Make Your Offer Non-Contingent – Creative Solutions to Consider
Posted May 28, 2018 in Special Features
In today’s current real estate climate home buyers, who are also home sellers can be in a bit of a pickle.
With the desire to either buy up to a larger home, or maybe downsize, they are faced with a possible dilemma of having to make an offer to purchase their next home with a contingent sale.
A contingent offer is when the buyer of a home makes their offer subject to the sale and closing of their current home. Most home buyers in this position find it to be more of a timing challenge than anything. Many don’t want to list their homes until they know where they’re going. With fast market times in many price ranges sellers are reluctant to list without a clear path and are concerned about becoming homeowner-less.
These sellers have a couple of choices:
List their current home and once under contract, start the hunt for the next home. With this option come time limits & inventory restrictions. These sellers turned homebuyers may be shopping in a limited inventory housing market and not always have the luxury of finding the ‘right’ home, but instead their choices will be restricted to the ‘best ones’ available at the time. Remember the clock is ticking so they need to quickly identify, offer, close and get moved within the timing of their sale.
Another choice is to shop first and wait and choose the ‘perfect’ home and risk the seller not willing to accept an offer that is contingent on their home sale. The unknown timeline that comes with securing a buyer for their home and closing may or may not work for the seller.
Keep in mind, that in this market many perspective homebuyers are competing with other buyers on the same house. In these multiple offer situations the seller may likely choose an offer with the least amount of contingencies and unknowns, putting the contingent buyers offer in a less desirable position. It’s somewhat of a domino effect, as this seller is also looking to move on to their next destination.
As an alternative to these potential obstacles, homebuyers turned home sellers can look for other creative resources to make a non-contingent offer and ease of the transition a non-issue.
Bridge loans and Recast programs are great tools to consider in these situations. A bridge loan allows homeowners to tap into their equity in advance of their sale. They can access funds for their down payment now rather than later. The homeowner can then shop for their new home and get closed using the equity from the bridge loan, then move. Once moved the home is then sold and with the proceeds the bridge loan is then paid off. With the convenience of a bridge loan comes cost. Bridge loans will carry fees and points, including appraisal and title company fees to make it happen, and most often with time limits or restrictions as bridge loans are a short term solution. In essence you’re paying for peace of mind and convenience.
A Recast program is another tool to a non-contingent offer. With a recast the buyer finds their new home and makes the purchase happen with a minimal down payment. The down payment can come from liquid sources such as a checking or savings account, use of a 401k loan provision or even help from a family member to facilitate the purchase. Then once the purchase is closed, the previous home is put on the market, sold and the net proceeds are then used first, to reimburse the funds used for the down payment, then the remaining proceeds from the sale are applied to the new mortgage loan balance. At that time the loan is paid down, and is then reamortized over the remaining term. This pay down lowers the total house payment and removes the mortgage insurance in certain instances. With a recast there are no refinance costs or fees like you’ll find in most bridge loans, merely a small one-time fee to modify the original note and this can be completed usually within 30 to 60 days.
In a fast moving housing market it’s good to know there are creative solutions to consider – as many of these will fit the needs of today’s home buyers and sellers.
Sponsored by: Leslie Girard – NMLS 58461, Branch Manager & Sr Loan Officer – The Girard Team at Evergreen Home Loans. 360-254-2610 | 360-852-5485 www.TheGirardTeam.com
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