This year we noticed a shift in clients’ concerns when moving from one home to another. For many years our market had an abundant supply of homes for sale, and many clients were worried about getting stuck owning two homes at the same time.
But this summer, the supply of homes contracted to just a 2.6 months’ supply of homes in Lexington, and a 4.2 months’ supply of homes in our market overall. Suddenly, more of our clients were concerned they might sell their home and not be able to find a suitable replacement. So they chose to find and buy a home they like first, and then sell their home.
One challenge when doing this is qualifying to own two homes. Another is avoiding wasting money on closing costs. Another is having a manageable payment for any months of dual home ownership.
In order to qualify to own two homes, the best way is to own one or both of the homes “free and clear.” But realistically, most people don’t do that. If you anticipate a move but you’re a few months or years away from actually moving, you have time to reduce your monthly debt obligations and increase your cash in savings. Depending on how you do it, reducing your debt obligations will likely boost your credit score. The reduced debt and the saved cash will help you qualify for more favorable terms for the permanent financing on your new home, and for any temporary financing you use to own both homes for a short period.
How do you avoid wasting money on closing costs? Perhaps you’ll want to get short-term financing at a different place than you get your permanent financing. For short term financing, the closing costs are much more important for the interest rate.
There are programs available that can let qualified buyers pay off their old mortgage loan and roll that debt in with the money owed on the new home – so there’s just one loan payment to make. And for a short period of time it may make sense to make “interest only” payments – just until you sell the old home. This keeps the monthly payment obligation manageable. Let me be clear: “Interest only” payments are a disaster waiting to happen when people make just that low payment month after month forever. They do not get the loan balance paid. But if used for a month or two or three just to get through the time of dual home ownership, they can be very helpful.
What if you don’t want to own two homes or you don’t qualify? How do you get that hard-to-find home tied up?
Perhaps the seller will be flexible about the closing date. Most sellers aren’t eager to sell with contingencies on the sale of another home these days, but some sellers will still do it. Or perhaps you can go in with a firm offer that says, “I’m definitely buying your home. But I need to sell and close my home first. So I need a longer closing window.”
Will every seller take that offer? No. But some will.
Every home buying and selling situation is unique. I’ve tried to outline some broad options. Please feel free to contact us if you’d like to brainstorm about ways to make the most advantageous move for you.