Husband and I have found a house that we really, really want to buy. Let's call it the "new house." Here's our situation:We purchased our existing house (the "old house") in 2009 with cash, and we carry no mortgage on the property. We have no long-term debt, pay credit cards in full monthly, have a tidy emergency fund, and two partially-funded 529 plans for the kids' college expenses. We recently received a nice inheritance, so we also have a large sum in savings (outside of the e-fund) while we decide where to invest. Thanks to that inheritance, we can afford to put down 40% of the asking price for the new house in cash. Since the old house is not currently on the market, and we really don't want to lose out on the new house, what are our options for financing the balance of the asking price? HELOC, bridge loan, mortgage? Once we buy the new house, we'll be putting the old house on the market, and once it sells, we'll use the proceeds to pay off whatever financing we took on. In that way, we'll own the new house, mortgage free as well. Probably should explain that the new house will cost about the same as the sale price of the old house. Thanks for your advice!
With 20% down you should be able to obtain a mortgage at a good rate. If the property doesn't appraise at sale price, you can put down the difference. While you own two houses, liquidity is better than a smaller mortgage. After your existing home sells, you can decide what to do with the mortgage. There can be unexpected expenses when selling. Inspections are cheap. The inspections may find water or termite damage that you need to repair before listing. Even if the selling prices are the same, there are expenses associated with selling, buying and moving.
Inspections are cheap. I meant inspections aren't cheap. We spent nearly $1,000 on required inspections and hazard reports.
Thanks, vkg!So a mortgage would be the way to go? I didn't think a bank would approve a mortgage to purchase a second house, but it makes sense. In general, are there penalties for early payoff of a mortgage? I'm really not familiar with the products, since we've never had one before. And yes, inspection will definitely be happening. And I believe the property will appraise for close to selling price. Thanks again!
Hi Qs,So a mortgage would be the way to go? YesI didn't think a bank would approve a mortgage to purchase a second house, but it makes sense. Its not considered a 2nd house if you are moving into it.In general, are there penalties for early payoff of a mortgage?No, not in the current world of residential loans.Dave DonhoffLeverage Planner
Wow, this is super helpful! Thanks, Dave. I really thought I was going to have to wade into the world of HELOCs for this purchase, but I'm much more comfortable with the mortgage idea. I knew I'd get a straight answer on this board :)
Just one bit of idle curiosity.The new home you are talking about is in the US, right?--Peter
Yes, in the U.S. New York state.
Probably should explain that the new house will cost about the same as the sale price of the old house. Are you counting on that? And are you sure? Based on recent sales in your neighborhood of comparable homes? And have homes been selling quickly in your neighborhood lately? Have you had 2-3 realtors in to do an analysis and compare their proposed techniques for selling your old home? I would do that at least, and probably pay for an inspection in order to estimate costs of getting old house into salable condition before buying the new house.
Thanks for the feedback, alstroemeria. To answer your question, we're prepared for what's involved in selling our house. We live in a small town, with few homes on the market, and we're very familiar with the recent closing prices and inventory. We've had our home inspected and it's salable today, and happily inventory is low and sales have been quick. Of course, that's no guarantee that ours will sell quickly, but we're prepared to juggle both properties for a while if necessary.Thanks again!
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