Buying a new home and selling your current home simultaneously can be stressful and confusing! There are many phases and important factors that alter how the process is completed. Whether you are selling before you buy, or buying before selling, dual real estate transactions have complexities that require the assistance of a knowledgeable, trustworthy attorney.
“Part of the problem with home closing paperwork is that there is so much of it. A study by VirPack found that almost 60 percent of all loan files contained between 501 to 2,000 pages of material. Closing paperwork is less extensive, but there’s still a lot of it.” The Mortgage Reports
Factoring in TWO homes, multiple buyers/sellers and closings involves a lot of communication between parties and attention to detail. There will undoubtedly be double the amount of legal documents. An average home closing includes an extensive number of documents. All of these legal documents require meticulous reviewing before signing the dotted line. In fact, many people who attempt this journey without an attorney guiding them find that it takes even longer without professional help.
With so many important legal instructions and financial assets at stake, it would be extremely unwise to miss any notations that may cause problems down the line! So how can you avoid making mistakes and ensure a smooth, successful experience for everyone? Let’s start by figuring out where you are in your real estate venture, then take the proper steps…
“Many homebuyers face this two-step transaction, whether they are relocating for a new job, upgrading to a new home or downsizing in retirement. Last year, 89% of repeat buyers sold or planned to sell their previous home.” USA Today
Selling Before Buying
Your children have grown up and now have homes and families of their own. Your current residence is now far too spacious for you and a lot of work to take care of. It’s time to start catering to your own needs. The once awesome perks of living in a great school district, neighbors with young kids and nearby libraries are no longer necessary. You’re ready for an age appropriate community filled with simple comforts targeted towards your golden years. Just enough space to feel “at home” without worrying about the upkeep of a large property. Selling your current home has become priority number one!
“Ben at 23 Legal is amazing. He is very responsive and works very hard to make sure you are getting what you want. We have bought 2 houses and sold 1. We worked with Ben for all 3 of those homes. He is our go-to attorney and he should be your go-to attorney as well!” – Client Review, Lake In The Hills, IL
Now that you’ve found the perfect condo or space appropriate home, you’re ready to sell your current home and use the sale money as equity towards your new home…
The steps to selling your home while buying a new home:
- Try to sell your house before you buy a new one if possible before even starting the process of buying the new home.
- Decide where you want to live, “Location is key”. This is your chance for a new adventure! Hire a knowledgeable realtor to help you find a home that’s just right for all your needs. This same realtor may be able to help with the sale of your current home and assist you in the hunt for your future residence. Get more information by reading “What to look for when choosing a neighborhood”.
- Fulfill all of your obligations as a seller. You will need to make sure your current property is actually sellable. Get a strong estimate on your property. If you can afford it, hire a detailed appraiser. They will let you know if your home is violating any local codes or has any issues that can potentially block the sale of your property. If your home requires any maintenance get it done and get it done right with professional contractors. Keep all your paperwork from these remodels. If there are warranties on any of your updated appliances or installations, these can be a great asset towards selling the home. Learn more about why you’ll need to hire a real estate attorney when selling your home.
- Move your property out of the home seamlessly. Consolidate your first home by beginning the moving process. Determine what needs to come with you, what can be donated, and what needs to go into storage. Use our great checklist to move successfully!
- Do you have savings to purchase the home? Alternatively, consider using the previous home as equity towards your new home purchase. Using your current property as equity on the future property will only work if you fully own the current property and have no outstanding liens (loans) on said property.
- Find out how much equity you have to work with: “Dig up your latest mortgage statement and find your current mortgage balance. Next, you’ll need to know your home value. While it’s tempting to use figures from online valuation sites to determine how much your home is worth, they’re not always accurate. Ask an experienced real estate agent to run a free comparative market analysis (CMA) for the best estimate. Once you have those two numbers in hand, simply subtract your current mortgage balance from your home’s estimated market value. The difference will give you a good idea of how much equity you have to work with!” Learn if your home is ready to be sold!
