I have mentioned the Buy Before You Sell program in a previous blog that reviews options homeowners may have in purchasing a new home prior to selling their existing. This program is one of those options, and I would like to delve into it a little more. It may not work for everyone, but having choices in any real estate financing need is an excellent thing.
The “Buy Before You Sell” program is a tool that allows you to unlock your existing home’s equity in order to use that as a down payment in purchasing your new home. It’s a modern-day bridge loan without the high cost and rates normally associated with traditional hard money bridge loans. The two greatest features are (1) you can tap into your existing home equity at a 0% interest loan, and (2) the housing payment on your existing home is not factored into the new loan approval, so you can make an offer non-contingent on the sale of your existing home.
HomeLight is the company that is offering this program through one of my lenders. Here’s a brief overview of how it works:
- HomeLight will review your existing home’s profile and will determine an “equity unlock” number based on anticipated sales price and current mortgage balance, and will send you a “backstop purchase agreement”, which is what will allow you to remove the contingency.
- You will get a conditional loan approval on a new home purchase without your current housing payment counted against you, and also with the ability to use the equity unlock figure as a down payment. This is essentially a 0% interest bridge loan.
- Once your offer is accepted and you close on your new home, you and your agent have 90 days to list and sell your home at full market value. The Buy Before You Sell program charges a 2.4% fee paid out at closing.
- * IF your home does not sell within 90 days of closing on your new home, then HomeLight purchases your home at the agreed-upon backup offer they provided you with in the original agreement. At this point, they will sell your home on the open market at full market value. They do offer what they call “upside protection” so when they turn around and sell your home, you will benefit from any increase in purchase price. Keep in mind this is not the ideal situation though since fees are involved in every sale transaction.
Some additional details:
- There are certain property requirements (i.e. home value between $250k-$2.5MM, no more than 5 acres, primary residence only, no government financing on either the existing home or new home…)
- Your agent will need to provide a questionnaire and pictures on the property, and HomeLight does need to approve this.
- Do not go into contract until you have that approval to buy before you sell.
- Once your existing home is sold, you can recast the mortgage on the new home with any additional proceeds you want to apply towards your new loan.
What do you think? It’s unique, but provides an option to buy before you sell and might be the right path for you. Call me with any questions!
