Allen Markel, REALTOR® · Texas Premier Realty

General

Should I sell my house before I buy the next one in Texas?

Answered by Allen Markel, REALTOR®, Texas Premier Realty ·

Short answer

It depends on your risk tolerance and your financing, and there are three common paths. Sell first and rent back or lease temporarily; buy first and make the purchase contingent on selling, using TREC's Addendum for Sale of Other Property by Buyer (Form 10-6); or use equity in your current home, which Texas limits to 80 percent of its fair market value and which cannot close until at least the 12th day after your application or the lender's notice. Get lender and attorney input on any equity loan before you rely on it.

Path one is to sell first. You know your net proceeds and your down payment before you shop, but you may need a place to live between closings. The TREC contract lets a seller stay after closing only under a written lease; possession after closing without one creates a tenancy at sufferance, and the form warns about insurance (Paragraph 10A). So agree on a written temporary lease if you need it.

Path two is to buy first with a contingency. TREC publishes the Addendum for Sale of Other Property by Buyer (Form 10-6), which addresses buyers who cannot buy the new property unless their existing property is sold and closed. Sellers may see a contingency as extra risk, so how competitive it is depends on the house and the market.

Path three is to carry both properties for a time, using savings or other financing. That is a financial-planning decision, and I am not the person to advise you on it.

The Texas Constitution regulates home equity loans on a homestead in Art. XVI, Sec. 50(a)(6). Among the conditions: the principal amount, added to all other indebtedness secured by the homestead, may not exceed 80 percent of the homestead's fair market value on the date the extension of credit is made; the loan may be foreclosed only by a court order; and it may not be closed before the 12th day after the later of the date the owner submits an application to the lender or the lender provides the required notice. Those are only some of the conditions in a long list.

Because a home equity loan uses your homestead as security and has strict rules, ask a lender or a Texas attorney to walk you through your specific options. I can tell you these rules exist; I cannot tell you a structure is right for you. Timing the two closings, and possibly two option periods, is something I can help you plan.

Common follow-up questions

What is the TREC sale-of-other-property addendum?

It is TREC Form 10-6, used when buyers cannot buy the new property unless their existing property is sold and closed. Ask your agent how it interacts with the option period and deadlines.

Can I stay in my house after I sell it?

Only under a written lease, if you want to be protected. TREC Form 20-19 Paragraph 10A says possession after closing without a written lease creates a tenancy at sufferance, and warns about insurance.

What is the 80 percent rule for Texas home equity loans?

Texas Constitution Art. XVI, Sec. 50(a)(6)(B) says the principal amount plus other debts secured by the homestead may not exceed 80 percent of its fair market value on the date credit is extended.

Sources

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Answers describe transactions and public data. They are not legal, tax or financial advice.