Are you ready to buy a home? Are you ready to sell your current home? Do you think it is possible to do both transactions in one day? With some good planning and a little bit of luck on your side, it can be done.
If possible, we encourage our clients not to buy and sell on the same day. Unfortunately, not all deals can be structured that way, and not all clients can afford to buy without selling. A lot of real estate transactions have contingencies in the contract stating the buyer cannot close until their sale has closed. The financing contingency is the most common contingency. In the real estate contract the home loan contingency states that if you qualify for a home loan at a certain interest rate and a certain LTV, you have to buy the property or are held in default. However, most people cannot carry two mortgages and will not qualify for a purchase loan unless their original loan is paid off and that debt is gone.
Unless you are dealing with all cash transactions, not only do you have to worry about your new loan being ready on time, but you also have to rely on your buyer’s loan being ready as well. If your buyer’s loan is not ready, even if your home loan is ready, you still cannot close because your purchase is contingent on your sale and on your buyer’s loan being ready to close. As you can see, this can be a logistical nightmare with many of the factors completely out of your control; causing additional anxiety on top of an already stressful situation.
Don’t get me wrong, I am not saying it is not possible to buy and sell real estate in the same day; we have done this countless times at my office. I just want to be clear, there are risks involved with many of them being out of your control. The bottom line is, if you have your heart set on a new property, the fewer contingencies you have in the deal, the more likely it will close on time.
One last thing to keep in mind when dealing with contingencies is the reverse situation. What happens if you are selling your house to cash buyers, but you have a financing contingency on the house you are buying? Say your financing is delayed for whatever reason and your purchase closing is delayed but your sellers hold you to the closing date in your sale contract. Then you could be facing a situation where you must move out of your house with nowhere to go. You cannot move into a house you don’t yet own and think again if your seller is going to allow you to move in when you haven’t closed. That rarely happens; the potential risks outweigh the benefits to the seller and attorneys discourage sellers from pre-closing possession. This scenario alone makes it vital to communicate with us and your loan officer. We will do everything in our legal power to avoid this situation.