I recently got a question from someone who owned a home in Arlington. He was getting married and wanted to get a bigger home and wondered if he had to sell his current home first.
This is a common question we hear a lot from homeowners. There is a lot that goes into answering that question and everyone’s situation is a little different. It is a good idea to talk to a real estate agent and a lender to get a good idea of what options you have for your situation. The real estate agent should be able to give you a good idea of what your home would sell for and how much you would net after the sale.
The lender should be able to tell you how much of a loan you could qualify for without selling your home and with selling your home. If you intend on keeping your old home and converting it into a rental property you will have to see if the lender will count the potential rental income as a way to offset the mortgage when determining your debt to income ratio. Most lenders will not count rental income unless it has been on a previous tax return. However, I do know of two lenders in the area that can count rental income without being it being on a previous year’s tax return.
The other item you will have two figure out is how much money you will need for the downpayment and closing costs of your new home. Do you have to sell your current home to get the cash required for your new home or do you have enough other liquid assets?
If you decide you want to sell your current home the dilemma many homebuyers face is if they should list their home first or find the new home the want to buy first. If you sell your home first you run the risk of getting it under contract and sold before you find your new home. There are ways to mitigate this risk. You can ask for buyers to give you a rent back period. This is a situation where after they buy your home you rent it back (usually for a period of 60 days or less). You can also rent temporary housing, but this an be expensive and require two moves.
If you decide to look for your new home first and then list your home for sale there can be other challenges. First in a competitive real estate market like Arlington, VA many sellers will not accept a home sale contingency. A home sale contingency allows you to back out of a contract to buy a home if you do not sell your existing home in a specified amount of time. Another challenge with home sale contingencies is usually you can get kicked out of the contract if another buyer comes along and writes an offer without a home sale contingency.
So if a home sale contingency is problematic what about the option of not having one. The risk here is if you go under contract to buy a new home and then do not sell your current home. If that happens and you cannot get approved for a loan without selling your home you might default on your new contract and put your earnest money deposit at risk.
One strategy to find to solve this situation is to use a real estate agent or team that can guarantee the sale of your existing home. In this scenario the real estate agent will assess your home and provide you with a guaranteed sales price. This give you the flexibility to write an offer on your new home without a home sale contingency so you can get the best possible deal. If your current home does not sell the real estate agent of team will buy if from you.
Our team happens to have one of the only Guaranteed Sales programs in Arlington, VA and the surrounding area. If this sounds too good to be true check out an example of when we recently bought a home from a seller who was in this exact position.
To get your questions answered in our “Ask the Real Estate Agent” article email us at [email protected]