How do I buy new home without contingency - sale of current home?

Question

So I've got a newbie question - Let's say I have my current primary residence and then I find a new home that I want to buy as my new primary residence. I don't qualify for both mortgages so the traditional thing to do would be to offer to buy this new one with the contingency that I need to sell my old home first. In the local market here in Utah that just doesn't fly well. I will get beat out by a non-contingency offer all day. So what options are there? I have come up with two ideas but I still don't know if they are better alternatives than a non-contingent conventional financing offer.

Option 1: Offer to the seller a Lease option on the new home until you sell your current home at which time you can exercise the option to buy the 2nd.

Option 2: Have the seller carry the note until you sell your current home at which time you can refinance the seller out of the 2nd.

Both of those seem more "complicated" than a clean conventional financing offer without the contingency of your current home selling.

Help? Am I missing other options?

Jake Thomas · Answer

@Chris Watkinssounds like a good plan. Can you buy a rental property now before you sell your primary? Maybe get one under contract to buy then put up your primary. This way you and the family can move into that house until you find the next primary and then when you do you already have a rental ready to go.

We have done live in flips 3 times (currently in #3) and we always move in with her parents for the interim but I refuse to do that anymore so this is our next plan to move into a future rental till we find the right house to rehab again.

Keeley Park · Answer

@Chris Watkins- We are under contract for a 4plex in Provo that we are going to house hack. We were able to find one that has 3 bedrooms in each unit, but of all the 4 plexes we saw on the market in a 4 month period, we only found 2 that had 3 bedrooms in each unit in the areas we were looking. However, there could be a triplex or two that have a larger unit and 2 smaller units. One thing that was a little difficult about searching for a house hacking property is that we needed to be a little more picky about where the property was located since we were going to live there. If I had kids that were elementary school age I would probably not feel completely comfortable with our neighborhood. There may be some nicer 4plex neighborhoods out there, but it might be a slim shot. If we didn't need a place to live, we would have looked for a rental property (in or out of state) that could produce good cashflow versus house hacking.

Chris Mason · Answer

Yes, and that's the way you WANT to do it - their move in date is 2-4 weeks after you're scheduled to close on your purchase. It makes intuitive sense that you would do that absent any underwriting or mortgage stuff mucking up your plans.

If you have a lease that says they are moving in prior to you moving out, it doesn't make sense that you would voluntarily be homeless, thus making it look like you dummied up a lease and had a buddy make a security deposit just to check a box, which would be mortgage fraud.

Russell Brazil · Answer

Somtimes you have to suck it up and sell first, then buy.  Stay in an AirBnB in the interim.

Shawn Mcenteer · Answer

hi @Chris WatkinsAn alternative could be leasing instead of selling your primary.  I recently sold my single family primary to qualify for better financing to purchase a MFR. I could have kept my single and rented it out, this would have made me eligible to purchase just not with the same power as if I sold. I ended up selling but I did have the option to keep the property if a deal came up I need to move on.

Chris Watkins · Answer

Awesome thank you Chris Mason- That is a valid question, I appreciate you bringing that up because you could definitely correct me if I a wrong in my thinking...

I've lived in the home for 5 years, there is not much more we can do to the home to force appreciation and add value. The market in this area is really good so selling in 2-3 months would be ideal to maximize value on the work put in.

So now how do I maximize the value of my living situation? I don't necessarily need all of my equity out of this home but currently have the ability to withdraw some through a HELOC to give me some short term cash options.

My thought process is that I have maximized the value of this home and can move on to the next adventure which should now be 1 of 2 options:

1. Find a home with great potential that we could move into as a family and work on to force appreciation (in addition to some market appreciation hopefully). We'd do that for 2 years (for tax reasons) and then sell and move on to the next home doing the same thing.

2. House hack a triplex or fourplex with 3bd 1 bath units (to fit the family) for a few years until we own several multi-units to be able to hold on to long term.

If we did either of the options above maybe 3 times we could probably work up to our dream situation which is a home in a desirable mountain location with acreage and "bells and whistles".

Additionally, I plan to purchase non-owner occupied investment properties along the way so that in 10 years I have a decent passive income set up.

Thoughts on this? Am I missing something in my plan?

Chris Watkins · Answer

Chris Mason- Would the lender be able to count the income towards my DTI if the 12 month lease is signed before closing on the new home but doesn't start until after the closing on my new home?

Chris Watkins · Answer

@Skyler Smith- This is general to Utah county, not necessarily in Springville. My current primary residence is in Springville but looking all around the county for the right fit. I am verifying now with my LO what options I have for renting out my current home. I have been hesitant to rent out my current home because we've spent the last 5 years remodeling and improving the home to such a degree that, with it being in "move-in ready condition", I would be worried about how renters would take care of it from here on out.

The lenders I've talked to all have different opinions about what I would qualify for. Because of the accessory apartment in primary residence some say that qualifies me as an experienced landlord others don't. The only reason I prefer the lender I do at the moment is because they can put in under 3.5% on a 30 yr conventional which nobody else can. But feel free to send me your Logan LO. I am always looking for flexible lenders.

Chris Watkins · Answer

@Jake ThomasI really like that idea of buying the rental just before selling the primary... And I hear you on the in-law plan - not for me either. Thanks for the idea!

How do I buy new home without contingency - sale of current home?

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