Buying A Home “Non Contingent” On The Sale Of Your Current Home

January 31st, 2012

house for sale

In some real estate markets the market is strong enough that sellers will not accept an offer contingent on the sale of the potential buyers current home. The close-in DC Metro area is one of these markets.

What’s the problem with a contingent sale offer?

Sellers figure in a strong market, why should they accept an offer based on a buyer that has a house to sell. Who knows if the buyers are realistic, will price it to sell, and will do all the right things to market and sell it quickly. So sellers wait to get a non-contingent offer, because they know one will come along soon enough.

What can buyers do about this?

As a result, I get some buyers who ask me to get them qualified to buy a new home without the new loan being contingent on the sale of their current home. How can this work?

Get a bridge loan?

I get asked if bridge loans exist so that they can get the equity out of their current home to use as a down payment on the new home they want. A bridge loan is a loan made based on the equity in the current property owned. This will give the buyer the cash to buy a new home without selling it. I don’t know anyone doing bridge loans anymore, but you can possibly get a home equity line on your current home. But there are two problems with that:

1. Banks lending money for home equity loans want to know you plan to stay in the property. They expect you will use the money for renovations, investment, etc. If you said you were going to sell the home soon and only wanted the money temporarily, they would know they were being used as a bridge loan. And they would deny the loan. It takes a lot of effort and money to originate, process, and setup a new loan. So to have it paid off in a few months, as a bridge loan would be, is of no use to a bank. There is no profit in offering short term financing.

And if you chose not to tell a bank you were applying for a home equity line at that you were moving out, they may find out anyway. If your property was on the market for sale, for example. All underwriters have access to the local Multiple List systems and will check to see if a property is on the market for sale.

2. If you manage to obtain a home equity line, it is fairly rare to find that a potential buyer can carry all that debt. There is the mortgage on the current property, the equity line on the current property, and then the mortgage on the new property. You would have to qualify carrying all that debt, as well as any other debt such a car loans, school loans, credit cards, etc. And not many people have the incomes to carry all of that debt.

So unless you have a substantial income and can carry all the above referenced debt, it is hard to make a non-contingent offer. This is because bridge loans are not plentiful. And home equity lines are hard to get when you are moving out of your current home. Last, its hard to qualify carrying all that debt.

Double move

The next option is to double move. This means sell your current home, move into temporary housing. Then find a new home. With your home sold you would have already realized your cash gain and can make a non-contingent offer. Of course, many potential buyers push back on this idea because no one likes to move twice. You would be moving once to short-term housing, and once again to the new house you eventually find.

Conclusion

There are no other options usually. Unless you have a rich Uncle that can pay cash for a new property for you. Then you can pay him back when you sell your old house, and then put a mortgage against the new house. When in a strong real estate market, which I realize are rare in this country currently, you will find yourself possibly having a difficult time if you still have a home to sell.

To contact me to discuss your local housing market, mortgage rates, or other mortgage questions, click here to schedule a call or you can email me directly.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

Leave a Reply