|In a traditional sale, the buyer purchases a home and enters into escrow for approximately 30-45 days. At the close of escrow, the loan is funded, the deed is recorded, sellers move out, and the new buyers move in.|
Today, some sellers have to wait to sell their homes before buying another one. When that’s the situation, they use the net proceeds from the sale of their current home as a down payment on their new home. They need to have the funds BEFORE they buy the next home…Following me here? Since their purchase was made AFTER their own home went into escrow, their new escrow will generally close at later time. The time between the close of selling their home, and the close of purchasing a new home may be many weeks.
Let’s say, the escrow from the SALE of their home is closing on June 1st, which is the day they turn ownership over to the new buyers. The escrow on their new PURCHASE won’t close until June 30. The sellers may need a leaseback period, that is, an amount of time in which they can continue to reside in their home, even after the new owners take possession. The sellers, who will then be the tenants, will sometimes put up a security deposit and pay rent equivalent to PITI, that is principal, interest, taxes and insurance, as determined in the buyers' loan payment. However, any amount can be negotiated between the sellers and buyers. Many lenders also place a limit on the number of days of the leaseback, generally 30 days.
The new owners become the landlord, and the sellers become the tenant. An agreement defining the terms of the leaseback are signed by both parties, and the funds are transferred through escrow from the sellers, now the tenants, to the buyers, now the landlord. When the leaseback ends, the tenants move out into their new home. The landlord takes possession the day the tenants move out.