buy/sell house questions

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Topic Author
Stevedore
Posts: 33
Joined: Thu Aug 28, 2014 3:24 pm

buy/sell house questions

Post by Stevedore »

We're thinking of selling our home & buying another one which will serve our expected needs further into the future. Specifically, we'd prefer a single-level (i.e., ranch style) house, so we'll no longer have to deal with going up/down stairs. We currently own a bi-level, & carrying groceries in & upstairs, carrying laundry up & down, etc., is getting to be more of an issue than it once was.There are a few other concerns, but that's the big one. We're getting a bit older (70 & 67), and feel that getting into the right house now for the future might be less stressful than making the change several years from now when we may be under more pressure to do so.

It's been close to 40 years since we changed houses, and we have no idea what may have changed since then. I expect that we'll visit a real estate sales office to begin our search, but we have a few basic questions in the meantime.

How do we deal with buying another house & selling our current house? It would be nice to have a month or so of overlap to allow for moving, painting, cleaning, etc. I've heard of "bridge loans", but have no experience or detailed knowledge of them. Would we be able to get such a thing, given that we're retired & have no employment income?

In general terms, our current house is worth approximately $300,000, and we'd probably be looking at houses around $400,000 or so, from what we'e been seeing online.We have no mortgage(s) on our current house, or any other outstanding debt. We are retired, with our income consisting of pension, social security, & investment income. Our "guaranteed" income, i.e., pension & SS, is about $75,000, and we have about $1.5M in stock/bond investments. For tax reasons, I'd prefer not to cash in any of our investments beyond what may be necessary to cover the higher cost of our new house compared to our current house.

I'd appreciate any advice on how to proceed, recommended financing schemes, etc., from anyone who's been through something similar.
mhalley
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Joined: Tue Nov 20, 2007 6:02 am

Re: buy/sell house questions

Post by mhalley »

So you will need to buy the house with a contingency that your house sell, or will you be able to buy the new house first?
Probably one of the biggest changes is the looking part of house buying. With the advent of apps, you can get a very good idea of what houses are like without going inside and wasting a lot of time on homes you would not be interested in.
http://fundresearch.fidelity.com/mutual ... action-fee
Since the realtor doesn't do as much work, you may be able to decrease the fee for the realtor.
If you will need a mortgage, get preapproved before you start.
http://realtormag.realtor.org/daily-new ... ng-in-2016
Check out Clark Howard articles.
http://www.clark.com/homes-real-estate/buying-a-home
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ResearchMed
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Re: buy/sell house questions

Post by ResearchMed »

Will you be able to "afford" any needed mortgage as far as the lender is concerned?
The amount you can "afford" may be different from what a lender thinks you can "afford". (This can be higher or lower, given individual circumstances.)

You might want to double check with lenders up front about the source (and amount) of that guaranteed income, and whether that would suffice.

How much have you also added to that from investment income? If you are counting on that amount, that could be something that a prospective lender would flag.

Some lenders will "hold the loan" and not resell it. Those lenders are often able to be a bit more flexible.
These might be the same lenders more likely to give a bridge-type loan.

You should try to get "pre-APPROVED", meaning the lender has already checked most of your documentation.
Being "pre-qualified" is a lot more "iffy".

Also, going through this process, starting with the amount you'd expect/like to afford, will give you a good idea if you are in the right ballpark, from a lender's point of view, especially for the time between buying the new home and selling the old.

RM
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sport
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Location: Cleveland, OH

Re: buy/sell house questions

Post by sport »

We did the same thing when we were 63 and 59. Our house was paid off and we wanted to move to a one floor home. We spoke to the bank about a bridge loan, and the loan officer suggested a mortgage on either the new house or the old one. We took out a mortgage on the old house to pay for the new one. We paid a little higher rate to get a "no fee" loan, because we expected to pay the loan off in a short time. We made sure to get a loan with no pre-payment penalty. When the old house sold, we paid off the note.
startbyservingothers
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Joined: Wed Mar 25, 2015 10:35 pm

Re: buy/sell house questions

Post by startbyservingothers »

At the end of the day your best two choices are getting a loan on your current home or the one you are purchasing. In either case I'd recommend something with No closing costs, preferably a variable rate. - A variable rate could still be at a very competitive rate. Which can come in handy if you don't sell the other house over night.

Benefit of getting loan on current house:

Negotiating ability.
- You could close very quickly if you have everything in place to close on your loan.
- You could go ahead and close the loan while shopping.* In this case you would be placing " Cash offers". This might be a huge consideration if the real estate market is hot where you are. In a slow market sellers might like this as well.

I.E. Talk to agent about "Cash offers". I assume you could start making them as soon as the loan is in the final process of closing/ or closed. - You technically have "Funds Available" to pay, just have no intention of using those investment funds.
(Be sure to verify with loan officer amount you can borrow on your current home.)
* You should only consider this once looking at the market and feeling confident you will be closing on a home. - Otherwise you are creating an out of pocket cost. (You can always pay this amount back though. Regardless watch for prepayment clauses which are becoming more common on some NO Closing Cost loans. Most I've seen only kick in if you pay back the loan in full within a certain time frame.


