Moving can be risky. Granted, it doesn’t usually start out with much jeopardy. You shuttle yourself and your belongings from a college dorm or your parent’s house into an apartment, and then maybe to another apartment and another. But when you buy a house, that’s when the financial risk kicks in. A move can be incredibly expensive – even if everything goes perfectly.
There’s no way to remove all risk from selling a residence and moving into another, but if you want to try to minimize the financial dangers, then, as they say on TV – kids, don’t try any of this at home.
Selling your home before closing on a new home.
Plenty of people do this because they need the money from the sale of their current home to buy the next one. But this is actually a risk. It’s one of the most common risks homeowners take, according to industry professionals, and while problems may be rare, it can be a colossal mistake.
Tamela Ekstrom Derian, a real estate agent who owns HAVEN Real Estate + Design in Detroit, says she sees this a lot.
“When I say you should close on the home you are buying, I mean get all the way to the closing table, sign and get the keys before you list your current home,” Ekstrom Derian advises. “If the people you are purchasing a home from have made the mistake of not purchasing a new home before they closed with you, you could find yourself in a mess if they get desperate to stay in the home you are trying to buy because they have nowhere to move.”
Allen Shayanfekr, CEO, and co-founder of Sharestates, a real estate investment company based out of Great Neck, New York, agrees.
“A lot of people take that risk, but it’s a big gamble,” he says, citing a friend of his who last year moved his family in with his in-laws for a few months while looking for a new house and waiting for financing to come together.
If you aren’t going to buy your home after the closing of your existing one, Shayanfekr says that you should at least get preapproved for a mortgage.
“In essence what you want to have is a commitment from a bank that is willing to lend on the new purchase, with a clause stating they need to see the closing statement from the first sale to fulfill the closing requirements,” Shayanfekr says. “If done right and controlled, you can ideally close the sale of the first and purchase the second on the same day – sale being in the morning and purchase being later in the day.”
Moving out of your home, so you can sell it more easily.
Closely related but different. Maybe you decide on purpose to rent an apartment, or you’re going to move in with a family member, while you sell your home. That’s fine, as long as you’re prepared that things may not work out the way you want them to, says Dylan Diersen, a real estate agent with First Weber Realtors in Appleton, Wisconsin.
Don’t use your retirement money as a down payment.
You are probably thinking that there’s no way you would do that, but maybe you’ve never fallen in love with a house that’s just outside of your reach. In any case, Elysia Stobbe, a Jacksonville, Florida-based branch manager at NFM Lending, says that she has seen it happen several times – and that it hasn’t always worked out.
“I have had more than one client liquidate their retirement to use as a down payment to purchase their new home thinking they were going to sell their current home before they closed on the new home,” Stobbe says. “Their rationale was that they intended to put their money back in the retirement account using profits from the sale before the penalty phase for early withdrawal kicks in.”
Considering the penalty for taking out money from your 401(k) is 10 percent, that’s a considerable chunk of change that you’re putting on the line if things don’t work out as fast as you hope they will.
Jeff Barchi has been a REALTOR® and one of the best real estate agent Arizona expert and managing homes for sale in the Greater Phoenix area since 1999. He is ranked in the top 1% of all real estate agents in Arizona in Greater Phoenix, two-time winner of top 40 Realtor AZ under 40 awards, and the top 2% of all agents nationwide. In 18 years Jeff, as a leading Arizona real estate agent, has participated in approximately 900 transactions, i.e. homes for sale in Arizona, averaging approximately 50 per year. To put this number in perspective, the average Realtor AZ closes 11 transactions per year. If you are looking for the best real estate agent Arizona expert, Jeff Barchi is your guy. His real estate firm has been praised as the best Phoenix real estate agent, he has been a very successful Scottsdale real estate agent and Paradise Valley Realtor.