real estate

Purchase contract tied to your home's sale

Steve McLindenq_v2.gifDear Real Estate Adviser,
I am shopping for a house. My current home is paid for and I don't want to put it up for sale until I have a contract on another home. What it the best way to plan in the event my house isn't sold before settlement? I understand a lot of sellers won't accept contingency contracts.
-- Joan

a_v2.gifDear Joan,
Most of the time, people like to sell off their existing homes before securing another.

That way, they are sure to have money in their hands for the new purchase and won't be stuck with several months of dual mortgage payments. But that's not an issue for you because you own your home outright. Even so, your strategy is not only feasible, it seems sensible given the circumstances.

To back up a moment, you are right that not all buyers and sellers will agree to contingency clauses. However, in this buyers' market, the seller of the house you will buy may be more apt to agree to a contract contingent on the sale of your existing home, especially if there are no other serious buyers looking at their place.

This gives you more buying clout going forward. If possible, be sure that you phrase the purchase-contract language so that you'll get all your earnest money back if you can't sell your existing home over a set period. Give yourself wide latitude here if the seller will consent.

As I said earlier, one of the downsides of doing things this way is you won't have the cash from your old home to use for the deposit and closing costs on the new one. However, the big plus is that you should be able to move right from your present home into the new home with a minimum of disruption. You should know that the buyers of your old house probably won't be nearly as receptive to signing a contingency based on you settling on the new house. It's because there are so many other choices of for-sale properties that they can move into immediately these days.

If there is still some lag time between closing on your new house and the sale of your existing home, you will need to cover expenses of both homes for a while. In your case, that wouldn't be too imposing except for dual payments of taxes and maintenance costs and perhaps some utility overlap. To help you bridge this gap, you might consider getting a small home equity loan or home equity line of credit, or HELOC. It shouldn't pose a problem with your full-equity position.

As you start looking for that new place, be sure you are busily prepping your existing home for sale. Also, you should contact, though not necessarily immediately sign a contract with, a listing agent who can give your existing place the twice-over before it goes on the market.

No matter how you approach this, the timing of the "sell" and the "buy" is always a juggling act. There are so many moving parts involved, not to mention a wide variety of time lines and motivations of other buyers and sellers that crop up along the way.

Good luck!

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

Read more Real Estate Adviser columns and more stories about mortgages. To ask a question of the Real Estate Adviser, go to the "Ask the Experts" page, and select "Buying, selling a home" as the topic.

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