Author Topic: Bridging the financial gap between buying new house and selling old house  (Read 1423 times)

RedmondStash

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Spouse & I are considering moving, which means buying a new house and (probably) selling our current one. We live in a HCOL area, and we're essentially FIREd, so we don't have employment income. Spouse does get SS.

Logistically speaking, how do people manage the gap between finding the new house you want to live in and getting the check for selling the old house, if you can't just plunk down cash and you don't plan to maintain a mortgage?

In this area, you used to be able to put in an offer on a home contingent on selling your current home, but apparently that no longer flies.

We might be able to get a mortgage, but how many lenders are going to want to fork over $500k for 2-3 months? (I realize interest rates are very low right now. But maintaining a mortgage means much higher annual spending, which also means higher taxes. It's a whole domino-effect thing, plus we hate debt.)

How have other people managed this situation?

Villanelle

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Spouse & I are considering moving, which means buying a new house and (probably) selling our current one. We live in a HCOL area, and we're essentially FIREd, so we don't have employment income. Spouse does get SS.

Logistically speaking, how do people manage the gap between finding the new house you want to live in and getting the check for selling the old house, if you can't just plunk down cash and you don't plan to maintain a mortgage?

In this area, you used to be able to put in an offer on a home contingent on selling your current home, but apparently that no longer flies.

We might be able to get a mortgage, but how many lenders are going to want to fork over $500k for 2-3 months? (I realize interest rates are very low right now. But maintaining a mortgage means much higher annual spending, which also means higher taxes. It's a whole domino-effect thing, plus we hate debt.)

How have other people managed this situation?

But presumably you'd only have that mortgage short term, while the old house hasn't sold.  Once it does, you can pay off the mortgage, no?

You could look into HELOC on the old house and then use that money to buy the new one, although you will still have debt and temporarily higher annual spending.  And depending on how much credit you can get and the price difference between the two homes it might not get you all the way there. 

You could also just list your current property and wait until it sells (or is at least in escrow, but there's risk there).  That's probably the only way to do it without a loan.  Then you live in some sort of temp housing situation while you house shop, and your store your stuff.  You can try to get a rent-back from the new owners of your old house but that may or not be acceptable to them.  (You can make accepting the offer contingent upon it, but even then you'd be guessing on timelines for how long you need it and could end up paying for more time than you need or running out of time if finding a new place takes longer. And it could mean losing the sale if you make the rent-back a requirement.)

Also, did you get the info from a realtor that the contingent offer "no longer flies"?  I would take that with a grain of salt.  At a minimum, interview several real estate agents and try to give the impression a contingent offer is your only choice (so they don't just lead you to the option that has better odds and likely less work for them), and see what they say about it.  That's how most people who own a home and want to upgrade or move do it, so I'd be very surprised if it's simply not done.  I know several people who have done it recently (within the last 6 months or so) in different areas in the US.  It would be a surprise if your market was so unique that it simply isn't done.  Will your offer lose to a similar offer without that contingency?  Probably, but that doesn't mean you can't make it work.

RedmondStash

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Spouse & I are considering moving, which means buying a new house and (probably) selling our current one. We live in a HCOL area, and we're essentially FIREd, so we don't have employment income. Spouse does get SS.

Logistically speaking, how do people manage the gap between finding the new house you want to live in and getting the check for selling the old house, if you can't just plunk down cash and you don't plan to maintain a mortgage?

In this area, you used to be able to put in an offer on a home contingent on selling your current home, but apparently that no longer flies.

We might be able to get a mortgage, but how many lenders are going to want to fork over $500k for 2-3 months? (I realize interest rates are very low right now. But maintaining a mortgage means much higher annual spending, which also means higher taxes. It's a whole domino-effect thing, plus we hate debt.)

How have other people managed this situation?

But presumably you'd only have that mortgage short term, while the old house hasn't sold.  Once it does, you can pay off the mortgage, no?

You could look into HELOC on the old house and then use that money to buy the new one, although you will still have debt and temporarily higher annual spending.  And depending on how much credit you can get and the price difference between the two homes it might not get you all the way there. 

