Make sure that you qualify to buy your next home prior to selling your current home.
You have decided to sell your home and purchase another one. Okay, no problem. You call up a Realtor and have them come to your home to take the listing. So far so good. You explain that the reason you are selling is that you want to buy another home after you sell your current home. The Realtor goes through the paperwork with you, you sign the listing agreement and the Realtor puts your home on the market. This could be the start of a serious problem. Okay, now you are starting to wonder what the problem could be. The problem is whether or not you have at this point spoken to a lender about whether you can qualify for your next home and how much of a home you qualify for. Make sure you qualify for your next home in the Phoenix Metro Area prior to selling your home.
As a Realtor, we frequently hear a seller state that there won't be a problem with obtaining new financing. They are absolutely sure of it. The problem is that they have not spoken to a lender yet. Maybe they have plugged in some information online, or just had a conversation on the phone with a lender, or worse yet they just "know" they can. This is not good enough. We are not trying to be difficult. We are not trying to be control freaks when we firmly state that you MUST get your loan application in to the lender FIRST before listing your home so that you can be sure you can purchase your next home.
Imagine, for a moment, that you put your home on the market and you get a fantastic offer on the home. You accept the offer. Next thing you do is go out looking at homes and find a home that you want to buy. You then put in an offer contingent upon your home closing escrow. You feel protected. There is one problem that you are not thinking of. If you have not been pre-approved on your financing then you have to be concerned if you do actually qualify. You have sold your home. The contract on your home does not say that you are selling it only if You can qualify for your next home. It states that you have sold your home IF the BUYER qualifies for your current home.
Years ago, we had a seller referred to us by a friend of theirs which was a past client of ours. This seller stated that he had a contract on a new build and needed us to list his home for him. We asked him if he had been pre-approved for the new home. He told us that he could qualify for it and that there was no problem. We explained to him that he needed to be sure that there were no problem with his qualifying prior to us listing the home. He was completely confident. We listed the home. After a couple weeks we received an offer. We explained to the seller again that he should be sure he could qualify for the new build prior to signing this purchase contract on his current residence. He was "positive" there was no problem. He was wrong.
A couple weeks later we received a call from the seller. He stated that after speaking to the new home builder's lender, the lender stated that he could not qualify for the bigger home he was trying to purchase. He was a bit frustrated, but was willing to purchase a little bit smaller home than the one he originally wanted. It was still larger than the home he was selling. Okay, not the worst thing that could happen, well, not yet.
We received another call from him about one week later. He couldn't qualify for that home either. Come to find out, they told him he would have to go down to the smaller home that they had in the series. This home was the same size as the one he was selling. He was really upset now. Why move? Well, he had signed a contract to sell his home with no contingencies written in for his protection as he was MORE THAN SURE he could qualify. He said there was no need to write it in as he was told he wouldn't have any problem qualifying. I think was irritated because we were pressing the issue so much. He should have listed to us! The worst thing did happen. The builder's lender called him one more time and told him he couldn't qualify. He couldn't buy at all. Yet he sold his home! He actually had to move into a rental with his kids. He had taken the conversations with the lender as being solid, but once all the verifications came in it proved otherwise. He was not frustrated with us as we tried on several occasions to get him to do something even if it was just a clause in his contract. He was absolutely positive - But then he was wrong. He called us a year later and was able to buy a home then, but for a year he was in a rental. Not what he wanted.
Many times people who have purchased previously think that they are familiar with the process and that they KNOW what they are doing. As Realtors we have seen so much more that they have. It is important to listen to the advice that we give. Every transaction is different to some degree. A Seller may only sell a few homes in his lifetime. We sell thousands and see thousands of different problems that any given seller may never see. We must protect them even when they don't think they need to be protected. We can't see all the problems coming, but we must learn from what we have experienced. I have been able to use this example every time a seller says that "It won't be a problem".
I had a seller state the same thing to me today. I told them I would list the home after they get their application in with a lender to be sure that they can do what they want. I told them this story from my past client and they agreed to make sure they could buy before listing their home. Wise decision! It is much better to be sure!