Four out of five homeowners need to sell their current home in order to buy their next home. There are several ways to handle this while moving.
Bridge Financing: Lenders can arrange short-term financing that allows a homeowner to borrow against the equity in their existing home to make the purchase of a new home. When the existing home sells, its current financing and the short-term financing are paid out of the Seller's proceeds.
The interest rate for bridge financing is typically higher than the costs for a long-term loan. However, these loans are not held long... often just a month or two.
Post-Settlement Occupancy: A Seller may request a short rent-back from the Purchaser. This request needs to be made before a contract is accepted. In a Post-Settlement Occupancy, the Seller stays in the property after settlement. At settlement it is customary for the Purchaser to 1) receive keys to the property, 2) accept a security deposit (held by the Settlement Agent), and 3) to receive compensation for the time the Seller remains in the property. This compensation is customarily at the Purchaser's daily cost.
A rent-back should be short in duration. If considering a rentbacks for more than 30 days, consult with the Purchaser's Lender. The Purchaser may have to qualify for investor financing to allow a long rent-back.
Coinciding Settlements: It is possible to write both the contract for purchasing your new home and for selling your old home to allow for coinciding settlements. In this arrangement, the Seller goes to settle on the sale of their home and then settles on the purchase of their home using the proceeds from the prior transaction. The contract can be written to allow a short delay in the second settlement if the first settlement is delayed.
While attractive in terms of reduced costs, this method often carries the most risk. If the sale of the home falls through, the purchase of the new home is in jeopardy.
This information is meant as general guidance only.
To discuss your particular situation, please contact us.
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