You could also just list your current property and wait until it sells (or is at least in escrow, but there's risk there).  That's probably the only way to do it without a loan.  Then you live in some sort of temp housing situation while you house shop, and your store your stuff.  You can try to get a rent-back from the new owners of your old house but that may or not be acceptable to them.  (You can make accepting the offer contingent upon it, but even then you'd be guessing on timelines for how long you need it and could end up paying for more time than you need or running out of time if finding a new place takes longer. And it could mean losing the sale if you make the rent-back a requirement.)

Also, did you get the info from a realtor that the contingent offer "no longer flies"?  I would take that with a grain of salt.  At a minimum, interview several real estate agents and try to give the impression a contingent offer is your only choice (so they don't just lead you to the option that has better odds and likely less work for them), and see what they say about it.  That's how most people who own a home and want to upgrade or move do it, so I'd be very surprised if it's simply not done.  I know several people who have done it recently (within the last 6 months or so) in different areas in the US.  It would be a surprise if your market was so unique that it simply isn't done.  Will your offer lose to a similar offer without that contingency?  Probably, but that doesn't mean you can't make it work.

Good thoughts; thank you.

I mentioned the low mortgage interest rates to forestall people saying, "But you should get and keep the mortgage, because of the low low rates!" :)

But yes, we would plan to keep that mortgage for a very short time.

The thing about contingencies has to do with how quickly property sells in my area and how competitive offers can be -- though that may have changed a bit with the pandemic. It's true, though, that we can just stipulate that all our offers are conditional, and maybe expect to pay a small premium for that condition.

Proud Foot

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Spouse & I are considering moving, which means buying a new house and (probably) selling our current one. We live in a HCOL area, and we're essentially FIREd, so we don't have employment income. Spouse does get SS.

Logistically speaking, how do people manage the gap between finding the new house you want to live in and getting the check for selling the old house, if you can't just plunk down cash and you don't plan to maintain a mortgage?

In this area, you used to be able to put in an offer on a home contingent on selling your current home, but apparently that no longer flies.

We might be able to get a mortgage, but how many lenders are going to want to fork over $500k for 2-3 months? (I realize interest rates are very low right now. But maintaining a mortgage means much higher annual spending, which also means higher taxes. It's a whole domino-effect thing, plus we hate debt.)

How have other people managed this situation?

Honestly I think the number might surprise you. Your origination fee, interest, and then the same when they make another loan after you have paid it back gives them a good return on the same money in a short period of time. How long do you think it would take to sell your current house? This may be a situation where a short term interest only, adjustable rate, or balloon mortgage may make sense. I would probably look to a community bank or credit union and talk with them about what they can offer you.

ericrugiero

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A HELOC could be a good option for you because it's typically a higher interest rate and lower origination fee option.  The interest rate won't matter much because you won't owe very long. Check on any penalty for not keeping the HELOC open very long.  If I close mine within 4-5 years I have to pay the appraisal fee back ($450). 

You could just get a mortgage and pay it off after you sell the other house.  That may not be ideal for the lender but they still get all their closing costs so I don't think they would lose money. 

When we purchased our current home I did have a (relatively small) mortgage on both homes until the old one sold.  The more typical route is to make a contingent offer which would have been fine for our market.  However, the deal I was getting on the new home made it worth the risk and trouble to take out two mortgages.  If you find a great a deal or are picky about exactly what home you want then it may be worth the trouble of owning two homes at once.  If not, a contingent offer is still the easiest and safest way to proceed. 

Edit:  it seems like the biggest risk is a housing market crash while you own two homes and really need to sell one. 

Gerard

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Please please please also consider renting (in the old or new location) and just waiting till the old house sells before shopping for the new one. Lotsa peace of mind, the chance to know the new location better, and less feeling coerced to accept sub-optimal deals (on either the buying or selling end).

EricEng

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Please please please also consider renting (in the old or new location) and just waiting till the old house sells before shopping for the new one. Lotsa peace of mind, the chance to know the new location better, and less feeling coerced to accept sub-optimal deals (on either the buying or selling end).
Lot of cost and time spent moving an extra time.  Risk of damage to items.  Time spent opening and closing utilities.

