Peter Boutell, Lending a Hand: Buy a home and sell a home on same day?

It is a common dilemma: Trying to buy a move-up (or move-down) home at the same time you are selling your current home. Most homeowners are not in a position to be buying their move-up home without selling their current home. Buying a home before selling the current home can be like putting the cart before the horse because most homeowners need to use the equity from their current home as the down payment for their new home.

A homebuyer who is able to buy a home without selling their current home must have adequate income to cover up to three or more mortgages. There will probably be a mortgage payment due on the current home until it sells plus there will be one due on the new home and payments may be due on a bridge loan. A bridge loan is a loan secured by the home that is for sale. If the homebuyer does not have adequate assets to cover the down payment of the new home, a bridge loan may be necessary.

While it is possible to offset the mortgage payment on the current home with rental income, the mortgage industry has very strict rules on counting income from a departure property the home that the homebuyers are moving out of in order to move into a new home. In order to count the rental income, the departure home must have a signed lease and the rental deposit monies must already have been received by the homes owner. Furthermore, the departure home must have at least 30 percent equity just 25 percent is required if the purchase loan will be an FHA loan as determined by an appraisal. If a homeowner has significant equity in their home, they are less likely to walk away from their mortgage obligation as they acquire a new mortgage for a new home. If all of these conditions are met, the homeowner may use 75 percent of the rents as income.

In a transaction that closed here just last week, the homebuyers were able to close escrow on their move-up home on the same day that they closed escrow on their new home. The lender for the mortgage on the new home funded the transaction even though the buyer did not yet have the funds from the sale of his home. When the sale of his home closed on Wednesday morning the cash proceeds were wired to the title company handling his purchase. These proceeds together with the lenders funding check enabled the title company to close the purchase transaction on Wednesday afternoon with an e-recording at the Santa Cruz Courthouse. This would be considered a concurrent close and is only possible with a flexible lender.

Local mortgage consultant Peter Boutell has been writing this weekly column for the Sentinel since 1995. Send questions to [email protected]. Archived columns are available at www.PeterBoutell.com.