this route, you’ll need some tips for successfully finding and purchasing a new home in under 60 days:
- Be aggressive. See homes as soon as they hit the market and make sure you are getting your new listings from the most reliable and up to date source.
- Commit to one lender who will provide you a competitive rate (not the lowest) and who will be available during your search. I can’t say this enough: if the lender doesn’t give you their cell phone, don’t use them!
- Get pre-approved! And submit all requested documentation to your lender. And yes, there is a difference between pre-approval and pre-qualification.
- Review all of the purchase contracts and ask your questions before starting your search.
- Research and discuss the hot market strategies with your broker before starting your search.
Listing brokers who pitch their services have one goal: for you to sign that listing agreement. Remember, that isn’t always the best option for you! The current housing market can be a stressful realm for buyers, and careful consideration should be made before making a plan. Have conversations with your tax advisor, financial planner, lender, and real estate professional so that you make the best decision for you, not for a listing agent.
As we all know, for the last five years, Denver has been deep into a seller’s market in the single family home category. The problem isn’t selling the home, it’s finding a replacement if you plan on staying in Denver. The Contract to Buy and Sell doesn’t have any built-in contingencies for sellers to back out of the sale, unless your real estate broker has negotiated them into your contract. In fact, the buyers are in complete control most of the way to the closing table.
There are several strategies your broker can contractually negotiate on your behalf to reduce the stress of being homeless after the sale. Every situation is unique, so make sure you communicate your concerns, expectations, and the best-case scenario for your move to your broker prior to listing your home.
Price is only one piece of the puzzle.
Bidding wars end all the time with offers that are not the highest price submitted. The key to coming out on top is asking the right questions to find out what in the transaction is most important to the seller. Working with buyers who also understand this concept is key, as they typically ask questions and shape their offer accordingly.
Contractually, what does this mean?
Here are a few techniques to increase the success of a smooth transition into your new home:
- Seller Replacement Contingency – Written correctly, this allows the seller to terminate the contract within a certain period of time prior to the negotiated date, if they are unable to find an acceptable replacement home. Be prepared to reimburse the buyer any hard costs incurred during this period (think home inspection, appraisal, etc.).
- Post Closing Occupancy Agreement – This is a fancy term for a seller rent back (sometimes free) from the buyers after closing. You can usually ask for up to a 60-day rent back (sometimes more) after closing to allow more time to purchase your replacement property.
- Buying first, selling second – Sounds easy, right? Well, the tough part is getting a seller to accept your contingent offer to buy their home before you sell yours. The “secret sauce” here is to have everything ready to go on your current home, so the only thing left to do is hit the “active” button on the MLS. Being transparent with the listing broker and implementing some of the strategies mentioned above (i.e. asking the right questions) also helps to get your new home under contract.
- Bridge Loans – This is a great strategy if you have sufficient equity in your home and you’re okay increasing the cost of your replacement home financing. This allows you to submit non-contingent offers on your replacement home before you sell your current home. There’s also a scenario where you can use this as a contingency and still pull off selling your home and buying your replacement on the same day!
While this list isn’t meant to be all-inclusive, it is meant to show you that there are ways to accomplish selling and buying in a super-competitive Denver market. The key to success is partnering with a seasoned real estate professional who can advise you of your best options.