I Found my Dream Home! But Wait, I Have a House to Sell First.
I’m going to paint a picture; it may sound familiar. I love my home but it’s small, the layouts not ideal for my family, and I’m not in love with my neighborhood. I think my family is ready for an upgrade. Let me give my old realtor a call..
The next thing I knew, I’ve been talked into checking out a few houses the very next weekend. And in the blink of an eye, I walked through the doors of my dream home. It’s perfect! But wait, I must sell the house I own already first, right?
Our current environment characterized by strong demand and low inventory. Competing to purchase a new home can be challenging, especially when you have a residence to sell.
One potential solution is the use of a home-sale contingency, which gives you the flexibility to cancel the purchase contract in case you do not find a buyer for your residence. However, in the current environment, the home-sale contingency is likely to be a deal-breaker. Sellers seek transactions with as little headache as possible and a high probability of closing.
Although you might be willing to hold two homes for a few months thinking this is no big deal, your mortgage lender might not approve. Including the mortgage payment on the exit property could cause your debt-to-income ratio (DTI) to exceed underwriting guidelines.
In the high-flying real-estate market of the 2000’s, short-term financing was available to ‘bridge’ the closing of the purchase of the new home and the sale of the current residence. However, in the aftermath of the Great Recession, this type of financing all but disappeared.
Talk to an experienced lender. There are guidelines in place now that allow you to exclude the monthly mortgage payment on the exit property from the DTI calculation, if:
- the Exit Property has thirty percent (30%) equity and
- the Exit Property is listed for-sale at the closing of the new house.
This option gives you the comfort to compete in a tight real-estate market without imploding the deal by utilizing a home-sale contingency.