I’ve been wanting to warn sellers and seller’s agents about this for the last 10 days or so. Courtney’s new post is a great lead in to this added consideration for sellers and listing agents.
CAN YOU BUY THAT HOUSE, WHEN YOUR HOUSE SELLS?
Having had the benefit of working in a market exactly like this one, back in NJ/PA in 1992 or so, I think this warning will be timely advice for many.
When an agent is called to sell a house, they touch on the subject of “Where are you going to go when this house sells?” But most often the antennae of the agent is focusing on whether you will also be buying a house with them, or if they can get a referral fee by referring you to an out of area agent (usually 25% of the commission.)
WARNING TO SELLERS: IT IS VERY HARD TO GET A MORTGAGE. In the last market like this, many sellers assumed that since they had a HUGE downpayment, they didn’t have to worry about qualifying for a mortgage on the house that they were planning to buy. NOT SO!
Having 50% down and little income could leave you homeless, as NWMLS does not permit “provisional” listings. There’s no turning back.
Here’s how it usually “plays out”:
1) Seller doesn’t want to look at homes until their house has a contract. With houses sometimes sitting on market for well over 100 days, looking at what you will buy when your house sells is often put off until you have an actual buyer for the home.
2) Once the contract is signed around, the seller goes out and makes an offer on a house they are buying with 30% to 50% down.
3) Often the seller and the agent for the seller of the home they are buying are so impressed with the big downpayment, everyone all the way around assumes that someone with that large of a downpayment can get a mortgage.
REMEMBER: The buyer of a home has a legal out phase lasting about 10 days, but the seller does not have a legal out phase if they can’t get a house to go TO.
Often you can’t just go to the buyer and say, “Sorry. I can’t buy a house so you can’t have mine.”
So to listing agents, I know you want that listing, and your are primarily interested in getting the seller to sign that listing contract. But be careful that you are not making your clients homeless. If they are people living on a fixed income, saying they are planning to buy, part loan, your ears should perk up. Make sure they check with a lender as to getting that loan…before you sell their house out from under them.
We are often in the business of “GETTING PEOPLE FROM HERE TO THERE” moreso than simply “selling houses”. Don’t leave your seller’s homeless, as you walk off to the bank to cash your commission check for “selling their house”.
Ardell, it’s not that hard to get a conventional mortgage unless the borrower is counting on stated income or no documentation.
Sellers should be finding a lender to work with and getting preapproved well before they have an offer on their home (I should have added this to my last comment).
I have been warning a couple clients recently about this as well – Are you SURE you can get a mortgage right now – times have changed – please talk to the lender to make sure!
Rhonda,
What I am seeing and hearing is that due to the economy OR because they have been laid off, many older people with sizable equity are retiring and downsizing. This means they have no income, and are thinking they can keep enough of the proceeds to make the payment on “the new loan”. Lenders will not agree with that strategy.
Another point is often younger sellers will get into a contract with a builder BEFORE they call an agent to sell their existing condo. They don’t want to talk to their agent who is selling their existing condo home about the purchase. They say “I don’t need to sell in order to buy” because they are not getting their downpayment from the sale of the current residence. BUT they are only thinking about the downpayment issue, and the the fact that the lender won’t fund on the new house without the old mortgage payment going bye-bye, doesn’t cross their mind. This happened A LOT in the last bad market.
Just pointing out that these were the unforeseen obstacles facing many sellers who were also buying in the last market like this one. What are the odds this won’t happen this time around? Slim to none.
Ardell, I think it’s an important post for sure. One thing that’s newer for folks over 62 (I should write a post) is using a reverse mortgage to buy a home. This would work for your scenario above with no incomes.
I’ve also seen folks who have been encouraged by their agent to buy simultaneous and they do qualify for mortgages (old and new home) and the old home doesn’t sell. 🙁
Rhonda,
That would make an excellent post. It’s a shame that program (reverse mortgage) was abused recently, as now that it is a good answer, many are scared of them. I look forward to seeing its application in an appropriate situation.
Any seller feeling overly confident about selling by the time they close on the purchase isn’t doing their own due diligence. All you have to do is read a newspaper, or watch the news or read a blog to know there are no guarantees on when a property is going to sell. Can’t blame that one on the agent.. You’d have to be living in a cave to believe that sales pitch.
