Yay! The tax credit got extended and…now hear this…expanded to include existing home owners that want to buy another home.  Yep. That’s right. if you have lived in your home 5 consecutive years out of the last eight you may get to claim up to $6,500 as a tax credit when you buy another home.  What’s not to like, huh?

Well There May Be Something Not to Like

Here’s the catch.  A lot of home owners —even responsible home owners who are current with their mortgage — may actually need to sell their home in order to qualify for a  mortgage to buy the next home.  As you may remember, a big reason we’re in the trouble we’re in now is because people bought homes with 100% financing or interest only financing or 100% interest only financing.  Back in the day even FHA (which was rarely used) only required a 3% down payment and Sellers could provide even that through Down Payment Assistance programs which are no longer allowed.

If you combine the lack of equity in a house with the lack of savings someone will need to buy another house it’s a sure fire recipe for the home sale contingency.  Simply put, the buyer of a house will make the contract of sale contingent upon the sale of their existing home. This used to be pretty commonplace but it has fallen out of favor for a number of reasons:

• it takes a long time to sell a house and Home Sellers may not want to wait the long time a Home Buyer may need to sell their existing home
• there are extremely strict guidelines and verification procedures for Home Sellers that rent their home rather than sell in order to buy another home
• the Home Seller may not be able to price their existing home low enough to attract a Home Buyer fast enough to “move up”

What Should I Do?

It’s a real quandary.

On the one hand home sellers want to be able to sell their home and if it’s been sitting on the market for awhile without any takers, the home sale contingency might look attractive.  Another good reason to accept the home sale contingency is that the home seller may be able to command a higher price.  Maybe something closer to the list price of the house.  After all, if they need to take the risk of taking their home off the market to wait for the home buyer’s house to sell, they need something in return.

On the other hand, it may take a long time for the home buyer to sell his house and, in the end, may have to back out of the contract anyway.  Meanwhile, the home seller’s house is essentially “off the market”.

Tread Carefully

There are protections for both the home seller and home buyer. So it’s important to consult with your Realtor® about the pros and cons.  You may find that it’s a good deal.  As I said, there was a time when the home sale contingency was common.

In the meantime, I’m not sure $6,500 is enough of an incentive to get lots of people out into the real estate market looking to “move up”.  But, if you’re planning to move anyway this will be a nice perk and a reason to do it now rather than later.  There’s still time — you don’t have to be under contract until April 30th — but you may want to think about it.  Especially if you think you may have to make your purchase of your next home contingent upon the sale of your current home.

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