Buying a home is always a stressful event. While they may not appreciate it at the time, first-time home buyers have the luxury of looking and buying without the burden of an existing mortgage and trying to sell simultaneously. Selling first may make it easier to get a new mortgage, but you will need to find somewhere to live in the interim. Buying first makes moving easier, but is often unrealistic from a financial perspective. As with any real estate purchase it is important to understand and plan for the costs [See Understanding and Anticipating the Costs of Closing on Your Home], but a simultaneous purchase and sale create additional issues that should be anticipated.
Timing is everything, but don’t count on it. A specific closing date or a closing set for “on or about” a specific date does not necessarily mean that that date is the day you will actually close on your new home. Unless the contract specifically states that the date is “time of the essence,” both parties are entitled to a reasonable adjournment [See When the Closing Date Isn’t Really the Closing Date]. Add in the fact that for every buyer there is a seller and for every seller a buyer, not to mention their respective attorneys, banks and brokers, and you have many of external circumstances surrounding the actual closing date. The best strategy for dealing with the uncertainly of a closing date is to remain as flexible as possible.
You may be able to negotiate to stay in your home post-closing for a period of time. Most lenders require that their borrowers move in within 60-90 days of closing. After that, the home is considered an investment property which changes the terms of your buyers’ financing. A written agreement setting forth the terms of the occupancy should be negotiated prior to closing. Typically, since the buyers will start paying the mortgage and other costs of the home after the closing, the seller will be charged the equivalent of the buyers’ principal, interest, taxes and insurance on a prorated basis. Buyers will have a walk-through before closing and the parties should conduct another walk-through after you move out to make sure the conditions of the contract have been met. Buyers will likely want to hold some of the purchase price in escrow in the event that you do not move out as scheduled or the house is not in the promised condition.
Coordinate Your Professionals. If you are looking to move locally your broker can represent you in the sale of your existing home as well as on the buy side of your new property. Similarly your attorney may be able to represent you in both your sale and acquisition of your new home. Using the same professionals in both transactions facilitates communication among the parties and may make the entire process smoother.
Negotiate Contingencies. In an ideal world, your contract to purchase your new house would be contingent upon the sale of your existing house. An offer with such a contingency is not as appealing to a seller as an offer without a contingency and, depending on the current state of the real estate market, may be a deal breaker. A more likely contingency is that your obligation to purchase would be contingent upon obtaining financing of a certain portion of the purchase price. If, after good faith efforts, you are unable to secure a mortgage, you would be entitled to your deposit back. If you plan to enter into a contract with such a contingency just be clear on your obligations to your real estate broker should the deal not close [See Written Brokerage Agreements]