Courtney,
I remember in the last market like this one lots of people said “I’m hiring you to sell my house; my purchase is none of your business.” Until, what they thought, wasn’t true, and then they came back crying a few days before escrow was to close. I remember two extreme examples, and in both cases I was very lucky to be able to solve the problem in 4-5 days. On one I got the lender to approve the loan on the purchase (but it got really ugly and I had to camp out in the lobby for three days). The other I was able to sell the condo in the nick of time.
Ardell, personal accountability has been missing over these past few years… any mortgage–even a plain old 30 year fixed can be “abused”.
Ardell,
Every buyer in every market needs to get pre-approved as part of the whole package. All buyers need to do this before entering into any real estate agreement, whether it’s a listing or a sale. They also need to check with their lender on a regular basis. Potential buyers should be talking with their lender every 30 days to make sure the loan program is still what it was the month before. Better yet, the buyer should be working with a good lender who will follow through and make sure they are notifying the buyer of any impending changes.
I agree with Rhonda. In talking with the mortgage brokers I work with and trust, there are loans out there for those with good credit and a job (fancy that)
Reverse mortgages for seniors are growing in popularity and may be the way to work with someone who has cash tied up in their house and not much other money available.
In California a law was passed to make sure reverse mortgages follow certain guidelines and disclosures. This would be great to have happen nationwide, as seniors can be in a very vulnerable position financially and emotionally.
Debra,
I love “talking to you” as you and I have been around the block a few times, and most always see things the same way. I wish that were true of most agents.
I don’t really have anything to say, I just wanted to check out the Facebook Connect thing.
We now return you to your regularly scheduled programming.
Debra does bring up a good point, both buyers and sellers should check in with their mortgage originator at least every 7-10 days to make sure their programs/guidelines are still in place–especially if they’re doing anything less than 20% down, owner occupied. I’m getting pmi changes…today was one from MGIC adding our area as a “restricted” list effective early March.
Maybe I am missing something here, but why can’t a hypothetical seller just rent? There is no reason that you MUST buy your next home. In fact, since there is a very high probability that real-estate prices are going to decline at least another 50%, you will likely be way better off by renting for a while before jumping back into home ownership.
Sniglet,
You are nothing, if not consistent 🙂 There is nothing wrong IF THAT IS THEIR INTENTION at the time that they put their home on market. But to be forced into renting is quite another story. Trust me. People who are intending to sell and buy…do not like it when their home sells and they can’t buy. No one likes surprises like that when it is too late to turn back.
Buying a house and renting a house do not afford one the same options as to property selection. Many people buy because rentals can often be pretty crappy beat up places.
Hi Jay!! Thanks for stopping by. Heading over to Jon Stewart and dinner.
Ardell wrote: “Many people buy because rentals can often be pretty crappy beat up places.”
Really? From what I can see in Eastside rentals, you can ALWAYS find a better quality home for whatever the mortgage would be at any given home purchased today.
Just to give some perspective, I found this decent (albeit modest) 4 bedroom, 2.5 bathroom, Bellevue rental for $1000 a month. You just can’t buy ANYTHING for that price. For $2000 a month you can get a pretty upscale home.
http://seattle.craigslist.org/see/apa/1028431967.html
That said, I agree that people should understand what their options after they sell, but neither should they view renting as a poor alternative to buying.
Sniglet said: “That said, I agree that people should understand what their options after they sell”
Thank you Sniglet…let’s keep this post on topic and end it there.
Clearly an agent shouldn’t know that someone’s plan is to buy when the houses sells, and then after it sells say, “oh well, you can rent”. The people may not have put the house on the market if they knew that beforehand.
I was thinking about this other day as I was talking with a mother and daughter that wanted to sell both homes and move into a larger one together. The new loan would be in jumbo loan territory. I pointed this out and they were completely unaware of how much the interest rates were on a jumbo loan. We crunched the numbers and it made no sense to do that. Onto plan B…
I think it is just common decency as well as good service to help people think through decisions before they make an uniformed choice.
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