- The Washington Times - Friday, September 21, 2007

One major piece of advice seems to be given universally to “move-up buyers” — those who have a home to sell and who want to move into a more expensive residence — do not make a move without selling your home first.

As the local real estate market shifts, advice to move-up buyers also changes. In the fast-paced market of previous years, many move-up buyers opted to make an offer on their home of choice before placing their current home on the market, knowing that their home would sell quickly.

Times have changed. The average number of days a home stays on the market climbed in greater Northern Virginia from 58 days in May 2006 to 89 days in May 2007. Sellers recognize the need for patience when putting their homes on the market.

“Rule Number One for move-up buyers is ‘Do not purchase your next home before you sell your current home,’ ” says Corey Savelson, a Realtor with RE/MAX 2000 in Rockville.

“The past two summers were bad,” Mr. Savelson says, “and the slow market extended into the fall each time. From this point until the end of the year, no one should purchase a home before selling their home, unless they plan to ditch their price on their existing home.”

Glen Lazovick, director of mortgage lending for Mid-Atlantic Federal Credit Union in Germantown, says move-up buyers should sell their home first even if they can afford to carry both mortgages, simply because they will then know exactly how much money they will have available for a down payment on their next home.

“The market is uncertain, and it can be difficult to estimate the value of your existing home,” says Joseph Himali, principal broker of Best Address Real Estate LLC in the District.

“In the old market, you could usually be sure of a minimum sales price that could be your starting point when looking for a home to buy,” he says. “But it is much safer now for move-up buyers to sell first so they know what their existing place will sell for, rather than just making a guess.”

Mr. Savelson points out that the inventory of homes for sale in Montgomery County is so high that there is a one-year supply of homes on the market.

“There’s a good chance that some of these homes won’t sell at all,” Mr. Savelson says. “On the positive side, this makes it pretty easy for move-up buyers to find a home to buy.”

A concern for move-up buyers is that if they sell their home first, they may not have a place to live if they cannot find a home to buy.

Mr. Savelson says such buyers should consider temporary housing or negotiate an optional lease-back of their home for 30 to 60 days. He says there are still buyers who will cooperate with such an arrangement.

“There’s no good answer to this situation of selling a home and then trying to purchase another,” Mr. Himali says. “Some people need to contemplate moving to temporary housing while they look for a new place. Another possibility is to lease back their home from the buyers, but it is rare to find a buyer who will accept that for very long.”

Mr. Himali says that move-up buyers can choose not to sell their home first and opt for what he terms “crazy loans” for a brief time, which are interest-only option loans that offer the possibility of making only a small minimum payment each month.

“Sellers can refinance their existing home and then opt for an interest-only loan on the home purchase as well,” Mr. Himali says. “With these types of loans they may be able to qualify for both monthly payments until they can sell their first home.”

He says move-up buyers who choose to buy new homes without selling their homes first must make sure they can qualify for new financing for both homes.

“Financing for the new home must not be contingent on the sale of your existing home because no seller will accept a contract with that contingency,” Mr. Himali says. “Move-up buyers need to arrange a home equity loan, refinance their current home or arrange for a bridge loan before they go looking for a new home if they do not plan on selling their home first.”

Mr. Himali recommends getting a letter from the lender that specifically states that the approved financing is not contingent on the sale of the current home, since otherwise, the seller of the next home will assume that the current home needs to be sold prior to settlement.

Mr. Lazovick says move-up buyers need to start by visiting a loan officer who will give them a good faith estimate of what they will net from their home and what they can afford to buy.

“A lender can come up with a variety of contingency plans for the move-up buyer,” Mr. Lazovick says.

“A lot of people can qualify to make the monthly mortgage payments for more than one property,” he says. “In this situation, sellers often assume they will sell their home quickly and only need to pay the mortgage on both homes for a limited time. But people should make sure they have the extra reserves so they can handle these payments if they do get stuck making them for a long time.”

As the number of foreclosures rises, lenders are tightening their requirements for mortgage loans, especially for consumers with credit blemishes.

“On the positive side, lenders are hungry right now, and they will do everything they can to reduce the rates and fees for borrowers who are creditworthy,” Mr. Savelson says. “Lenders are competitive, so borrowers with good credit should shop hard.”

Some of the options for financing a move from one home to the next include using the equity in an existing home to finance the next.

“Homeowners can take out a home equity line of credit to put money down on their new home, but they need to establish this line of credit before they put their home on the market,” Mr. Lazovick says. “You cannot take out a home equity loan while a home is listed for sale.”

Mr. Lazovick says another option is to take out a first mortgage and a second mortgage on the new home, using the second mortgage in place of a down payment. Then, when the first home sells, the owners can use the proceeds from that sale to pay off the second mortgage.

“If consumers opt for this arrangement, though, they need to make sure there is no prepayment penalty on the loan,” Mr. Lazovick says.

Of course, the move-up buyers must qualify for the mortgages on both their existing home and the home to be purchased.

“It often works out that people can qualify for both loans because their income has gone up since they purchased the first home,” Mr. Lazovick says.

Some move-up buyers opt for a “bridge loan,” although these loans are less popular now that home equity loans are common.

“A bridge loan is taken out on the existing home and used to pay for the next home until the first one sells,” Mr. Lazovick says. “But usually these loans, because they are designed to be short-term, have a higher interest rate and higher monthly payments than a home equity loan.”

Once the financing arrangements have been made, move-up buyers need to choose a Realtor to list their home and one to function as a buyer’s agent in their purchase.

“It’s most common to use the same agent for both transactions, but that is not necessarily in your best interests,” Mr. Himali says.

“You need to make sure that if you are using the same person on both sides that you are getting the best possible service on both sides,” he says. “For example, I primarily work in D.C. even though I am licensed other places. If you were selling a home in D.C. and moving to Chantilly, I would recommend that you use a buyer’s agent who is more familiar with Chantilly.”

Mr. Savelson says that using the same agent for both transactions makes sense as long as the listing agent has plenty of experience working with buyers.

“Using the same agent keeps the transactions simple and cuts down on the lines of communication,” Mr. Savelson says.

A more complex issue for move-up buyers who are attempting to sell one home and simultaneously purchase another is the coordination of settlement dates.

Mr. Himali says that consumers need to be sure they are using a good real estate agent and a good settlement company in order to have a smooth transaction.

“In Virginia, the settlement company cannot release the funds from the sale of the house for three business days after the settlement because they must make sure the funds clear,” Mr. Himali says. “In D.C. and Maryland, the funds can be released on the same day.”

Mr. Himali says the best solution is to use the same settlement company for both transactions but points out that it is usually the buyers’ choice as to which settlement company to use.

Mr. Savelson recommends arranging for a two- or three-day lease-back of the existing home to make the transition easier from one home to the next, since arranging for the movers on the same day as two settlements is nearly impossible.

While first-time buyers may think they have a difficult time getting into the housing market, the transition from one home to the next can also be challenging, even when it is eventually rewarding.

This article was previously published June 29.

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