Buying a home today can be stressful and fraught with complicated issues, such as contingencies requiring the buyer to sell their current home before qualifying for the home they want to buy. Buy Before You Sell (BBYS) products may be the answer. We’ll outline the benefits of BBYS and how it differs from the traditional home-buying process.
How does the “buy before you sell” model differ from the typical home-buying process?
The traditional home purchase process for homeowners is broken. A majority of homeowners must sell their current home before they can qualify for a mortgage on their next home due to federal lending requirements around debt-to-income and down payments. As a result, homeowners either must sell their current home and suffer through double moves and short-term rentals to access the equity they’ve accrued, or they have to make contingent offers that require the sale of their current house to close. When, and if, contingent offers are accepted, it can result in paying as much as 11% more for the home relative to a cash offer. Consequently, 37% of homeowners say they want to move but are staying in their current home.
“Buy before you sell” (BBYS) products like Grove Bank Mortgage’s “Better Bridge Loan” eliminate the stressors caused by financing contingencies. BBYS products make the home purchase process more convenient because homebuyers may buy and move into their new house before they sell their current home.
Also, BBYS products make homeowners competitive bidders because they can submit non-contingent offers that can compete with cash offers. BBYS products enable homeowners to tap their current home equity to purchase the new home, meaning they can make larger down payments and reduce the cost of their loans.
How has the proptech space evolved in the last 5-10 years? (The proptech space, or property technology space, refers to the use of technology to revolutionize and improve the real estate industry.)
There are three major waves of evolution in the BBYS space. The original model was pioneered by the iBuyers and is historically the most expensive model for consumers. These companies buy a consumer’s current house with cash so the consumer can use the equity they’ve accrued right away. The current home is usually purchased at a steep discount.
The second stage was pioneered by real estate agents who saw how hard the consumer experience was first-hand, so they created the power buyer model to address those issues with less cost relative to iBuyers. With power buyer “buy before you sell” solutions, the power buyer typically purchases the next home, leases it to the consumer, then sells it back to them after their current home sells. This model is still expensive for homeowners because they are paying duplicate closing costs and leaseback fees.
The third iteration was pioneered by Grove Bank and is the most cost-effective model of the three. Grove Bank Mortgage has a bridge loan product that they portfolio - keep in-house – called the Better Bridge Loan. As long as there is enough equity in the current home and the borrower is credit-worthy, Grove Bank Mortgage will finance the entire purchase with a 12-month loan with one balloon payment when the departing home sells or after 12-months, whichever comes first. This program allows a buyer to move into their new home first then they can clean and stage their departing home to sell that for the highest possible price.
In addition to not having to deal with showings and keeping the current home “show ready”, a buyer doesn’t have to move out of the old home and into the new home on the same day. And what happens when the sale of the departing home falls apart at the last minute? There’s no worries about that with this option.
(There is a fourth option what’s out there where a lender writes a “dummy contract” on the departing home. What this does is creates a loophole where the current mortgage can be excluded from the debt-to-income ratios and allows a buyer to qualify for their new mortgage. However, they still have to make payments on the current mortgage AND the new mortgage! YIKES!)
How do I know if I qualify for a BBYS Better Bridge Loan?
The process to qualify for the Grove Bank Mortgage Better Bridge Loan is the same as qualifying for a traditional home mortgage. A Mortgage Loan Advisor collects your income and asset information as well as the information about your current home. They qualify you for a new mortgage – to verify that the final loan on your new home fits within the mortgage guidelines – while assessing your current mortgage and situation. Each buyer and situation is unique and it really takes a skilled advisor to determine the right path for you.
Contact MOVE Real Estate today to start the conversation about your next over and we can connect you with a lender to evaluate your mortgage options.
