Timing a home purchase as a current renter?

July 12, 2019 7:08 AM

How do people typically manage the timing of closing on a house vs. the end of their lease when they are renting?

This is probably a basic Adulting skill that I have missed... how do people typically manage the timing of closing on a house vs. the end of a lease when they are renting?

I have roommates (dear friends whom I will not leave in the lurch by backing out of the rental early) and I won't be able to afford doubling up on rent and mortgage for any length of time. I want to time the rent-to-buy transition as cleanly as possible. So how early is too early to get pre-approved for the mortgage and start looking seriously? How late is too late?

(Are these questions I should be asking a mortgage broker? A buyer's agent? A real estate lawyer? Is it too early to initiate those relationships if I'm in this lease until the spring?)

Possibly relevant details: First time homebuyer, very excellent credit but small down payment, sellers' market (Northern VA), current lease ends at the beginning of May.

posted by somanyamys to Home & Garden (13 answers total)

Best answer: When I bought my house, my closing was in the middle of July. With everything I paid as part of closing, my first mortgage payment wasn't until September 1. So you may end up in a scenario where you don't have as much overlap in payments as you fear, depending on how timing works.

But absolutely talk to a/your buyer's agent about your constraints. They can advise you on how quickly things move, what kind of terms to put into your offer (e.g., how soon the closing date would be), when you should start looking in earnest, and what (if anything) you should ask your lender to do to help.

My closing took a little less than a month, although you can set a date out further. If you're buying from a seller who also needs to buy a new house, they may need more time to make everything work.

I'd say you start house shopping in Jan/Feb, aim for a closing sometime in March, first normal mortgage payment due on May 1. Figure out who you want to use as your real estate agent and lender a little before you start everything else, and they can help you make the timing work.
posted by katieinshoes at 7:27 AM on July 12, 2019

Best answer: We overlapped by a couple of months so that we could do some renovations before moving in, and also move in at our own pace. BUT, if you think you might have any overlap at all where you're not yet living in your new house, here's an important thing you may not know about yet but should - you'll have to have a special kind of homeowner's insurance during the time you're not living in your house. It was significantly more expensive, if I recall, to cover the house while no one was living in it. So if at all possible, I'd recommend at least nominally moving into your house right away, even if in reality you're moving back and forth for a little while. Your insurance agent could probably tell you more about exactly what you'd need to do to satisfy the requirements for it being your primary residence.
posted by Stacey at 7:35 AM on July 12, 2019 [1 favorite]

We're in the middle of doing this right now. I think Katieinshoes has some good advice for timing.

We saw our house on June 1, put an offer in the following Monday, and are closing July 26. Our lease ends at the end of July.

I started keeping an eye on the market about a year ago, and started going to open houses a few months before we signed up with a realtor. It took a couple of months of looking at houses with the realtor to find something we liked, and the market here is really hot so things went fast and we but an offer on a different house that was rejected. It's nice to look at open houses to get an idea of what you like and don't like.

Oh, also look at first time homebuyer programs in your area. My husband and I had to take a class and we got a grant for $3500 for closing costs. Other states have programs that will help with down payments.
posted by apricot at 7:38 AM on July 12, 2019 [2 favorites]

It’s never too early to look as it can be a long search. Finding the right agent now also means they can keep an eye on the market for houses that pop up.

The amount of time between signing and close of escrow can be anything from two weeks to a few months — you’ll want to find an experienced local real estate agent who can tell you about the realities of your local market. Closing is not necessarily the end though — sellers may want to do a rent-back while they wait for their new home to be ready. Between escrow and rent-back it could easily be 4 or 5 months between signing and having to shoulder the mortgage payment.

Basically I’d suggest you get a good reference for an agent or start auditioning them now. It certainly can’t hurt.
posted by Tell Me No Lies at 7:38 AM on July 12, 2019

Best answer: I think you need to plan to double up for at least a month or two - save more, or plan on an even lower down payment, or wait. I also think you need to have a plan for what to do if you don't find a place to buy before May 1st. There are just too many variables, especially when you're in a sellers' market. If you're working on a tight time scale where you need to move in between, say, April 15th and May 1st, that's really going to limit your options, which could lead you to make decisions that will have a significantly worse effects long-term than an extra month of rent.

I was fortunate enough to be in a month-to-month rental when I was house shopping, which made life way easier. So when we finally had an offer accepted in early/mid-July (after many, many months of searching and making offers) we agreed that we would take possession of the new house on August 15th, and we told our landlords that our last day at our old apartment would be August 31st. Then one of the owners of the house we were buying *died*. In the end we were able to compromise on something like the the 23rd, but wow, that was a stressful situation.

Oh yeah, and the thing about not having to pay your mortgage the first month is true - your first month's mortgage payment is included in the costs you pay at closing, and with a mortgage you pay for the previous month, not for the month to come the way you do with rent. But seriously, if one or two rent payments is going to ruin your plans, you're in a bit of a precarious situation.

