Sales contingencies can be severe in this market.

Buying a home in today’s competitive housing market is already challenging. And selling a home before buying your next home makes things even more complicated.

In a different, less competitive housing market, it’s common to make an offer contingent on the sale of your current home. But offers are tough in a hot real estate market. Sellers may be reluctant to accept contingent offers because the buyer may lose the sale if they fail to sell on time.

As a buyer, how can you avoid the sales contingency, make your offer more attractive and still protect yourself financially? Here’s what you need to know.

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What is a home sale emergency?

A home sale contingency clause can be included in the purchase contract. For a home sale to go through, the buyer’s existing home must be sold by a certain date – typically the closing date of the new purchase.

There are more than one reason why buyers need to sell their home before buying another home.

• Equity from your current home may be needed for a down payment on your new home.
• You may not be able to afford two mortgage payments at once.
• You may not qualify to buy a new home with a mortgage payment.

Selling your current home before buying a new one is ideal for both the buyer and the seller. However, timing and finances don’t always happen in the order necessary for this to happen. And that means sellers often aren’t interested in accepting offers that include the condition of a home sale.

Although the seller has the right to cancel the contract if the buyer’s home does not sell within the specified dates, the seller may be forced to make another offer pending the outcome of the dispute.

And, with today’s market being so competitive, sellers often have the option of accepting a separate offer that doesn’t include home sale contingencies. As a result, many buyers are looking for ways to buy a home without this clause.

Strategies for buying a home when selling a home

One common reason for sales contingencies is that buyers need to use the equity in their current home to purchase their next home. But there are a few ways to get a down payment without selling your existing home first. There are three strategies here.

1. Low payment loans

A common myth when buying a home is that you need to put 20% down. But in reality, many home loan programs offer as low as 3% or even zero. With one of these low-payment loans, you may be able to pay the down payment on your next home without selling your current home.

If you qualify, there are several low-payment options:

• Conventional loans backed by Freddie Mac and Fannie Mae offer a 3% discount to qualified buyers
• FHA backed loans start at just 3.5%
• Military service members can apply for VA loans, which require zero down
• If you’re buying in a rural area, you may qualify for a zero-down loan backed by the USDA.

Keep in mind that most buyers who put less than 20% down pay private mortgage insurance (PMI), which may not look good as a repeat home buyer. But if you plan to buy now and sell your existing home soon, you can refinance the proceeds with cash later and avoid PMI on your new home. Think of one of these loans as a stopgap solution rather than a permanent loan.

2. Home loan loan

Home equity loans and home equity lines of credit (HELOCs) can be a great way to access and use the equity you’ve built up in your current home. Banks typically lend up to 80% of your home equity, excluding your current mortgage. The money you spend can be used for any purpose, including making a down payment on your next home.

Keep in mind that this creates a new lien on your existing home – one that must be paid off when you eventually sell it. A HELOC or home equity loan creates a second mortgage payment, which is factored into your income-to-income ratio when you apply for a mortgage loan.

3. Bridge loan

Bridge loans are temporary loans that bridge the difference between the sale price of a new home and the buyer’s new loan. Bridge loans are secured by the buyer’s existing home and the funds are used as a down payment on their new home.

Like mortgages, home equity loans or HELOCs, bridge loans are designed to be a short-term financing option that can help you get into your next property more easily. These loans can be disbursed faster than a mortgage, but the interest rates will be higher.

iBuyers can help you buy a home without a sale requirement.

In recent years, iBuyer companies like Opendoor and Offerpad have emerged to help buyers who need to sell a home before buying.

An iBuyer is a company that uses technology to make real-time offers on your home. iBuyers are offering an easy and convenient alternative to traditional home selling in many cases.

iBuyers work in several ways. The basic concept is that a company estimates the value of your home and gives you a discount. If you accept, you bear the burden of owning, marketing and reselling the home. Depending on the service you choose, the benefit is certainty of all cash delivery and more control when selling.

Real estate companies such as Orchard, Ribbon, Nook, Homeward and Homelight have also emerged in recent years to help buyers make solid offers.

The concept of these companies is straightforward. They use their money to provide a risk-free offer and secure a home for you. You can move in right away and not pay your mortgage until your old home is sold. When you move into your new home, you will keep your old listing and find a buyer. Once your home is sold, they transfer your new home into your name.

The downside is that iBuyer fees can be higher than traditional mortgage and real estate fees. So look at each offer carefully and work with a lender to decide which option is best for you.

Don’t let a sales emergency stop you from buying your next home

When it comes to buying a home, the highest offer isn’t always the best. A great offer that falls through because the buyer can’t sell their home first is not good for either party. That’s why sales contingencies are often a concern for salespeople.

Understanding your options for making a risk-free offer can help you buy your home in today’s hot real estate market. Talk to a real estate professional about your options.