Author Topic: Consensus method for leveraging current home equity for future home down payment  (Read 1569 times)

darkhorse

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We're considering a "cost-neutral" move (except for the usual obscene closing costs) to a different neighborhood in our city. At 2500 sq ft, our current home is under-utilized. We want to downsize, have better walkability and get into a great school district. We're in a relatively HCOL city with two jobs that are uniquely tied to this area. We also have family here, and we like where we live. Our current home would probably go for around $440k and we owe about $275k. I want to be able to throw whatever equity we're taking out of our home sale and apply it fully to the new home.

The kicker is that we have virtually no cash, except for about $3k in a savings account (I also have around $50k+ in eBay inventory from my side gig at home that can be turned into $1K fairly quickly here and there , so having a small amount in savings doesn't keep me up at night). We have a HELOC in place as an emergency fund. Most of our savings is in Vanguard IRAs and a smaller amount is in our current 401ks.

These are the options that I'm aware of:

Bridge Loan -- seems sketchy, sketchy lenders, higher interest and in some cases penalty for early payoff!
HELOC -- could work for part of it, but not the $100k that we'd need
401k loan -- assuming that one is disciplined and pays it back as SOON as the money from the sale hits the bank account, this one seems OK.
IRA loan -- is there such a thing? We have Vanguard accounts. Need to research
Loan from parents -- this is a possibility. Parents have the money, but you know, borrowing for family even short term kind of sucks. I think that the money needs to be in your account for a certain period of time also?
Sell first, then buy. Yes, a possibility but inventory is extremely limited where we are. Even finding a suitable rental for the interim would be a challenge. And moving twice? Yuck. Our market is super hot. Contingencies are pretty rare here, especially with all the cash buyers.

Am I missing anything? What's the best method for getting this done? Thanks!
« Last Edit: September 06, 2015, 04:05:33 PM by darkhorse »

Ricksun

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Another Option is to make your home purchase contingent upon your previous house sale, and close on everything at the same time.  This was previously common, but depending on the housing demand at the time in your area, you might be laughed at now.

My take would be the 401k Loan to avoid PMI and get the best interest rate.  After your home sale, you can dump the remaining equity back in.  Borrow from yourself and you won't be beholden to others.

partgypsy

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Another Option is to make your home purchase contingent upon your previous house sale, and close on everything at the same time.  This was previously common, but depending on the housing demand at the time in your area, you might be laughed at now.

My take would be the 401k Loan to avoid PMI and get the best interest rate.  After your home sale, you can dump the remaining equity back in.  Borrow from yourself and you won't be beholden to others.

I agree with the above, as well as sell first then buy. As you say the market is very hot so it should work in your favor for selling, correct? Do as much as possible regarding downsizing and selling and cleaning the house you are selling before making the move. typically people have 30-60 days to move after selling their house, so it has to happen during that time period. If not get storage units and maybe a week-to week rental place.
My Mom is in the same position, has no money other than what is in her house. She would rather buy first then sell because then she could move all her stuff out and clean/fix, but I can't figure out a way for her to do so (she is retired and has too little income to qualify for any kind of mortgage).

Axecleaver

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I lived in NoVA for ten years. It's a very hot real estate market that moves fast, so it's extremely unlikely that you will have a contract accepted with a contingency to sell your house.

Sell first, then buy. You can do a rentback from the new buyer for a month or two to allow you to buy and move into your new place before you vacate. If they're reticent, sweeten the pot by offering a rentback price that's abovemarket, or throw in some closing costs, or crap from your current house that you don't need anymore. You're right that there are a lot of cash buyers in this neck of the woods. Nice when you're selling, though!