How to Buy & Sell a Home at the same time.

How to buy & sell a home at the same time

October 2nd, 2014 by Mortgage Girl

10 tips for smoothly navigating two home transactions

You own a home now, but it’s time to make a change. If you’re moving up or downsizing, you probably have questions about how it all works. That is, the logistics of buying another home while you still own your existing property. Here are 10 facts you need to know about navigating through the two transactions at once – to make the move as smooth as possible…

Get the facts on your existing home

• What is your home worth?

Find out the value of your home by asking a realtor to provide you with a detailed market evaluation. Alternatively, get a detailed estimate of the value by paying for an appraisal by a licensed appraiser. This will give you an idea of what residual funds you will net from the sale of your existing home which will determine how to structure a mortgage for the new home. Be conservative when working with the down payment amount so you have some wiggle room  when negotiating the sale of your current home.

• Three questions to ask

After you have determined what new mortgage amount you will require, you will then need to contact your current lender to ask them the following 3 questions…

1. Is the mortgage portable to a new property?

2. If it is and you are moving up, can the new mortgage rate be “blended” – and what will that new rate be in order to avoid paying a payout penalty?

3. If you were to pay the existing mortgage out in order to get a better rate, what would the penalty be?

Be advised that you are required to qualify for any new mortgage whether you “port” the existing mortgage to a new property or get a brand new one, as you are effectively only “porting” the terms of the mortgage

• How are you going to sell your current home?

Options available to sell your home include for sale by owner, by a realtor, or somewhere in between the two. I recommend using the services of a realtor as I personally would like to leave any showings and negotiations with any potential buyers in the hands of a professional.

• Securing a pre-approval

Based on your initial findings about your current residence, I recommend obtaining a preapproval for your next purchase as this will give you an idea of what kind of requirements you’ll need to meet in order to be approved for your next mortgage.

• What if your existing home hasn’t sold by the time you take possession of the new home?

Your new mortgage may contain a condition to confirm your existing place has sold. This could be for either down payment or qualifying purposes, or both. See if a back-up plan is possible in case your existing home does not sell by the time you take possession of your new home. Your mortgage professional can work through a few potential scenarios with you until you’re comfortable with the options you have for all possible outcomes.

• Keeping both homes, with one as a rental property

Perhaps you are looking into the possibility of keeping your current home and turning it into a

rental property. Some lenders will allow this as long as you can qualify to carry both properties.

Talk to your mortgage professional about the option of including potential rental income to help

you qualify. Be aware that lenders tend to calculate the inclusion of rental income differently, so

if you don’t qualify with your current lender, check others. If you are leaning to keeping both

properties, ensure you explore all options in accessing funds for the down payment on the new

home. For example, is a gift from a family member a possibility? Do you have sufficient funds in

savings? Can you look at refinancing your current residence to access the equity?

• What down payment requirements and proof do you need to provide?

If the down payment is coming from anywhere other than the sale of your existing home, the

requirements are pretty straightforward; your lender will look for the paper trail to support the

source of the funds being used. If the down payment funds are coming from the sale of a

property, you’ll be asked to confirm what your equity position is via a current mortgage

statement, as well as a copy of a fully-executed sale agreement for your current residence, along

with all condition removals related to that contract.

• The qualification process

Qualifying for your next home will be similar to getting approved the first time. Your lender will

be looking at the usual application aspects – like income, credit, down payment, and the property

you’re financing. If your income or credit profile has changed drastically, such as you becoming

self-employed or your credit not being as good as it used to be, be sure to have a conversation

with your mortgage broker about how the qualifying process could differ from the first time

around.

• Consider what you’ll need for supporting documents

While many of our mortgage rules have changed, document requirements likely haven’t changed

too much since you last qualified. What you’ll be asked to provide will be dependent on your

current financial profile. Your mortgage professional, along with a mortgage pre-approval, will

give you an idea of what you’ll be asked to provide in terms of supporting documents.

• What to do when you need bridge financing

If the possession date for the sale property is after your purchase possession date, and you need

those funds for a down payment, there is a solution known as bridge or interim financing. The

lender will not only finance your mortgage, they will also give you a short-term loan to cover the

down payment. This way the seller gets their money and you get possession of your new home

even though your old home is still technically yours. Once your existing place has sold, your

lender will recover the funds they lent to cover your down payment. It is important to note that

you must have an unconditional or firm offer for your existing home in order to qualify for

bridge financing. Be aware that not all lenders offer bridge or interim financing and the terms

and costs for this service can vary, so double check the conditions before you commit.

Moving confidently from one home to the next

It can be stressful to sell and buy simultaneously. There are a lot of things that need to go right in

order for everything to go smoothly for you. The best way to ensure a smooth move is to do your

research first. Explore your options until you find one that allows you to confidently move

forward into your next home while leaving the last one fondly behind.

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