Ten years ago†, Lindsay Maurer and her husband decided to look for a larger home for their growing family. When they found a house in their price range in a great neighborhood with good schools, they moved quickly to lock it down. They were thrilled when their offer was accepted immediately‡.
“But now we had a house on the market that wasn’t sold and a house already in contract,” says Maurer, who soon found out why buying before selling is an open-ended financial gamble. Like many homeowners, the Maurers were optimistic about the value of their current home and the ease and speed of selling. But when bids at their asking price failed to materialize, they had no choice but to take the first offer. “It wasn’t great, but recognizing that by July we’d be paying two mortgages, we accepted,” says Maurer.
That’s not an uncommon fate for homeowners who buy before selling, says Chicago realtor Amie Klujian, who explains that when prospective buyers observe that an owner has already moved out they view it “as an opportunity to really lowball you§.” You can try to avoid overextending yourself, she adds, by putting a contingency clause in your offer stating that the purchase won’t close until your existing home sells. However, that makes you a less appealing buyer, and you may have to bid higher to compensate.
Get pre-approved for your mortgage today so you can shop with confidence tomorrow.
In a competitive house-buying market, a pre-approved mortgage can help. A pre-approval can mean that you’ve met the requirements for a mortgage, and you know how much house you can afford. It can also show sellers, who may be picking between several offers, that you’re a serious, confident buyer. It may even mean having your offer chosen over a higher offer from a buyer who isn’t pre-approved. Getting pre-approved by Huntington starts here.
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Beware of ghost buyers.
When a buyer comes in, there’s no guarantee the deal will go through. Even with a pre-approval, not every buyer who places an offer is able to meet all qualifying requirements of a loan, or the approval process can take longer than expected. The buyers for the Maurers' home needed to file their tax returns in order to get their mortgage approval—which took six months. In the meantime, the couple would be carrying two mortgages, one for $2,400 and the other for $3,400.
That’s just one of many surprises that can derail a closing. There could be other issues to look out for with inspection, appraisal, down payment, and underwriting.
For the Maurers, the eight months the couple ultimately spent as owners of two properties were far from easy. “We were absolutely panicked about being able to cover everything,” says Maurer, adding that the worries seemed to multiply—among them whether the winter weather would cause damage or somebody would break into the house, which was now vacant.
Even homeowners who are prepared to carry two mortgages on a temporary basis often fail to account for other carrying costs like property taxes, insurance, utilities, and maintenance. For example, if you’re carrying two mortgages during the summer that means cutting the grass at both properties. This is why it’s crucial to evaluate all the possible circumstances.
A Financial and Emotional Toll
The longer the dual mortgage situation goes on, the bigger the toll—both financially and emotionally. “Talk about marital stress, monetary stress—it was just not a good time,” says Maurer, who reports that the situation ate up their savings and that the family has been living with virtually no financial cushion ever since. “We’ve never fully caught up, because as soon as you think you’re caught up, something else happens. It’s like living in a hamster wheel.”
It’s a lesson they took to heart. Two years ago, the family planned a relocation to Virginia when Maurer landed a new job there. This time, they held off on house hunting and put their home on the market first. Maurer began commuting long distance, spending the workweek in Virginia and joining her family on weekends, a solution they were sure would be temporary.
“But in two years, we got one offer, and it was $100,000 below asking,” Maurer recalls. Rather than go through another double-mortgage commitment, the family opted to pull the plug on the move. Fortunately, Maurer recently landed a great job back in New Jersey, and life is now back to normal. “After living back and forth, I’m happy to be anywhere with my family full time,” she says. “Fortune switched, so I’m grateful for that.”
In the excitement of shopping for a new home, it’s easy to get in over your head. These tips for figuring out how much you can afford on a house can help make sure you’ve thought through potential variables and set a realistic price range.
†Article originally written in 2019.
‡Interview with Lindsay Maurer, March 2019.
§Interview with Amie Klujian, March 2019.
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