Double Home Mortgage Payments Trap
January 7, 2008
© My Personal Finance
It was on a Thursday afternoon that I received a call from my real estate broker. He had the unpleasant task to let me know that the buyer needed a few days extension on the escrow to obtain a mortgage loan to complete the purchase of my old home. This was less than five days before the scheduled close of the escrow and the buyer wanted about two weeks extension.
This seemed like a minor difficulty. However, what that broker did not know was that I was in escrow to buy another house and I needed the funds from the sale of the first house to complete the purchase of the second.
I had to call my wife to discuss the options, none of them seemed promising.
Some of the questions we had to deal with were:
- Was there anything the buyer was not telling us that impacted his ability to obtain a mortgage loan?
- How could we close the escrow on our new home without the funds available from the sale of our old home?
- How could we handle two mortgage payments if by some stroke of luck or Karma, we did buy the new home and still had not sold the first home?
- Could we afford to handle two mortgage payments and for how long?
- Would we be forced into renting our old home and how would that impact the later sale?
You can imagine the emotional roller coaster ride we were on. It all ended well with minimal emotional scarring but the following lessons may help you.
- Get enough information about the buyer to confirm both their intent to buy and their ability to buy. Making an offer and even entering escrow does not indicate either. Ask any seasoned mortgage broker and they can tell you dozens of stories about how many things could go wrong with escrow.
- Think about a back up plan even if it is to walk away. Luck and karma are good but I also like good planning.
- Schedule enough time between the closing date of the house you are selling and the one you are buying. This is called staggered closing as opposed to simultaneous closing. The disadvantage of staggered closing is the cost. If the time between closings is too long, you may end up moving twice and renting a place in the middle.
- Ask for enough earnest money deposit so that the buyer of your home has enough to lose for not fulfilling his/her contractual obligation. This was a major factor that helped me. The buyer did not want to lose several thousand dollars for a few days of extension. On the other hand, place as little earnest money deposit as you can on the home you intend to buy. I know it doesn’t seem fair and sometimes, it may not even be possible. But this is a world of negotiations.
- Line up “bridge†financing just in case you end up with two mortgage payments. One mortgage on the house not sold and the other for the one just purchased.
Comments
Got something to say?
Featured
