If you don’t qualify to have two mortgages, you are going to be faced with the problem of having to sell your current home before you can purchase your next home. The solution seems simple, which is to make an offer to purchase a home where the closing is contingent on the sale of your existing home. The problem is, these sorts of contingent offers are rarely accepted by sellers in good or bad real estate markets.
Can you carry two mortgages?
Some folks make enough money and have a credit profile that will allow them to own two homes at the same time, making the process of selling their current home and buying a replacement home much easier. While two mortgage payments at the same time will potentially be painful, if you are actively trying to sell your home, the pain will be short-lived. You need to meet with a lender to discuss your ability to carry two mortgages and need to have the income, debt and credit profiles to support this. Even if you have a strong income and little debt, don’t assume that you qualify for two mortgages without speaking to a loan officer. The underwriting guidelines for owning two homes are more stringent.
What is a contingent offer to purchase a home?
A contingent offer to purchase a home states that you are able to make the purchase only upon successful sale of your current home. Most real estate contracts will specify time limits on how long you have to sell your home before your purchase contract terminates. Most contingency clauses also contain a bump clause, allowing the seller to force you to waive your home sale contingency if another non-contingent buyer comes along, otherwise your purchase offer can be “bumped” by a non-contingent buyer.
The three stages of contingent offers
When you are trying to sell your home, there are actually three different flavors of a contingent offer that you can present in your offer.
- Your current home is not listed for sale – No seller in their right mind is going to tie up their home in a purchase contract for a buyer that hasn’t even listed their home for sale. You need to put your current home on the market before even contemplating writing an offer for another house.
- Your current home is for sale – This shows that you are serious about getting your house sold, but still doesn’t give the seller of your new home any confidence on when you’ll be able to close. It could sell tomorrow or six months from now. Your listing price and time on market will be evaluated by the seller’s agent. They are certainly not going to entertain an offer from a buyer whose home has been on the market for three months with no offers and no price reductions.
- The sale of your home is pending – You have accepted an offer from a buyer, the transaction is in escrow and a firm closing date has been determined. This is the only type of contingent offer that has even a remote chance of being accepted. You need to be prepared to provide extensive details about the sale of your home. Who is the buyer’s agent? Who is the escrow company? Who is the lender? Even though they aren’t involved with that transaction, your seller’s agent is going to want to speak to all of these parties to gain confidence that the sale of your home is a sure thing.
Sellers are nuts to accept a contingent offer in a hot real estate market
We’re in a hot seller’s market at the moment, and multiple competing offers are common. Ask yourself a simple question. If a seller has five offers to chose from, four of which are not contingent on the sale of another home and one that is, which offer will be the first one set aside? Your offer would have to have a eye-popping price to even be considered in this instance. Even then, it introduces uncertainty that the seller can easily avoid by accepting a non-contingent offer in your place.
Sellers are also nuts to accept a contingent offer in a bad real estate market
We just came out of a few years of a really bad real estate market where it took multiple months and multiple price drops to get a home sold. Wouldn’t a seller in such a market be happy to see just about any sort of offer? Not likely for an offer that is contingent on the sale of your home. If it took them 3-4 months of uncertainty and struggle to sell their home, why on earth would they compound this by subjecting themselves to the same uncertainty on the sale of your home?
How to effectively sell one home and buy another
Timing these two transactions is difficult. In today’s market, you’ll sell your home quickly and potentially struggle to buy your replacement. A couple years ago it was the opposite. Sometimes the answer is to ask the buyers of your home for a short rent-back period, or simply be prepared for temporary housing for a few months. Living in an apartment for 3 months is far superior to hastily buying a home that isn’t right for you
If you want to start making offers to purchase another home, you better have your house sold or be able to carry two mortgages. Anything less than that and sellers are unlikely to take your offer seriously.