How To Buy A Home When You Already Own A Home
With Terry Story, 28-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL What options does a current home owner have if they decide they really want to buy a new home but are unable to come up with the money before selling the home...
Summary
With Terry Story, 28-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FLWhat options does a current home owner have if they decide they really want to buy a new home but are unable to come up with the money before selling the home they're living in? Terry talks with Steve about the ins and outs of what is called a “sale contingency,” in which a prospective buyer enters into a contract with a home seller that gives them the option to buy the new home if they sell their existing home by a certain date. Terry admits that these deals are often difficult to negotiate because they can delay the sale and add another layer of complexity from the seller's perspective. Moreover, they always come at a cost to the buyer, who, of course, wants to minimize those costs.A home sale contingency helps cash-poor buyers who have equity in their current homes get access to the liquidity (cash) they need—usually by selling their own home—to close a sale on a new home. The contingency essentially gives the buyer a little more time to sell his own home. To pull this off, the buyer must price his home more aggressively, accepting somewhat less than he wants to and somewhat less than the comps. The buyer's realtor must persuade the seller and his realtor that the buyer is serious about selling his own home within a short time frame and that the buyer's offer is not only competitive but a better deal than he'll get elsewhere. The seller is also likely to want a kick-out clause added to the contingency, which allows him to nullify the contingency contract in order to accept an offer from another prospective buyer.One way that a buyer trying to sign a contingency contract can influence the seller is by offering a “rent back” option. This allows the home seller to stay in his own home for a month or two after closing the sale, at a very reasonable rent. For many sellers, this is an attractive add-on to a contingency contract, though for buyers it represents another cost on top of the skin already sacrificed to aggressively sell the current home low and buy the new one high.Another option for contingency buyers is to take out a home equity line of credit (HELOC)—a kind of second mortgage—in order to raise the cash necessary to buy the new home. This approach is not without its risks and expenses either because a HELOC affects the buyer's debt-to-income ratio, and, therefore, the bank underwriting the new mortgage may back out. Buyers need to discuss the particulars of their situation with their mortgage underwriter before making an offer on the new home, whether a contingency sale or conventional one, to make sure they will still qualify for the new home loan. If all the key numbers are acceptable to the lender—income, credit, equity in the house—this may be a workable option.Steve and Terry wind down their conversation this week by talking about a new trend in home building: using shipping containers to build homes. These containers are cheap to purchase as is (between $1000 and $4500) and are repurposed by being painted, decorated, or otherwise treated to supposedly look like “real homes.” These might be multiple modular “cans” or solo ones, and the process of turning them into homes is called “upcycling.” Some have been spotted on the market north of $200,000. This trend also has some commercial applications like the hip new restaurants in the arts district of Miami. Neither Steve nor Terry have seen one of these container homes or restaurants in person, and they're somewhat surprised that such a small space—typically around 1000 square feet per container—could have very broad appeal but remark that it fits in with the consumer interest in “tiny homes” of late.
First published
03/29/2017
Genres
Duration
7 minutes
Parent Podcast
The Steve Pomeranz Show
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