Studies show that as the economy grows, so do mortgage rates. According to the home buying institute, 30-year mortgage rates will increase by up to 4.4% by the end of the year. Moving from one home to another can put you into a financial squeeze as you try to navigate through two mortgages.
However, with the introduction of a home sale contingency, you don’t have to worry about two mortgage payments. A home sale contingency means you only move forward with buying if your home sells first. This puts more pressure on your real estate agent . They need to know the ins and outs of how to buy a house contingent on selling yours and find you a buyer quickly so you can close on your new home.
Therefore, if you make a contingent offer and can get the seller to accept it, it will make the buying and selling process easy. If you are new to the term, we can help you understand what a contingency means and its significance in real estate.
What Does Contingent Mean?
Buying a house contingent on selling yours means that you will only buy a new house after your current home sells. The main objective of contingencies is to ensure buyers are protected from paying two mortgages.
When signing the contingency agreement, it is essential to note that it works in three ways:
• Your contract for the new home goes forward only if you find a buyer for your current home
• If you don’t find a buyer with the specified timeframe, the buying contract of the new home becomes void.
• Sellers can put a kick-out clause into the contract. This clause guarantees that if a seller finds a new buyer and you are yet to find a buyer for your house, they give you 72 hours to either continue or drop out of the contract.
Understand the Contract Details of Buying Contingent on Selling
Contingent offers have different contract stipulations. Therefore, before you sign any contract ensure you understand the agreement first. Understanding the agreement helps you know what to expect.
Additionally, it gives you an overview of what happens when you accept an offer and how much time you have before needing to buy and close on your new home.
Considerations for Buyers
It is quite common for people to sell their current home when looking for a better one. Contingent real estate gives you the time you need to sell one home and settle before getting another. It also guarantees that as a buyer, you don’t possess two homes within the same time, hence saves you from paying two mortgages.
Another benefit of contingent real estate is that it offers you peace of mind through the entire process of selling and buying. In the deal, the new home is locked in to ensure that as soon as your current home sells, you are able to move into the new one.
Considerations for a Seller
Sale contingency is a risky process as there is no guarantee that the house will sell. Although the contract allows you to keep marketing the house and accept offers, if it’s listed under contract, it becomes less attractive.
Potential buyers are less likely to fall in love with a home under contract. This is because it might take long before clearing the house or it may not be possible to buy it at all.
Therefore, before agreeing to a home sale contingency, the seller should investigate the buyer’s current home to determine:
• The average time for the sale of neighboring homes on the market: If it takes an average time of 30-45 days, there are better chances of selling the home. However, it if takes 90 or more days on average before selling, it may be harder to sell.
• Is the house on the market or not: If it’s not on the market yet, it only indicates that the buyer is thinking of buying or selling but they have not yet made the commitment.
• If the property is on the market, how long has it been there? If it has been on sale for too long, there are higher chances that it is over-priced or has major flaws.
• Is the house priced correctly? A real estate agent will compare different houses with the same features to see whether it has the correct price tag.
However, regardless of how long your house has been on the market, signing a house contingent contract offers you some assurance. With the addition of the kick-out clause, the seller gets an advantage over the buyer.
Get a Settlement Date
It is difficult to sell and buy a house at the same time. It is also very challenging to buy first then sell later. Therefore, it is essential that you make short-term arrangements that will allow you to sell first then buy a new home later.
In other words, before starting to make plans on buying, focus on getting a date for the settlement. With a date set, the offer will have less risk.
How to Buy a House Contingent on Selling Yours
A good contingent real estate contract offers you protection from any possible financial risks of having two mortgages to pay. However, with all the benefits of signing the contingency contract, it is essential to note that these contracts are legally binding.
Therefore, before committing to any, ensure you understand all the terms perfectly. If you do not know how to buy a house contingent on selling yours, you need the services of a qualified and experienced agent.
If you’re looking for a more confident way to buy a new home before you sell your current home and without contingencies, you should consider Homeward. With Homeward you can make an all cash offer on your new home now, then rent it while you sell your current one. Once your old home sells, you buy your new one from Homeward. To learn more, see How Homeward Works.
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