Mortgage question

Nathans_Dad · Nathans_Dad's Garage

The wife and I are getting ready to move in 5 months or so. I have done some preliminary looking and got pre-approved from a couple of companies. Here is my issue:

We do not have enough in savings to cover the downpayment on the house. We are looking at doing an 80/15/5 or 80/10/10 which means we would have to come up with 5-10% of the purchase price as a downpayment at closing. This would amount to somewhere between $20-40K depending on the price of the house. We will certainly have that much and more once we sell our current house, the issue is the possibility of a couple weeks between closing on the new house and closing on our current house.

I talked with one of our mortgage officers and they do offer a plan to cover the full 100% of the price, but they charge another 1.25 points to do so!! That is a big chunk of change for a 2 week loan.

Anyhow, what are the usual options for this? I can't imagine I'm not the only one who is selling a house, moving into a new one, planning to use proceeds from the sale of the old house to pay for the new one, and doesn't happen to have $50k lying around in a savings account.

einreb · 01-19-2007, 02:06 PM

http://en.wikipedia.org/wiki/Bridging_Loan

HardDrive · 01-19-2007, 02:08 PM

I believe you are looking for a bridge loan.

http://loan.yahoo.com/m/closing4.html

HardDrive · 01-19-2007, 02:09 PM

Damn! einreb beat me by 2 minutes!

Nathans_Dad · Nathans_Dad's Garage

Yeah, I know about bridge loans...that was what they were offering and wanted to charge me 1.25 points for it!! No thanks...

Any other options?

Steve Carlton · 01-19-2007, 02:11 PM

Why not just make the purchase contingent on the sale of your old house? If the seller is aware it's in escrow, that shouldn't be a problem. Unless you have enough income to qualify to own both houses at the same time, your lender will likely require the sale of the old one be closed, anyway.

Eric Coffey · 01-19-2007, 03:02 PM

If the appraisal allows, you can bump the price of the home up, and have the seller contribute that amount at closing. And/or if the seller has enough reserves/equity, you may be able to negoiciate a short-term seller carry-back.

Or like Steve said, you can make the purchase contingent on the sale of your current house. Just make sure that it is worded as "contingent on the SUCCESSFUL Sale & closing" of the current home. Just be careful, and know the seller's intentions/situation up front. It can get tricky if you get in a situation where the new home's owner (seller) is also in your shoes, and needs a contingency to purchase a new home. It can domino to several buyer/sellers, and create a huge cluster.

Steve Carlton · 01-19-2007, 03:24 PM

Another solution would be to take out a no closing-cost HELOC on your present house, to pull out the equity when you need it before the sale. There will almost certainly be an early termination penalty, but probably not more than $700 or so. Eric's suggestion of increasing the sales price and getting it back as a credit to your non-recurring closing costs is a great way to bring down your cash to close requirement. You'd be limited to your NRCCs, but you could put more on an addendum that the lender won't see to come back to a 3rd party you trust after close, say for repairs.

Take a look to see if you get a better rate on the 1st with an 80/10/10 vs an 80/15/5 program. After you close escrow, you could immediately replace the 10% LTV 2nd with a larger one, up to 20% LTV if your credit is very good, and effectively have 100% financing after the fact.

Joeaksa · 01-19-2007, 03:42 PM

Would do what Steve mentions. Paying 1.5 % is pure BS, especially in todays house market.

Tell them to pound sand and find someone who wants your business.

therotman · 01-19-2007, 03:56 PM

Get an 80/20 1st & 2nd with no money down (you still need to bring in money for closing costs). This avoids mortgage insurance you would have to pay if you were to get the 100% financing 1st and also the huge fees your broker is trying to charge you. When you sell your current house you then pay off the 20% 2nd loan on the new house.

Who are you talking to about the loan? I'd suggest calling a lot of lenders and getting different quotes. Different credit checks during a short period of time for the same thing do not negatively effect your credit more than the 1st credit check did.

therotman · 04:05 PM

I would not increase the purchase price of your new property to receive a credit back to pay fees. Although this is very popular right now in the long run this will hurt you as you will pay property tax on the credit amount every year you own the property.

UconnTim97 · UconnTim97's Garage

Do you belong to a credit union? They are usually more lenient in these instances.

on2wheels52 · on2wheels52's Garage

Query what is "80/15/5 or 80/10/10"?

Obviously housing market conditions vary, but were I the seller I would tend to turn down contigency sales offers. Our last move we purchased before listing the 'old' property but no doubt not the normal way of doing things.
Jim

Porsche-O-Phile · Porsche-O-Phile's Garage

(Semi-related) question - why on earth do lenders insist on making this so difficult on people? Why can't some smart lender just figure, "hey, we'll give people what they actually want and can use - a 40+ year FIXED-RATE mortgage with 100% financing, no closing cost B.S. and none of this making people pay exorbitant sums monthly for a 25 or 30-year fixed or making them constantly have to live in fear, lose sleep and worry over rates with an ARM or I.O."

I'm sure someone out there has to do it, but why on earth it's not more common is simply baffling to me. How people can afford these $3,000, $4,000 and $5,000 (or more) a month payments for a fixed-rate loan on a modest $300k, $400k or $500k homes is something I simply can't understand. Same with how people can lock themselves into these "sucker mortgages" where they're building NO equity whatsoever (i.e. an I.O. loan or a good number of the ARM loans out there). Why not offer the buyer an incentive - the ability to build real equity (with a fixed-rate) AND have an affordable payment? It doesn't seem that there'd be all that much risk to the lender for such a thing. In fact, the risk might even be LESS, since the payments are more affordable. . .

Just a thought. Back to your topic - didn't mean to hijack.

Por_sha911 · Por_sha911's Garage

I got a HELOC on our old house through our bank a few years back. The amount borrowed will determine the closing cost of the loan but for us it was only a couple hundred bucks. The loan was a variable rate based on prime and I could pay it off at any time with no penalty. It worked great.

MBAtarga · 01-19-2007, 05:07 PM

Re: what Steve and Joe said. Just did this a little over a year ago. Got a HELOC on the existing house through our bank (BofA did it even though our house was already listed for sale) and used it as our down payment on the "new" house. A few months later when the original house sold we paid off the first mtg and the HELOC.

Nathans_Dad · Nathans_Dad's Garage

Ok, so let me see if I understand you. You are saying get a HELOC on the old house or the new one?

MBAtarga · 01-19-2007, 05:51 PM

On the old house. It's based on the equity that you have in it.

Nathans_Dad · Nathans_Dad's Garage

Ok, I'll look into that, thanks.

Would having a HELOC adversely affect my ability to qualify for the same amount on the new mortgage?

UconnTim97 · UconnTim97's Garage

I work for the PD, and I have to say our credit union is better than most. We have an 80/20 loan, on roughly 250k. We got an incredible interest rate that neither of our banks could touch. Our mortgage turns out to be $1625 for the first 20 years, and $1200 the last 10. The 20% loan is paid off in 20 years. That is if we pay the minimum, which we don't. Our schedule has us paying this off in a little over 22 years.

Gotta love those PD credit unions...