Dumb question on buying a new house before selling the old one

[jeromedawg]

Hey all,

This is a pretty elementary question but it never occurred to me before how it works...

So what do most people do in terms of selling the old home when they just bought a new home? Is there a period of time that they have where they will try to sell the old place and then use that capital to apply towards the new place (and is this all part of the escrow and closing process)? I know this is the case, or similar, with 1031 exchanges (but that's for vacation/secondary residences, not primary).

[lizzzi]

There is something called a "bridge loan" that people get. I've never done it--when I still owned one house, I just paid cash for the new house...and then when the old house sold--put that money into investments.

[MandalayVA]

We're in the process of buying a new condo, but won't put our old one up for sale until we're gone.  We're getting a conventional mortgage to cover the new place until the old one sells--it's in a very desirable neighborhood, we don't think it'll stay on the market too long.  Once it does, we'll just pay off the new mortgage.

[jeromedawg]

We're in the process of buying a new condo, but won't put our old one up for sale until we're gone.  We're getting a conventional mortgage to cover the new place until the old one sells--it's in a very desirable neighborhood, we don't think it'll stay on the market too long.  Once it does, we'll just pay off the new mortgage.

I see... Yea I was just wondering because my BIL and his partner got an offer accepted on a $1M+ home in the Bay Area (SF to be exact). But given what I'm guessing their combined income is, I think they're OK on the payments. They currently own a smaller loft that's probably worth just under $1M and I believe are paying mortgage on it (they got it in 2002 for $400k and refinanced though so it sounds like they may have taken money out and invested it?) - I think they're going to move into the new place once it closes and then sell off the loft afterwards. Was just curious what people do who are 'upgrading' to a larger residence.

[CptJack83]

You can take out a HELOC on the old place (before it becomes the old place) and use that to fund the down payment on the 2nd place. Once the old place sells the HELOC and any other loans on it get paid off.

If you have the cash to put down on the new place without the equity in the old, but still need a mortgage for the new place.  Once the old place sells you can take the equity and apply it to the new loan.  Ask the new loan servicer to "re-cast" the new lower principal amount loan.  This will re calculate/lower the monthly payments based on the new lower loan amount.

[jeromedawg]

You can take out a HELOC on the old place (before it becomes the old place) and use that to fund the down payment on the 2nd place. Once the old place sells the HELOC and any other loans on it get paid off.

If you have the cash to put down on the new place without the equity in the old, but still need a mortgage for the new place.  Once the old place sells you can take the equity and apply it to the new loan.  Ask the new loan servicer to "re-cast" the new lower principal amount loan.  This will re calculate/lower the monthly payments based on the new lower loan amount.

For the latter option, will you owe additional interest at all?

[SwordGuy]

Or, if your finances are sound, you just pay two mortgages until you sell the old house...

[I'm a red panda]

We used savings to pay the new down payment and then paid 2 mortgages until we sold.

It let us take advantage of a crappy market to get a great house at a low price. But that did mean we had to wait awhile to sell our "starter home"

[CptJack83]

You won't owe any more or less interest if you re-cast, initially you'll owe the exact same, as interest is just a function of your rate and outstanding balance.  What will change is the amount of principal you are required to pay each month.  The re-cast essentially reamoritizes your new lower principal balance over your remaining term.

Some lenders will charge a re-cast fee.  When you are shopping for that mortgage make sure you ask if the lender will recast your loan after your other house sells and see if they charge a fee for doing so.

[secondcor521]

You may not consider this a fair answer to the original question, but one way to do it is to not do it.

Meaning that one way to solve the problem of buying a new house before selling an old house is to avoid getting into that situation.  What I have always done is sell the old house, pay off any mortgage, stick the rest of the remaining equity into a savings account, then go shopping for and buy a new house.  If the timing doesn't line up well enough, then rent an apartment for a few months.

Yes, you'll move twice and may have to live in a smaller place for a bit.  So what?  Yes, you may not get to buy that "perfect" house before it gets sold to someone else.  It isn't wise to fall in love with any particular house anyway - you'll end up paying too much for it (been there, done that, got the T-shirt).

On the plus side, you won't have cash flow problems or recast fees or spend a boatload of money on mortgage interest and you might save some origination fees on a mortgage or HELOC that you won't have to get.

Not meaning to sound obnoxious or superior, just wanting to point out another option that hadn't been mentioned yet on this thread and some of its pros and cons.