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Tell me how contingent offers work when buying/selling

1,627 Views | 10 Replies | Last: 6 yr ago by jja79
ChoppinDs40
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Have maybe $100k in equity in current home and potentially looking at moving.

New buy would be a jumbo loan - unsure if that changes anything or not.

How do contingent loans work? What's the process for underwriting under that scenario?

Etc. etc
Jay@AgsReward.com
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A contingent offer simply means the offer is "contingent" on selling your current house. So, the seller has to be willing to wait for you to get a contract on your house before you can close.

The underwriting would be no different then any time you are selling and buying at the same time contingent or not. The underwriter will just assume you have sold your house eliminated the current housing current payment from your debt to income ratio and assuming the net equity for the down payment. Of course, you have to prove your house did sell before you can close on the new house but that can all be done the same day.

As you might expect contingent offers are not as popular with sellers then non-contingent offers and it just depends on the house, the sellers and most importantly the local market if a contingent offer would be accepted. It never hurts to try if that is your best option.

But, you might also want to explore other options as a plan B just in case. One of those options would be a bridge loan to eliminate the need for a contingent offer in a competitive market. More info here: residentialbridgeloan.com/
ChoppinDs40
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Jay@AgsReward.com said:

A contingent offer simply means the offer is "contingent" on selling your current house. So, the seller has to be willing to wait for you to get a contract on your house before you can close.

The underwriting would be no different then any time you are selling and buying at the same time contingent or not. The underwriter will just assume you have sold your house eliminated the current housing current payment from your debt to income ratio and assuming the net equity for the down payment. Of course, you have to prove your house did sell before you can close on the new house but that can all be done the same day.

As you might expect contingent offers are not as popular with sellers then non-contingent offers and it just depends on the house, the sellers and most importantly the local market if a contingent offer would be accepted. It never hurts to try if that is your best option.

But, you might also want to explore other options as a plan B just in case. One of those options would be a bridge loan to eliminate the need for a contingent offer in a competitive market. More info here: residentialbridgeloan.com/


Interesting. Does the bridge loan get taken out with a new conventional? Like a refinance or a similar situation?
Jay@AgsReward.com
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Yes, sometimes you do have to refinance the bridge into a conventional loan or in your case a jumbo loan. Other times we can structure it so you do not have to refi. Just depends on the situation.
Aggie1205
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To piggy back a bit. Are their alternatives to bridge loans if you want to move into a new house before selling your current one? Especially if you think the current one would benefit from some touchups and being shown empty?

Would lenders be willing to move forward with a new mortgage that takes say a persons PITI above perhaps normal levels if that person was willing to put say a years worth of payments in escrow? Especially if the current house was in an area that houses have been moving quick in? As an alternative to escrow, what if that person was willing to put more than 20% down.
SteveBott
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You would need to qualify carrying both mortgages at the same time. My clients do this often. Escrowing future payments is not an option. Just make the payments on your own.

Most lenders will recast the new home payment if you bring significant equity to reduce the new loan. Significant will vary by lender but at least 10-15-%. And 25% is a good chunk of equity.
Aggie1205
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10-15% on top of the 20% down?
SteveBott
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I'd guess they would but would you want to after 20%? Ten percent doesn't affect the payment that much, id have to run numbers but that would reduce it by 40-60 per month. I would look at other options to make sure that is the best option.

Ediit. I was too low on the payment reduction. Take a 350K sales price and 20% down has a payment of 1336. then take another 10% down and the new payment is 1169 so a savings of 167 per month. Obviously the payment reduction will vary by loan size.
SteveBott
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Another option paying down with more cash and keeping the original payment. That would accelerate your equity build up.

If you pay 1/12 extra each month on top of your full PITI you cut a 30 year term to around 23. The lump cash payment would work the same way.
jja79
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Are you asking if you can qualify with a higher than allowable debt to income ratio?
Aggie1205
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No I get that at a certain point of debt to income , no one will touch you. I was asking about options for buying one house without a contingency with a current house. Didn't know if lenders would be open to things like a year's worth of payments in escrow as a reassurance that there will be plenty of time to sell the old house. Especially if someone had plenty of liquidity but whose income might not look great with two mortgages. It sounds like that isn't a option so either just buying more equity to lower the payments or one of these bridge loans would be potentials.
jja79
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If your DTI is in line closing a 2nd mortgage shouldn't be an issue.
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