Main benefit of getting loan on next house:

Long-term Cashflow
Loan for similar amount may get better terms since the house will have a higher appraisal. Likewise if your loan has more favorable terms you might be able to withdraw less money from your investments.* That loan Additionally you can keep the loan as long as you want. Of course loan on your current house would be paid off in full when the house sells. This means you - With option 1 your la For example if you had a 3% rate, when your current house sells you might keep a portion of the loan while returning your money to your investments.

*another loan option available here that mush be avoided is one an Early Payoff penalty. Some lenders will pay closing costs only if you keep the loan open for at least 2-3 years. No reason you couldn't leave a balance on the loan that long if it had favorable terms.
adamthesmythe
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Re: buy/sell house questions

Post by adamthesmythe »

Coordinating a sale and a purchase is uncertain. One or the other could be held up for any number of unpredictable but legitimate reasons.

Contingency for sale of your house would only work if the seller of the new house is really desperate. Contingency on buying a new one would make your house very unattractive to buyers.

A mortgage is probably the cleanest option.

Consider using the same real estate agent for the purchase and sale, and negotiating for a reduced commission on your sale.
Topic Author
Stevedore
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Joined: Thu Aug 28, 2014 3:24 pm

Re: buy/sell house questions

Post by Stevedore »

Many thanks for the replies; several good points to ponder.

Getting a mortgage on the new place appears to be a good approach, assuming that we could qualify for the needed amount. We could then pay it off following the sale of our current home, along with whatever we need to withdraw from our investments to cover the higher cost of the new one.

But I also like the idea of some type of loan, i.e., bridge or SBLOC, so that we have the freedom to buy the new place regardless of the status of selling the current one, and we'd avoid any costs that might be specifically associated with getting a mortgage.

Lots to think about; thanks again!
CWhea1775
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Joined: Thu Jan 28, 2016 3:45 pm

Re: buy/sell house questions

Post by CWhea1775 »

We just completed a similar move, though we had mortgages on both properties. A few observations; our discussion with mortgage lenders was interesting. They really are not interested in assets, but instead are focused on income. I assume this is because all the loans being made need to fit into the cookie-cutter mold of the national mortgage purchase programs. I expected to be able to walk into a Credit Union and at worst be asked to transfer some IRA money into their institution as collateral for a mortgage. No one was interested. So if you want a mortgage, expect to qualify on your income alone. We live in a strange world - mortgage lenders are very comfortable issuing 30 year loans to 63 year olds!

The strategy of taking out a loan on your existing home is also interesting. Technically, most lenders will not loan money on your existing home if you clearly articulate: "I am going to put this house on the market immediately, start house hunting, and sell this home when I find a new house". People use the technique all the time, but there is a bit of a deception inherent in the loan process that you need to be comfortable with. You will be taking out a loan for "home improvement" or "other needs". Timing is important here, so if you intend to use this strategy it is probably best to get the loan on the existing home somewhat in advance of your new house search.

I do not know what the housing market is like in your area, but anywhere there is a "hot market" any plans to purchase with a contingency clause about selling your own home is probably out the window. Sellers have enough offers that they don't have to take the risk with contingencies.

Our strategy, which worked but kept me up nights during the 60 day window, was to take cash out of an IRA, use it to buy the new house, put our old house on the market, sell it, and return the cash to the IRA within 60 days. This was technically a "transfer", which is allowed once a year. If we had missed the window it would have been a distribution, and thus a taxable event. It worked, but you need to be prepared for the tax hit if you cannot return the funds within 60 days.

Good luck!
sport
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Location: Cleveland, OH

Re: buy/sell house questions

Post by sport »

CWhea1775 wrote:The strategy of taking out a loan on your existing home is also interesting. Technically, most lenders will not loan money on your existing home if you clearly articulate: "I am going to put this house on the market immediately, start house hunting, and sell this home when I find a new house". People use the technique all the time, but there is a bit of a deception inherent in the loan process that you need to be comfortable with. You will be taking out a loan for "home improvement" or "other needs". Timing is important here, so if you intend to use this strategy it is probably best to get the loan on the existing home somewhat in advance of your new house search.
We did not find this at all. I went to the bank and asked the loan officer about a bridge loan. He said the best option would be to get a mortgage on either the new house or the old one. We opted for the mortgage on the existing house. It was all very open and above board.
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grabiner
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Re: buy/sell house questions

Post by grabiner »

CWhea1775 wrote:I expected to be able to walk into a Credit Union and at worst be asked to transfer some IRA money into their institution as collateral for a mortgage.
The reason this does not work is that it is illegal to use an IRA as collateral for a loan. If you try to do this, the IRS considers the IRA to have been cashed in, and immediately taxable.

You can use a taxable account as collateral for a loan; this would often be done through the brokerage, as a margin loan, because the brokerage can ensure that your collateral stays there.

Your bank or credit union may consider both IRA and taxable assets in underwriting the loan, determining whether you can afford to pay the loan and maintain the house. Even if your IRA isn't collateral, you would probably prefer to withdraw from the IRA to make the loan payments than to lose the house.
Wiki David Grabiner
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