If you can’t qualify for two mortgages and want to buy a new home, you will be faced with having to sell your home before being able to purchase the new home. Logically, it seems you would just make your offer contingent upon your home successfully closing. The dilemma is that contingent offers are rarely accepted and especially in our current Denver / Boulder real estate market.
QUALIFYING FOR 2 MORTGAGES
This can make the process of buying and selling a home much easier but requires strong credit, sufficient income, and other strict lending guidelines to qualify for the new mortgage before selling your home. Talk to a lender to see if you can do this. It’s not just based on income but on a variety of criteria. Some buyers are concerned about making double mortgage payments but in a strong real estate market, this can be short lived and worth the trade-off
CONTINGENT OFFER TO PURCHASE
When a buyer cannot qualify to buy a new home without selling their current home, they must make their offer to purchase “Contingent upon the sale of their current home.” There are 3 main types of contingent offers:
1) Contingent to List – this means your home is not on the market yet. The seller will make you agree to have your home listed within a certain timeline. These represent the highest risk to the sellers.
2) Contingent to Sell – this is when your home is listed for sale but you have not yet accepted and offer to purchase it. The provision will often give you a certain amount of time to get an offer accepted for the sale of your home.
3) Contingent to Close – this is when you have listed your home and even have an accepted offer to purchase it, and are just waiting on your home sale to close. This is the least risky for the sellers and the only type of contingent offer that has a chance of being accepted in our current real estate market. Be prepared to provide a ton of details about the transaction (the contract, who is the buyer’s lender, have you passed items like inspection/appraisal/etc). The seller wants to make sure your home sale is solid before deciding on accepting your contingency.
Sellers Are Crazy to Accept A Contingent Offer in a Hot Real Estate Market
In a strong market, the sellers very likely have multiple offers and many buyers shore up their contingencies to have the strongest offer possible. If they have other offers and your offer is the only one that has a contingency clause, yours is the first they set aside. If you were the seller, you would likely do the same thing to ensure you choose the strongest offer with the highest likelihood of closing.
Come To Think Of It, Sellers Are Crazy to Accept A Contingent Offer in a Bad Real Estate Market
In a weak real estate market, it could have taken the seller 4 months, 6 months, or even longer before receiving your offer. If they have waited this long it is silly for them to complicate things and delay their purchase even longer by waiting for you to sell your home. Admittedly, sellers are often more inclined to accept a contingent offer in a bad real estate market so long as their is a “bum’ clause” that says that should they receive a non-contingent offer after accepting yours. you have a certain amount of time to remove your contingency and if not, they may accept the other offer.
So What Is The Best Way to Sell Your Home & Buy Another?
I know you may not like the answer, but if you cannot qualify for 2 mortgages, the best way to effectively make a move is to sell your home first. Timing the two transactions can be difficult. You likely will sell your home quickly but it may take much longer to find (and get an offer accepted on) your new home. Sometimes getting the buyers to agree to a short rent back period is a solution but if this drags on too long, the buyers will want to take possession. Another is to be prepared for temporary housing. You don’t want to “settle” on a home because you are rushed.
Bottom line, if you are wanting to start making offers to purchase a home, you better be able to qualify for 2 mortgages OR have your current home sold. Otherwise, sellers are not likely to take your offer seriously.