How does a real estate trade work?

Question

My husband & I have been offered a house "trade." Our house is for sell for $100,000. The house we want to buy is $180,000. The owner of the house we want to buy has offered to trade houses, plus he wants us to pay $80,000. It sounds like a fair trade. We get our asking price and he gets his. We still owe $65,000 on our current mortgage. So...what we can't figure out is do we just hand over our deed to him or does he actually buy our house for $100,000 and then we turn around & give that money back to him + $80,000? We were planning on using the difference between our selling price and amount owed on the mortgage for a down payment. Do we lose our down payment now if we trade? I guess I just don't understand the process of a trade. Can you help??

PS There are no realtors involved, so we don't have to worry about those fees.

Answer 1

In my years of processing, closing, auditing and lending in the mortgage industry, I've not worked on a trade. I can see lenders having a problem lending money on a straight up trade. With what I do know, I would suggest writing up two separate purchase contracts....yes, I would definitely write up purchase contracts...for everyone's safety. One for you buying his house, one for him buying yours. I've worked on many a loan where the sale of one house is on the same day as the purchase of another so the money from the sale goes directly into the purchase of another. Your lender would require a copy of the Settlement Statement from the sale of your property to prove your down payment. I know you don't want to pay any additional fees, but I would suggest you and the other party going in 50/50 on the fees to hire either a realtor (at a discount since most of the work he/she would get paid on is already done. His/her pay would only be to make sure the legalities are in line) or hire an attorney to draw up the contracts. Two contracts vs. one = lenders seeing something more traditional. Right now, the underwriters are VERY conservative and not all that willing to approve something "outside the box". Bottom line, GET HELP...too many ifs, ands and buts to mess with...esp if either you or the other party are looking to get a loan for this transaction. P.S. your new loan amount would be for $145K. Make sure you can afford and get approved for more than double the loan you currently have...don't become the next foreclosure victim.