Expert: Diann Tonnesen - 12/26/2007

Question
We have found a house that we would like to make an offer on but the problem is that we just listed our current home for sale. Is it possible to get preapproved for a new home loan so we can make an offer before our current home sells? When our house sells we will use the equity to pay off our bills and still have a 10% deposit on the new home. Will the banks take this into consideration and how can this work? Thank you.

Answer
Hi Sasha,

You can absolutely get pre approved for a new home loan contingent on selling your existing home. And you can make an offer contingent on the successful sale and closing of your existing home.

The big question is whether or not the seller of the new home is willing to accept a contingent offer. You are basically asking him to take his home off the market and he is taking the chance that your home will sell before his would to another buyer.

There are two things that usually induce a seller to take a contingent offer:
1. You are offering full list price and that is more than he really expected to get.
2. Your home is priced closer to what it will probably sell for than his is, so there is a better than even chance that yours might sell first.

Another possibility you can offer him is that he has the right to consider and accept other offers while you are still trying to sell your home, and if he does accept one, you would have the option to either remove your contingency or cancel the sale entirely. You usually have anywhere between 24 hours to 72 hours to decide. This is called a 24, 48 or 72 hour first right of refusal, and if you remove your contingency you are saying that you will buy the new home whether or not your existing home sells.

In a buyer's market, seldom will a seller receive another good offer. Most MLS boards require that a home be placed into "contingent" status, and agents with a whole smorgasboard of listings to choose from will be reluctant to even show it to a perspective buyer when there are lots of homes with no "catches" on the market.

The downside of making an offer before your home is sold is that you lose much of your negotiating power and will probably end up paying more. And if you allow the seller to show it with a first right of refusal you could lose the home if someone else makes a good offer on it. But if you don't make an offer, that can happen anyway.

Hope this helps! Much depends on your local market conditions and the negotiating skills of your agent, as well as the seller's motivation to accept an offer. I would definitely recommend you have a Realtor representing you. Good luck!!