If you are considering a move and you currently own your own home, it is important to carefully plan your financial strategy to ensure the process will go smoothly. Too many people rush out to look at new houses before they have a solid plan in motion. This will, at the very least, lead to major stress and frustration. At the worst, not having a plan can mean agreeing to sell your house without being able to qualify for a new mortgage.
Once you have decided to move, your first step should be to talk with a loan officer. The goal of this conversation should be to answer these questions:
Do you need to have a sales contract on your current home before signing on a new one?
Should you take out a bridge loan?
How much house can you afford?
What down payment will be required?
If you can qualify for a loan without selling your current property, you are in luck. If you can comfortably make double mortgage payments until your old house sells, that's even better. In that case, moving from one house to another will not present a major financing challenge. By all means, take your pre-approval and start looking for a new house!
If you find your new house and would like to close on it before the sale of your old one, you have the option of taking out a bridge loan. The idea behind a bridge loan is to get access to the money you will make on the sale of your old house before the sale occurs. You may want to make a down payment on your new purchase or just have some cash available for furniture, appliances, movers, etc.
Once your old house sells, you pay off the bridge loan along with your remaining mortgage balance. If your home sells quickly, you might only have to make one or two interest payments on the bridge loan. It could end up being a great convenience for relatively little cost.
A lot of people either can't qualify for two mortgages or can't afford to make double payments. If you can qualify for two payments, but want to avoid doubling up, make sure to close your purchase no sooner than a month before your sale. You generally have at least 30 days before you'll have to make that first payment on the new mortgage.
If you can't qualify for two payments, you will have to officially close on your sale before you can close on your purchase. Many people ask if they can close on a purchase once they have a sales contract on their old house. Unfortunately, a sales contract does not guarantee a sale - plenty of things can delay or prevent your closing.
With that said, it is common to close on your purchase on the same day as your sale. When you close on your purchase, your lender will just need proof that your sale went through earlier in the day - the title company will give you all the necessary documentation.
While this same day closing setup is common, I honestly wouldn't recommend it. Several Realtors I talked to agreed. Trying to co-ordinate two real estate transactions and your move for the same day can be very stressful. Sometimes this is the only possible option, but if you can arrange to stay with friends or in a hotel for a few nights, I would strongly consider closing on your sale a few days before your purchase. You could even rent a portable storage container for your things and have it delivered to your new house.
By having a buffer between closings, you'll leave yourself room in case your buyers can't come through with their loan on time, or if there is some other delay. It also helps to isolate the effects of delays to just you and your buyers instead of you, your buyers, the people you are buying from and the people they are buying from.
Regardless of how you want to do your closing, after talking to a loan officer about your options, you should meet with one or more Realtors. Ideally, you should use the same one to sell your current home and to represent you as a buyer. Select your real estate agent on the basis of dependability and track record. Someone who returns your phone-calls quickly is essential as the complexities of buying and selling at the same time requires attentiveness. It may be difficult to ascertain an agent's track record, but you should look for someone with a good 'list-to-sell' ratio. It is often hard to turn down the agent who says he can sell your house for the most, but if their list-to-sell ratio indicates they often list high and sell low in comparison to the other agents, you should pass or ask for more aggressive pricing.
Once you and your Realtor have a plan for your sale and how you are going to pursue your new purchase, it is a good idea to submit an application with your loan officer. Ideally, you can have your loan completely ready to go by the time you are able to submit an offer on a new house. Especially if you need to submit offers contingent on the sale of your home, sellers will appreciate the assurance that you will be ready to close quickly once your old house is under contract.
Once you have everything in motion with your loan officer and Realtor, it's really just a waiting game. With early planning and reliance on your service professionals, you will have the confidence you need to make your move as pleasant as possible.