To do a contingency they seller will only accept these in a slow market where they aren't likely to get another offer in 1-2 months.  Depends where you are buying.

At the low interest rates you really should consider taking the mortgage.  I'm not sure what you are talking about higher taxes and expenses.  If you sell your other house in a few months, you can use some of that to pay off your monthly mortgage without generating cap gains.

A 15 year mortgage at 2.5% (I just got quoted today) - 2% inflation means you are paying an effective .5% cost.  Take that extra capital and invest it. 

Heloc will not loan you enough to buy a house.

pomegranatemom

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We’re in the process of buying a new home before selling the current one. Same as you we’re in a HCOL area and a contingency offer wouldn’t be accepted. Since we’re moving to a bigger house in the same neighborhood there’s no need to rent and scout out the area.
We got a 2.99% interest rate on a 15 year loan. When we told the lender we were planning on paying off the mortgage after selling our old house he was hesitant to finance us. He only gets his commission after we’ve paid on our mortgage for 6 months. TBH, this is prob a way of keeping lenders from giving risky loans to people who might default. We’re using a local lender not a huge bank, and our agent has been extremely helpful and honest with us. After we sell our old house we don’t plan on paying off the mortgage for the 6 months it takes for him to get his commission. Yes, it’s throwing money away on interest, but otherwise we’re stealing time and money from a decent guy. Total interest for 6 months will be $2.5k. Worth it to us. I can’t imagine staging our old house and leaving for viewings and inspections while working/homeschooling all day.

FINate

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We're currently in the middle of a long distance relocation. How we handled this move isn't relevant to your specifics, so I won't go into it. But we've also done two long distance international moves.

My number one recommendation: Get rid of crap. Sell it, give it away, just slim down to the bare minimum and then cut some more. Cheap/old furniture, the odds and ends that build up over the years, none of it is worth the cost of moving.

Once you've slimmed down your possessions, look into something like POD storage containers. You'll need to verify that they can service both ends of the move. But they can store your stuff between moving out and moving into your next place. Most of the bigger moving companies can do this as well (e.g. Allied Van Lines), more expensive but also an option if you want/need something more full service.

With the above planned out, put your old place on the market. You may be able to negotiate a rent-back when you sell. This may or may not be possible, though not necessary.

At the point that your house looks likely to sell (e.g. once contingencies are removed), start looking for a short-term rental in your new location. You aren't unloading all your stuff there, but rather using it as a base to home shop in the new location. An extended stay hotel works, though a VRBO may be better. Either way, you want something furnished. You are living very light in this phase: clothes, toiletries, laptop(s)...only what's necessary. Depending on how long the house hunt takes, you may need to move again in this phase.  Get a PO Box in your new location and setup USPS forwarding to it. While this is happening your POD container is sitting somewhere in storage.

Once you close on a new house, move in and have the POD(s) delivered with all your stuff.

The details may change depending how long it takes to sell and buy a house, but that's more or less how I would do it.
« Last Edit: May 27, 2020, 04:54:54 PM by FINate »

Villanelle

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Please please please also consider renting (in the old or new location) and just waiting till the old house sells before shopping for the new one. Lotsa peace of mind, the chance to know the new location better, and less feeling coerced to accept sub-optimal deals (on either the buying or selling end).
Lot of cost and time spent moving an extra time.  Risk of damage to items.  Time spent opening and closing utilities.

To do a contingency they seller will only accept these in a slow market where they aren't likely to get another offer in 1-2 months.  Depends where you are buying.

At the low interest rates you really should consider taking the mortgage.  I'm not sure what you are talking about higher taxes and expenses.  If you sell your other house in a few months, you can use some of that to pay off your monthly mortgage without generating cap gains.

A 15 year mortgage at 2.5% (I just got quoted today) - 2% inflation means you are paying an effective .5% cost.  Take that extra capital and invest it. 

Heloc will not loan you enough to buy a house.

