Loan timing for down payment on buy-then-sell transaction

[protostache]

My wife and I are starting to shop for a new house. We're planning on doing a buy-then-sell set of transactions so we only have to move once, which means we have to have cash available for a down payment on the new place. The problem is, we've been investing heavily MMM-style for the past few years so our cash positions, while providing a more than adequate emergency fund, wouldn't be able to fund a down payment and a 6 month reserve (minimum required because I'm self-employed). We'll need bridge financing for a few months.

Here's what I'm looking at:

• Max out our HELOC ($40,000)
• Take loan from my 401(k) ($20,000)
• Put 20% down on the new house to avoid PMI
• Move into new place
• Sell old place (will result in at least $90k cash from sale, probably closer to $100k)
• Pay off loans

My question is: what's the best way to time the loan transactions? We're probably looking at moving with the next six months but inventory for what we want is pretty thin right now, so we haven't seen anything we really like. The HELOC money is an instant transfer with online banking and the 401(k) loan will only take a few days to process and is free because it's a self-administered solo 401(k).

Do we need to do this 3 statements before applying for a new mortgage so the underwriters don't ask any questions, or can we wait until immediately before and just sign a letter or show them the loan documents? Or does it not matter since they just care about our DTI (we'll be able to support all of the payments and still be under 30%)?

[BMEPhDinCO]

@protostache...

I'm in the same boat, so let me give you my thoughts...

First, from what I can tell, the "cash reserve" can still be in some retirement accounts (like a RothIRA or 401k). You'd have to check with a mortgage broker, but don't take anything OUT of the accounts yet.

Second, you want AT LEAST 6 months (a year is better) after a hard pull when buying a house - so don't do any loans or anything unless they won't run your credit.

Third, make sure you can carry both mortgages with your monthly income or you won't be approved - the first mortgage counts for "debt" when calculating what you can afford. (I know you mentioned this, just be sure with the new increase in HELOC you are still ok.)

And yes, you must have it at least 3 months in the account - at least for the places I'm looking at.

So timeline:

6 months out - take any credit/loans you need to let your score rebalance
4 months out - take out cash and sit on it
3 months out - get your old place ready
2 months - 1 month - start house buying process (it usually takes 30-60 days to close) - also list your place in this timeline.

good luck, hope it goes well for you (and me!)

[dandarc]

You could also try to arrange near-simultaneous closings and pay a few days rent in the old place for post-closing occupancy.

Then you could sell then buy and use the sale proceeds for your down-payment.

[protostache]

I probably should have updated this at some point, because I did some research. I haven't actually talked to a mortgage broker yet, so take this with a grain of salt, but from what I can tell secured loans are perfectly acceptable as a source for a down payment. It sounds like I don't actually have to make any moves until we start shopping, as long as (like you say, BMEPhDinCO), it won't result in a credit hit.

We established the HELOC last June and the loan against my 401(k) won't result in any kind of credit check so I think we're ok there. All four loans (HELOC, 401k, two mortgages PITI) plus our tiny car payment will still end up being quite a bit under the 43% DTI cutoff.

Simultaneous closing is not a bad idea. We're actually throwing around the idea of going the opposite way: selling this house and banking the proceeds while renting for awhile. I think we'd rather get out of this house ASAP and get that money in the bank to travel a bit and wait for something perfect to show up on the market.