paying for a home before current home is sold

[blowhard]

In the process of buying a new home. How do we manage paying for it before we sell our current home? We have about 800k in equity in our current house, new mortgage would be about 1.2M, so how do we bridge the gap? Do we just take out an adjustable rate mortgage for 1.1M, then refinance after we sell our current house? We could get a lower rate on the ARM if we put 25% down, but I don't have that much cash laying around. Should I take out a home equity loan, then use that for my down payment? Maybe I'm overthinking this...

[Dreamgiver]

Buy the new house pending sale of the old one?

[blowhard]

Dreamgiver wrote:

Buy the new house pending sale of the old one?

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Too late!

[jfoxcpacfp]

One solution, as you alluded to, is a "bridge loan" to "bridge the gap" (quoting you).

[Craigy]

Yeah you can get a bridge loan.

You could do a HELOC but that might factor into your debt/income ratio for the second home.

Might be able to do a doctor loan to avoid a PMI, or an 80/10/10 instead of putting down 20%.

Can you just get a 30 or 15 year note on the new house and swing two notes for awhile?  Then just pay down the new loan with proceeds.

If you do an ARM then refinance upon second sale, only thing I'd worry about is closing costs on each loan.

[blowhard]

Craigy wrote:

Yeah you can get a bridge loan.

You could do a HELOC but that might factor into your debt/income ratio for the second home.

Might be able to do a doctor loan to avoid a PMI, or an 80/10/10 instead of putting down 20%.

Can you just get a 30 or 15 year note on the new house and swing two notes for awhile?  Then just pay down the new loan with proceeds.

If you do an ARM then refinance upon second sale, only thing I’d worry about is closing costs on each loan.

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Are closing costs higher for ARMs than 30 year fixed mortgages. I could cover the payment for that but prob not a 15yr note, at least not comfortably.

[lurch]

I think doctor's loans only apply to primary residence. Doubt that you could utilize this option for a "second home" even though it is your intention to sell the first.

[jhwkr542]

lurch wrote:

I think doctor’s loans only apply to primary residence. Doubt that you could utilize this option for a “second home” even though it is your intention to sell the first.

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If op fully plans to live there and sell the previous house, then this would qualify as a primary residence. The home equity loan may make sense but I think you'll be happiest selling the first house as soon as possible, even if you sell it for lower than you want. Houses in that price range tend to have fewer buyers, depending on location of course.

[blowhard]

Follow up post - because I like a resolution

 

Took out a no cost 5/1 ARM for $1.2M, sold the old house 3 months later. Refi'd into a 15yr fixed rate (3.0%) with the proceeds.

[The White Coat Investor]

I used a bridge loan once. Then couldn't sell the old house. I had that bridge loan for another 4-5 years. Be careful.

[Radinomics]

why so long?  Wouldn't it have been cheaper to just lower the listing price?

[mobilehomegurl]

You'd probably have to tie it up contingent on selling your old one. Some do the transaction by having a renter's credit on the old one once it's sold to give them time to close and move into the new one.

[blowhard]

Radinomics wrote:

why so long?  Wouldn’t it have been cheaper to just lower the listing price?

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We weren't in a rush to sell, we had a little work we needed to do on the house we just bought. Worked out well in the end.

[AnjaliFIT]

Where exactly are you in the process of buying the new home? Are you already in contract? If so, you may have a hard time trying to get another loan or a HELOC. If you are not under contract yet you can try contingency but if you're in a competitive market then you'll be seen as unfavorable in a multiple bid situation.  I also would caution against doing an ARM in the hopes of refinancing.  Rates continue to go up (I've seen a 0.25% increase in just the last 2 weeks).  I would suggest trying to lock in a fixed rate as there is a good chance that in a few months from now the rates will be higher.  If you do an ARM then maybe consider a 15 year ARM with the plan to pay the mortgage off in 15 years.  If you are applying most of your proceeds to the new home then this should be manageable.