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Buying before selling existing home

3,094 Views | 11 Replies | Last: 2 yr ago by TexAg2001
P.H. Dexippus
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10:54p, 6/2/23
AG
We are considering a move to better schools and a more rural setting, I could see us living here 20 years or more. I wanted to run the scenario past the brain trust.

Current home:
$200k mortgage @ 3%.
approx. $600k equity.
is undergoing remodel, likely 60-90 days until ready to list.

Prospective home:
$1.1MM list.
Appears relatively below market for location/comparables, though list is 2x pre-COVID tax roll assessment value (just for reference).

We have $340k liquid, double that tied up in retirement accounts.
$250k gross income.
No debt. Excellent credit.

With mortgage rates being what they are, we want to finance as little as is possible.

Questions:
1. What's the best way to minimize what we have to finance if we buy before we sell? HELOC? 2nd mortgage? Take out jumbo but plan to prepay as soon as 1st sells?
2. Are we just asking for trouble by buying before the current house is even ready to list?
3. Are we just asking for trouble with the likelihood of a housing market correction? By plowing all non-retirement funds in the residence?

Any insight would be appreciated.
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RikkiTikkaTagem
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2:31a, 6/3/23
AG
Having done something very similar to what you are describing here a couple of months ago, I'm going to comment despite not being a part of any brain trust.

Some points I will make.

1. 60-90 days of remodel seems like a significant amount of work to be done. How well do you trust that that timeline is going stay on track? I would

2. Are you pricing to sell? How are homes moving in your market at your price point.

3. How long can you make closing for the home you want? Some people are in a rush, but if you do no contingency, they make let you do a 60+ day close.

4. We sold our home two months after we bought the home we moved to. We put 5% down, 30 year fixed and started making payments. Our bank allowed us to take our proceeds from sale, pay and recalculate our loan several months after sale for 30 year fixed still. So yeah we paid interest on a large loan for two months, but that's what made sense for us and our situation at the time.

5. I know it's a divisive to say but if you really believe you are moving to a 20 year house, then you shouldn't worry about a housing correction especially with as much equity as you plan to have in it.

6. This will be a little bit of a rant but I'm in the middle of dealing with this right now.
You need to absolutely get your home insurance squared away and make sure you can find affordable home insurance for a 1.1 million dollar house. I am absolutely getting ****ed right now on home insurance. My premium is huge but there have been a ton of insurance companies who are no longer insuring million dollar plus homes. If you are moving to north Texas, please do yourself a favor and get this taken care of. My insurance agent said one of the major carriers is no longer even offering policies on 600k+ homes now. If you use Chubb, they'll come in and value your house double what you paid for it 3 months after you bought it and charge accordingly, but right now they are the only ones who agreed to insure my house.
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jja79
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9:42a, 6/3/23
AG
A HELOC is simple and no cost unless it were to require an appraisal. In that case it also would likely require the work to be completed. When you inquire about a HELOC ask the limit above which that lender requires an appraisal.
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htxag09
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In reply to jja79 • 8:46a, 6/5/23
AG
But aren't interest rates significantly higher on a HELOC? Sure, it'll only be a few months but 8% on a couple hundred thousand dollars is still a lot....especially when that seems like the main concern of the OP.

With that much cash down you should be able to just do a conventional loan then pay it down when you sell. Or, if you want to keep some cash on hand, do a max conventional and a second mortgage, putting 10% down. Then pay off the second mortgage and some of the conventional when you sell.

Other option could be a bridge loan, but you'll be looking at roughly $11k extra in closing costs.

Were in a similar position, our order of preference would be cash/second mortgage to stay under jumbo loan, then pay ourselves back and pay down mortgage when we sell, pull from HELOC to put as much down as possible before selling, and last would be a bridge loan.
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combat wombat™
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In reply to RikkiTikkaTagem • 10:06a, 6/5/23
AG
Re: #6… we JUST switched from Chubb. Our HO insurance was about $10k/year. We're now with Nationwide Private Client and the premium is about $6k/year. SHOP AROUND!
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jja79
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In reply to htxag09 • 10:08a, 6/5/23
AG
If you have a second lien as part of your purchase transaction the rate on your first lien will be higher than if you had taken out a HELOC or otherwise created cash to get to 20% down or below the conforming limit. That higher rate will last for the life of the loan. A second lien may also have a prepayment penalty if you pay it off in the first 6 months.

Yes HELOC rates are higher now but since it's temporary it might be more cost effective.
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htxag09
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In reply to jja79 • 12:26p, 6/5/23
AG
Good point. Would just need to run the numbers on when that break even is. Id assume most people buying now are planning for a refinance in the future.
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P.H. Dexippus
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12:57p, 6/5/23
AG
I think what we will do (assuming we get the property...California buyers have allegedly offered more than asking) is do a recast as soon as we close on the sale of the current residence. After seven months, can completely payoff without penalty to lender if we so choose.

Still looking into the insurance piece.

Thanks for the advice!
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combat wombat™
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1:23p, 6/5/23
AG
I'm so sick of the Californians. We lost a home to them, too. They way overbid based on CA values.
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Red Pear Luke
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In reply to combat wombat™ • 7:39p, 6/5/23
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combat wombat said:
I'm so sick of the Californians. We lost a home to them, too. They way overbid based on CA values.


I know it sucks but remember this, a fool and his money are soon parted.
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Chipotlemonger
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In reply to combat wombat™ • 5:32p, 6/6/23
AG
combat wombat said:
I'm so sick of the Californians. We lost a home to them, too. They way overbid based on CA values
Don't blame them, they're just cashing their chips. It's ridiculous what the difference is bang for buck is between CA and TX.
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TexAg2001
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12:55p, 6/7/23
AG
My experience in 2017 when I purchased my current home before putting previous home on the market:

At the time, desireable homes in my current area spent no more than a couple days on the market, so we had to move fast to secure it. Homes in my previous area were selling slower, but I thought we would be able to sell within a month or 2 so I wasn't worried about it. Turns out I was wrong and it took about 8 months to sell. This was partly due to Hurricane Harvey, which hit a couple months after the house was on the market. The house had no damage, but the areas around it did. People weren't looking to buy a home in that area right after the hurricane.

Paying 2 mortgages for that timeframe was painful and added stress, but it was worth it in the end. I don't know how fast homes are selling in your area, but just be prepared to wait it out just in case....
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