Start looking as soon as you can, though, and even if you don't make offers pay attention to what the houses end up selling for - it will give you an idea of what your *actual* price range is, rather than what it seems like your price range is. And as someone with a smaller down payment (this was my situation too!), kind of scale up a little from there, because some of those prices will be cash offers, offers with higher down payments, or offers waiving contingencies (which you probably can't afford to do). A lot of the houses we missed on didn't sell for significantly more than our offers (a couple even sold for less) but the offers were more attractive because of waived contingencies or higher down payments.
posted by mskyle at 7:41 AM on July 12, 2019 [3 favorites]

If you reach a pinch point because of a delay, you can put your things in storage for less than a month’s rent, so there are options if the overlap doesn’t synch.
posted by childofTethys at 7:42 AM on July 12, 2019 [1 favorite]

Going month to month on your lease is a common tactic, as is finding someone to take over your lease and/or subletting the remaining months. I would only move out and put things in storage if you are very sure that you will have a house, otherwise you may get increasingly desperate in your temp situation and buy a house that is not the right one for you.
posted by soelo at 7:49 AM on July 12, 2019 [1 favorite]

Best answer: We ended up closing on our house on September 2 and our lease on our apartment ended September 30. Our first mortgage payment was due on November 1. That being said, if you close earlier in the month your closing costs will be higher - you pay what's called "odd days interest" on the period from when you close to the end of that month, which was almost a month's interest in our case. Mortgages are paid in arrears, so in that November 1 payment we would have paid the interest that accrued in October. So if you're cash-strapped you might want to aim to close later in the month.

(But also, something is wrong with your house. You should make sure you have the cash to be prepared for that.)
posted by madcaptenor at 7:52 AM on July 12, 2019

Best answer: Lease ended May 31 and started looking in earnest February 1. (Before that, kept an eye on open houses and Redfin to get a feel for the market.) Put in offers on three different houses, and third time was the charm. Closed in mid April, moved in mid May, and first mortgage payment was June 1.

The plan if we didn't feel like it was looking good to find a place and close in time was to just rent and save for another year and try again next year. We didn't think we'd be able to negotiate a month-to-month. We were lucky it all worked out and hustled to make it happen. We were also lucky that the sellers were flippers, not a family living in the house, so we didn't have to work around a family's schedule and they were motivated to get the house off their books.

Helps to be realistic about what/where you can afford, and have an agent that will advise you if you need to move fast on a particular property. If you can't float a double rent/mortgage month it will make things harder to time. What if you find the perfect place early in the search but the seller won't agree to a far-off closing date? If it's a seller's market and you're at the limit of your budget, they could just say nah and accept the next offer that comes along.
posted by misskaz at 10:43 AM on July 12, 2019

All markets are different so it's a good idea to talk to a real estate agent early or local friends who have done this to get a sense of what to expect. For example, where I live (Long Island, NY) this seems to be a much more drawn out process: we went into contract on a house in early May and didn't close until the end of July. Keep in mind, if you are looking at houses where kids are living, many families will want to delay a move until the school year is over. And I will second, gently, the idea that if doubling up on rent and mortgage even for a month or two is not possible, you may want to reconsider your price range or down payment size.
posted by Jemstar at 12:28 PM on July 12, 2019

If it is a seller's market, the seller is going to accept the offer that works best for them. Some may have already bought their next home and need to close on this one as soon as possible. Some may be perfectly happy to stretch out the closing for an extra month or so as long as they know they have a firm deal.

In my experiences, offers usually provide for closing in 30 or 45 days, sometimes 60. 30 days can be tight, especially if the buyer needs to get inspections done and wants the seller to take care of fixing certain things before closing but also because lenders can randomly throw a wrench in the works and the closing will slip by an extra week or more.

The problem is that finding the home you really love at the price you can offer is tricky - you want to have enough flexibility to wait for the right thing, being desperate will cost you money - either overpaying for the house or ending up somewhere that doesn't really work you so move sooner. It does depend in part on how many houses are on the market in your price range - if it is a deep market with lots of turnover (like 2 bedroom condos in an urban area) this might not be as much of concern.
posted by metahawk at 1:00 PM on July 12, 2019

Did you already pay last month's rent when you started renting this place? I had a similar timeline to you (lease was up at the end of May, I closed about 2-3 weeks before so I'd have time to move some stuff myself and get a few repairs done on the house) and I managed ok by not having to pay the May rent and not having to start mortgage payments until July since half-May and June were part of my closing costs.
posted by TwoStride at 4:29 PM on July 12, 2019

Our first mortgage payment was included in the closing costs. Our closing was also delayed several weeks, so give yourself buffer!! In a perfect world, you'd close 2 months before your lease is up - but perfect house could be available next week, so be open to that.
posted by Toddles at 9:29 PM on July 12, 2019