One of the biggest challenges of buying a home with a home sale contingency. Just the thought of trying to sell your home while you are in the process of buying another is enough to make many not even consider it. Hold of for a minute though, what the fuck is a home sale contingency and why do you need one? (for those who already know skip the next paragraph.
Home Sale Contingency
A home sale contingency is a clause in a real estate purchase contract that indicates the buyer must list and close on the sale of a property they currently own in order to close on the purchase of a new property (Not like new build necessarily but new to them). The home sale contingency clause usually specifies the amount of time the buyer has to list and sell their property.
Why Home Sale Contingencies are needed
Home Sale contingencies are needed usually because the person buying does not have the financial means to afford both mortgages in the eyes of the lender. For example, my income is good, but with a $1350 monthly mortgage and the current amount of debt I have I likely wouldn’t be approved to take on another $1350 month mortgage because of the affect these two mortgage payments has on my debt to income ratio. If you don’t know what a debt to income ratio issue is, here is a good definition. What fucking stupid about this in my opinion is that it is VERY likely most people could temporarily pay both mortgages, but the bank looks at it as if you would likely not be able to sell your current home for months upon months which currently isn’t the case for most homes in most of the United States. Meanwhile, you can stack up five car loans on top of each other and you will still get credit car offers in the mail…. No, I am not saying people should overleverage themselves, don’t be a stupid dick, what I am saying is that bank risk policies are often antiquated and based on little actual buyer data. (Like how I feel if you have never missed a rent payment for six years you should automatically be qualified for up to the amount of rent you currently pay at least… but that is for another article on another day where I am far angrier.) So you have to have a home sale contingency, so what, how does that fuck you?
The Problem with Home Sale Contingencies
The problem with home sale contingencies is simple. If you get in a multiple offer, and by multiple offer I mean your offer and a single other offer, and the other person offering has no home sale contingency, then the listing agent is going to recommend that the seller take the offer that doesn’t have a home sale contingency. The only reason they would choose your offer over the non-contingent offer is that some other terms like price, possession or other contingencies was worse. For example, you are bidding against someone and you are offering over asking price while the non-contingent offer you are competing against offers list price but asks for a really long inspection period and they have a FHA loan approval and it is from Rocket Mortgage or some shit (For those not in the know, most listing agents have preferred lenders and Rocket Mortgage ain’t one of them –Although I have had two good and one bad experience with Rocket Mortgage myself– Also, FHA loans have some requirements about home condition that Conventional Loans don’t, so their is a stigma to FHA loans as a result.
What you can do to make your contingent offer more attractive
1.) Get an approval from a lender that the local real estate agents have a high opinion of. This greatly varies from market to market and your agent is going to be able to tell you who is the most well thought of.
2.) Have your home ready to put on the market. Fix all the things, clean and stage the house and get photos done. Have your agent craft a listing description and have it locked and loaded to list within days of offer acceptance. Also have a competitive price decided upon for your agent to communicate to the listing agent when sharing the listing photos prior to offering. Give the agent confidence in accepting your offer.
3.) List your home with a ‘Suitable Housing’ Clause. Meaning whoever wants to buy your home knows that you need time to search for, put in contract and close on a home and won’t be getting possession of your home until this is completed. This is the solution in most situations, a home sale contingency is MUCH more likely to be accepted if you are already in contract to sell your current home. It CAN be done!
4.) Find a home off market to offer on. As mentioned above, multiple offers usually lowers your chance of having a home sale contingency offer accepted. However, if find someone selling their home and they are willing to do so off market, they may be much more willing to flexible terms in a contract such as a home sale contingency.
Alternative to a home sale contingency
A Bridge Loan is a type of short-term financing that is used to bridge the gap between two transactions. It is often used by homeowners who are buying a new home before selling their current home. They usually come with high fees and high interest rates and are expected to be paid in full when you sell your home. Again, like holding two mortgages you will have to be in a pretty solid place financially in order to obtain a bridge loan in the first place.
Regardless of any of this remember that is is crucial have your credit score in the mid 700’s and have money to put down in order to be fully ready to buy a home. Even if you obtain a zero down payment loan like USDA or VA you will get more favorable lending terms if you show you are financially prepared to make a home purchase.