Buying the Second Home Question

[oldtoyota]

Goal: Sell the first house I bought to buy one in a better school district.

I learned that a home on my street--comparable--sold for around $60K more than I paid for my house. A bidding war took place.

Let's just say I, too, got $60K more when selling my home.

I have about $50K equity.

Would it make sense to sell home #1 *first* and then have that cash on hand (so creditors can see that money?) before buying home #2?

These are the scenarios I see. Anything I'm missing?

1. Save up for down payment for home #2 so creditor can see the money has "aged" in an account.
2. Use equity + profit to make down payment on home #2 (would a bank approve of this??).

I have also considered renting in the area with better schools because property taxes in MD seem rather high.

If you have any thoughts on the above, I'd be most grateful. I do not know much about real estate as you can probably tell! =-)

[feelingroovy]

1. Go to the library and get a book about selling your house.  There will be many, many good ones.  It really helps your confidence to have that kind of background knowledge and to understand the vocabulary.

2. Go talk to a good mortgage officer. I've worked with quite a few and you want the one who really knows what they're doing and can explain things to you.  They're happy to prequalify you for a mortgage based on the assumption that your house will sell for a certain amount and you can use any equity as a down payment (minus closing costs, which they can estimate for you). 

This will just give you a general idea--they won't commit until you have hard numbers.  But it will help you have a better idea of where you stand.  They won't care about seeing the money in the bank for a while if you've got the equity.

3.  It's pretty common to put in an offer on a house contingent on the current house selling b/c many buyers need the equity from their current house for the down payment on the new one.  Sellers on the new house don't like it though b/c it's more risk for them.  So if they have other offers, yours won't be as attractive, even if it's for the same amount.  So it can be a problem if it's a seller's market, unless they're confident your house will sell fast (nice house in great neighborhood).  It sounds like it will if others are having bidding wars and yours is similar.

The downside to selling first is you may have to move twice.  The upside is you don't get stuck with two mortgages if the first one doesn't sell fast. 

[Another Reader]

If you are in a strong seller's market (multiple offers and bidding wars), a contingent offer will go to the bottom of the pile.  Your other risk is that you will sell, not find a suitable replacement, and have to rent.  If you decide deliberately to sell and rent, the market may go up before you can find something suitable and get out of the rental.

In your shoes, I would look at renting vs owning in the place you want to live.  Figure how much house you can truly afford to buy, given the high taxes and other costs of ownership.  Talk to some lenders to see how much you can borrow comfortably.  Talk to real estate agents to determine if a contingent offer would work in your preferred area.  Maybe it makes sense to rent in the school district with the high property taxes for a few years while you pile up cash for a bigger down payment and look for a bargain.

[Rural]

I'm conservative, but I wouldn't risk getting stuck with two mortgages unless one was a deliberately purchased rental. Of course, I've been there, so in my case it's once bitten, twice shy. On the other hand, I've been there, so I know how very, very bad it can be.

[oldtoyota]

1. Go to the library and get a book about selling your house.  There will be many, many good ones.  It really helps your confidence to have that kind of background knowledge and to understand the vocabulary.

2. Go talk to a good mortgage officer. I've worked with quite a few and you want the one who really knows what they're doing and can explain things to you.  They're happy to prequalify you for a mortgage based on the assumption that your house will sell for a certain amount and you can use any equity as a down payment (minus closing costs, which they can estimate for you). 

Thanks! I did get preapproved. The mortgage guy is in the Midwest though. I may want to talk to someone person. Will think about this more.

As silly as it sounds, it never occurred to me that there would be a book about selling your house. I am truly a newbie!

[oldtoyota]

If you are in a strong seller's market (multiple offers and bidding wars), a contingent offer will go to the bottom of the pile.  Your other risk is that you will sell, not find a suitable replacement, and have to rent.  If you decide deliberately to sell and rent, the market may go up before you can find something suitable and get out of the rental.

Yes. That is a concern for me and is why I was curious about renting for a while. Although, I then have the risk of getting priced out if the housing prices escalate faster than I can save. Hm. Lots to think about.