While purchasing a home the first time leads to many anxieties, buying a second house poses a specific problem: What do you do with the first one?
Before entering the market, buyers should examine the general worth and salability of their present residences. What are homes selling for in your neighborhood? Do they sell quickly or are they on the market for many months? What is your general equity (approximate selling value less mortgages and marketing costs)?
It is clear that many buyers can only purchase a new home by getting some or all of their equity from a first house. There are several ways to do this.
If possible, arrange a purchase contingent on the sale of your first house, with settlement for the second one on or about the same date as your old home. Many sellers will agree to this, providing they get a 72-hour kick-out clause. This means that at any time the sellers can give 72 hours notice to complete the transaction or the deal is off and the purchaser's deposit is refunded in full. A kick-out arrangement is usually related to the receipt of a backup offer by the sellers. In effect, this contingency creates an option to purchase for the buyers.
Some buyers may elect to obtain interim financing such ass a personal note, term loan, or short-term second trust. In the latter there will be settlement-type costs up front to record the loan as alien against the property. Interim financing is useful when the date of settlement on the old house does not coincide with settlement on the new property.
A good choice for certain buyers is to keep their present home, rent it out, and then refinance the property. This works particularly well when the first house has been owned for many years and the rental is sufficient to cover the new mortgage payments. Also, this arrangement allows the buyers to keep their old home and thus benefit from any increasing value over time.
A number of brokerage firms offer an "equity advance" program under which money is advanced and the loan and interest are repaid when the property is sold. Basically this is a term loan tied to the sale of the property. The advantage to this system is that the buyer only has cash carrying costs for the new house.
Some brokers also offer "buy back" programs through which the broker agrees to purchase your home if it is not sold during the listing period. Such programs raise the issue of the broker's position in this type of transaction.