- Make sure you have enough money. Most banks will not approve additional loans if a person(s) has too much debt relative to their income. There are times when sales fall through. Especially if you don’t have a real estate attorney to help you with the process. If the sale on your current property were to fail, you would be liable for both mortgages and possibly placing yourself in a financial crisis. If you can qualify to carry both mortgage payments but require the equity in your first home to buy the second, then USA Today says: “There’s two possible options in this case: Pull equity out: You can get a home equity loan or line of credit from another bank that can be used toward to the down payment. Home makeover: Worried that popcorn ceiling is hiding bigger problems? Here’s how to renovate on a budget.Smaller down payment: You could also put down less than 20% and have your home loan modified later. A modification doesn’t change your rate, but can lower your monthly payment. It’s also less costly than refinancing. Double check the lender will do this ahead of time before banking on it.”
Buying Before Selling
What happens if you find your new home before you finalize the sale on your current property? You’ve realized your family is growing and needs have changed. Your starter home feels small and you’re ready for a new chapter. Or is time running out and you need to get into a new space ASAP? Don’t worry, this is entirely doable, it just may be more challenging financially if you don’t have the money from selling your current home yet.
On the plus side, you won’t have to worry about where to keep your belongings if you sell before finding the new place, and you won’t be in limbo having to stay in a temporary apartment while waiting to finalize the closing.
The steps to buying a new home before selling your current home:
- Make an offer with a sale contingency: When you find your new desired home, your real estate attorney will help you to submit your offer on the home with a sale and settlement contingency. This type of offer means you will purchase this home only when you successfully sell your current home. The seller of the property you are trying to buy can consider your offer. These contingencies typically work best when it’s a buyers market.
- Making offers quickly on dream homes. If you have the finically means, have your lawyer bid on your dream home as soon as you find it. You want to lock onto the home quickly. The real estate attorney will help you negotiate with the seller and warn you of any possible issues.
- Request an extended closing if you are confident in the sale of your home. Your attorney may be able to request an extended closing date on your new home. This will give you more time to sell your current home!
- Purchase with a bridge loan. A bridge loan is a short term loan offered by some banks to cover your down payment on the new home, just until the sale closes. Make sure to speak with your attorney and broker early on in the process because it can be difficult to qualify for this type of loan.
- Rent out your current home to make some cash in the meantime. If you are coasting two mortgages due to buying before selling, your previous property try renting out your home. Your lawyer can help you draft a monthly or limited lease with potential tenants. This will ensure you can keep your property on the market while renting it out. Payments from tenants will reduce the dual mortgage costs while waiting to finalize a sale on your old property!
“We used attorney Ben Weaver for both our home sale and purchase. He was great in helping us negotiate repairs on both transactions and in keeping everything moving when one party was moving very slowly.” Client Review, Rolling Meadows, IL
“Hiring an attorney to help you sell your home is vital in making sure all your bases are covered and mistakes aren’t made. The tasks of the seller’s lawyer can be divided into two stages — before the contract is signed and after. Before a contract is in place, many sellers rely on their lawyer for help in drafting the terms of their sale and reviewing a listing agreement, if one is involved. The second stage is at the closing, tying up all loose ends with the buyer and their realtor. An experienced real estate attorney can help you understand tax problems that may occur if your home is sold at the wrong time. In addition, an experienced real estate attorney will make sure that, before signing, you understand all legal agreements related to the sale of your home.” The Illinois State Bar Association
Take a moment to factor in having a peace of mind. Find an attorney that you feel confident can handle the many challenges that buying/selling may bring. Closing a transaction requires extensive coordination between parties, careful viewing of documentation and contracts, negotiating purchase agreements & loan documents, and resolving any issues between parties. All of the required documents, inspections, and legal jargon can cause anxiety and fear in a first-time home buyer or seller. It’s well worth it to hire an experienced real estate attorney to help you every step of the way! Learn about Ben Weaver’s role as your Real Estate Attorney!
Buying a home is a major milestone in anyone’s life. It deserves the care of a seasoned real estate attorney that will present the best options for you and your family. With so many moving pieces in this two-part transaction, the best formula for success is including an attorney.
“A lawyer can help you avoid some common problems with a home purchase or sale. For example, a seller may sign a brokerage agreement that does not deal with a number of legal issues. This happens quite often as realtors often use standard forms, expecting that they will cover all situations.” Find Law