For the most part, I own my home. I have a home equity line of credit on it that has about a $10k balance on it, but that’s it. My neighbor (long story) is willing to buy my house with cash at a price that we mutually agreed upon. So far so good. I can scrape together about $15k in cash for a down payment on a new house which would equate to about 5% - 10% of the price of the new home (We just started looking).
How do people buy homes? The timing is throwing me off. I assume that when I sell my house, the new owner will want me out. That seems pretty reasonable on his part. I also assume that I can’t move into my new house until I close on it. I’d like to move the equity in my current house to my new house but I don’t want to go through 2 closings on the new house and the associated costs.
How do people resolve this? Live with relatives? Stay in a hotel? I must be missing something.
You and the buyer agree on a closing date. That’s the date you two meet to sign the papers and you officially turn over the keys. The closing date should be far enough out (say, 30 days) that you’ve selected a house, arranged for a mortgage, and packed up all your belongings.
You should be getting pre-qualified for a mortgage and looking at possible new places to live before you put your house on the market.
You have some options. At the very least you could:
(1) Arrange simultaneous closings. You sell your existing house and buy your new house with the proceeds (or some of them) on the same day. This is somewhat common.
(2) Sell your current house and then rent it back from the buyer for some time. This gives you time to close on your new house and maybe gets you some extra time to move.
(3) Sell first and then move your stuff into storage. Stay in a hotel or with friends until you close on the new house.
(4) Borrow from your home equity line of credit for a down payment to buy the new house. Pay off the line of credit when you sell the old house and, if you want, use the remaining proceeds to pay down the mortgage on the new house.
(5) Arrange to move into the new house before closing. Very few sellers would want to do this, so I’d be reluctant to ask.
If you are shopping for a new house, talk with your real estate agent about what strategy might be best. Consider closing costs, financing costs, and the risks of not being able to close on your new house after you sell your old one. Good luck.
Simultaneous closings can be difficult to coordinate. When we recently sold our old house and bought another we ended up doing option 3) above and lived with my in-laws for about 3 weeks while our stuff went to storage. We sold to a large home flipping company and picked a closing date 60 days out. We though that would be plenty of time to find our dream house, negotiate the purchase and obtain financing (we got pre-approved as soon as we knew we were going to sell our house). We had one prospective purchase fall through due to mold issues and another due to flaky sellers before we found this one. Worked out OK, we like this place better than any of the others, but the timing was just a bit off.
Would your neighbor be willing to rent the house back to you for a couple of weeks till you can close on your new place? We’ve done that a couple of times - it was all written up in the sales contract and it worked out fine.
Typically one tries to synchronize the closing dates so that the new house closes on the same day as the one you’re selling. Around here closing dates are typically about three months off or more so there’s time to do this (a 30-day closing would be considered unusually aggressive). We’ve done this, but it isn’t always possible. If the new house closes first, you can generally get bridge financing for the interim period. If the old house closes first, well, you may be faced with most of your stuff going into storage and staying in a hotel. It’s a bit of an expensive pain and your stuff gets moved around twice as often as otherwise necessary, but really not that big a deal in the larger scheme of things.
When we bought a house in NJ, in our town, we were on a month to month lease, and so didn’t have to worry about the timing. The people we were buying from were building in town, and their new house was very delayed. We allowed them to “rent” it after closing - but it was not a rental, they paid costs and a penalty for staying too long which served as a way of our making some money on it. Our attorney said that if it was a rental we would have a hard time getting them out if something went wrong.
It was all very amicable, though they were delayed more than they thought they would be and just about what we thought it would be.
So, beware of renting.
I think that they probably would. They’re in no hurry at all.
If your neighbor is in no hurry, simultaneous closing should be easy to arrange. It may not be necessary: If you nearly own your home, i.e. have negligible payments, you should be able to get a mortgage even without the proceeds of your current house. Make sure such a mortgage has no pre-pament penalties, and waives PMI one the LTV drops below 90 or 80%.
But if that is hard, engage a mortgage broker - they may be able to set up a simultaneous closing where the proceeds from your current house - or a portion thereof - function as downpayment of the next one, without funds ever being parked elsewhere.
Our house is about to up for sale. But the prospectus says that the closing will not take place till approximately Aug. 1. This gives us a month to move into our condo which has a tenant until July 1. However, we didn’t need the money from the sale of the house to buy the condo, but borrowed the money from our son (a Microsoft millionaire).