How do you figure that, as a blanket statement?  When I inquired about updated the HELOC on my property (because it expires in a few years so I was wondering about terms), I was told I could get about $400k, or perhaps more.  That's enough to buy a house in many, many places, no? 

rmorris50

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We're currently in the middle of a long distance relocation. How we handled this move isn't relevant to your specifics, so I won't go into it. But we've also done two long distance international moves.

My number one recommendation: Get rid of crap. Sell it, give it away, just slim down to the bare minimum and then cut some more. Cheap/old furniture, the odds and ends that build up over the years, none of it is worth the cost of moving.

Once you've slimmed down your possessions, look into something like POD storage containers. You'll need to verify that they can service both ends of the move. But they can store your stuff between moving out and moving into your next place. Most of the bigger moving companies can do this as well (e.g. Allied Van Lines), more expensive but also an option if you want/need something more full service.

With the above planned out, put your old place on the market. You may be able to negotiate a rent-back when you sell. This may or may not be possible, though not necessary.

At the point that your house looks likely to sell (e.g. once contingencies are removed), start looking for a short-term rental in your new location. You aren't unloading all your stuff there, but rather using it as a base to home shop in the new location. An extended stay hotel works, though a VRBO may be better. Either way, you want something furnished. You are living very light in this phase: clothes, toiletries, laptop(s)...only what's necessary. Depending on how long the house hunt takes, you may need to move again in this phase.  Get a PO Box in your new location and setup USPS forwarding to it. While this is happening your POD container is sitting somewhere in storage.

Once you close on a new house, move in and have the POD(s) delivered with all your stuff.

The details may change depending how long it takes to sell and buy a house, but that's more or less how I would do it.

This is what my spouse and I are doing, we are currently in the living in a furnished rental phase. Our house sold the day we put it on the market right before COVID hit. We purged like crazy, had a moving company move our stuff and put it in their storage facility in the new city, and got a furnished rental there. We are living very light, basically almost like college kids again in a way. And I am glad we did because it gave us time to close on the old house (which was VERY slow and complicated due to COVID, something to consider), and we had time to explore areas in the new city. And at the end of the day we actually decided to buy a new build, so we have to wait until October for it to finish. So this is working well for us, knock on wood. While it's technically two moves, since most of our stuff is in storage it won't be too bad. And of course we got our equity out of the old house already, and have it sitting in cash to close on the new house when ready.

P.S working in a rental full time and quarantined has gotten old fast, but it is what it is.

engineerjourney

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If you do go the HELOC route make sure you do the HELOC before putting the house on the market!! Most (all?) banks wont do a HELOC for a property listed for sale. 

Also here is a good thread even though its for downsizing, lots of options that may be applicable to you.
https://forum.mrmoneymustache.com/ask-a-mustachian/downsizing-strategy-sell-look-or-buy-then-sell/msg2552290/#msg2552290

EricEng

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Heloc will not loan you enough to buy a house.

How do you figure that, as a blanket statement?  When I inquired about updated the HELOC on my property (because it expires in a few years so I was wondering about terms), I was told I could get about $400k, or perhaps more.  That's enough to buy a house in many, many places, no?
Lot of HELOCs were designed for home improvement in $10-50k range, at least that's what my foolish coworkers love to do for home renovations.  I forgot the OP probably had their current house paid off so equity they could tap.  Still, think they would be better getting a trad or balloon mortgage than HELOC with current interest rates.  Sinking money into your house when interest rates - inflation are below 1% is a HUGE opportunity cost.  If interest rates were 5%+ different story.

RedmondStash

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Thanks for all the thoughts, everyone. Some great ideas and strategies in here.

We already have a HELOC in place; we could probably use it to finance a down-payment on a new place, but not to buy outright. So we'd end up with two mortgages (HELOC for down payment, and then regular mortgage for the balance) for a short time, until we sold our house. The balloon ARM for a short-term loan is an interesting idea.

Houses in my area sell in like 30 seconds flat, even with the pandemic. That's part of why contingent offers don't generally fly, at least right now. It's still a seller's market. A house up the street had a pending offer 5 days after being listed last week. Our house isn't as updated as some nearby, but if we priced it right, it would likely sell very fast.

Thanks again.

 

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