Circa $1M Home Bridge Loan

[cowdogman]

My wife an I are thinking of downsizing and moving back to Seattle from the suburbs.

A few years ago I put aside about $800,000 in short-term investments to allow us to shop for a downsize home in a small town/city somewhere, but we are coming to the conclusion we want to stay in the Seattle area. So the house budget has gone from $800,000 to probably just under $2M.

We have $4+ million in equity in our current home, but we plan to buy before we put our house on the market. We also have a substantial after-tax account, but the cap gains in it are large and I don't want to liquidate/incur cap gains tax.

HELOCs are unlikely to offer enuf cash--they are usually capped at a few hundred thousand. I don't want to do a margin loan because a significant drop in the market could trigger a margin call.

Does anybody have any experience doing bridge loans, especially in the Seattle area? What is the cost?

Thanks.

[scophreak]

Can you qualify for/take a mortgage on the new home purchase (you don't mention any other assets or income, hence the question)? Would it be an option to simply take the mortgage and then pay off the balance once your current home sells? Similar idea, though you would be "manufacturing" your own bridge loan.

[cowdogman]

Can you qualify for/take a mortgage on the new home purchase (you don't mention any other assets or income, hence the question)? Would it be an option to simply take the mortgage and then pay off the balance once your current home sells? Similar idea, though you would be "manufacturing" your own bridge loan.

True, but I was hoping to avoid all the cost/paperwork of a plain vanilla mortgage. Plus my wife and I are self-employed and so the credit part of the application may not be straightforward. Probably be easier to do a cash-out refinance of our current house, but again I'd like to avoid the cost/paperwork.

[8foot7]

This is the perfect scenario for a securities-backed line of credit on your sizable taxable account.

[mayurgai]

How does one build 4m equity in a home ?! Have you been living in it since the 1960s ?

[tjtv]

This is the perfect scenario for a securities-backed line of credit on your sizable taxable account.

How is a securities backed line of credit different than a margin loan?

[richard.h.gao]

This is the perfect scenario for a securities-backed line of credit on your sizable taxable account.

How is a securities backed line of credit different than a margin loan?

It's through a bank rather than a broker.

[twh]

My wife an I are thinking of downsizing and moving back to Seattle from the suburbs.

A few years ago I put aside about $800,000 in short-term investments to allow us to shop for a downsize home in a small town/city somewhere, but we are coming to the conclusion we want to stay in the Seattle area. So the house budget has gone from $800,000 to probably just under $2M.

We have $4+ million in equity in our current home, but we plan to buy before we put our house on the market. We also have a substantial after-tax account, but the cap gains in it are large and I don't want to liquidate/incur cap gains tax.

HELOCs are unlikely to offer enuf cash--they are usually capped at a few hundred thousand. I don't want to do a margin loan because a significant drop in the market could trigger a margin call.

Does anybody have any experience doing bridge loans, especially in the Seattle area? What is the cost?

Thanks.

I had a HELOC for $800K at one time. I'm not sure why you think they are capped at a much smaller value. It is all about how much equity you have.

[cowdogman]

This is the perfect scenario for a securities-backed line of credit on your sizable taxable account.

How is a securities backed line of credit different than a margin loan?

It's through a bank rather than a broker.

But there are still margin calls.

[cowdogman]

How does one build 4m equity in a home ?! Have you been living in it since the 1960s ?

Having equity in a house is not a function of time. It fair market value - mortgage(s).

[8foot7]

This is the perfect scenario for a securities-backed line of credit on your sizable taxable account.

How is a securities backed line of credit different than a margin loan?

It's through a bank rather than a broker.

But there are still margin calls.

Typically the credit you can obtain is limited to 50% of the FMV of your securities, and then of course you’d only take a piece of that in order to give yourself some breathing room, and additionally typically most of these notes have a 30 day or more deficiency cure period. It’s low risk for a temporary transaction.

[cowdogman]

My wife an I are thinking of downsizing and moving back to Seattle from the suburbs.

A few years ago I put aside about $800,000 in short-term investments to allow us to shop for a downsize home in a small town/city somewhere, but we are coming to the conclusion we want to stay in the Seattle area. So the house budget has gone from $800,000 to probably just under $2M.

We have $4+ million in equity in our current home, but we plan to buy before we put our house on the market. We also have a substantial after-tax account, but the cap gains in it are large and I don't want to liquidate/incur cap gains tax.

HELOCs are unlikely to offer enuf cash--they are usually capped at a few hundred thousand. I don't want to do a margin loan because a significant drop in the market could trigger a margin call.

Does anybody have any experience doing bridge loans, especially in the Seattle area? What is the cost?

Thanks.

I had a HELOC for $800K at one time. I'm not sure why you think they are capped at a much smaller value. It is all about how much equity you have.

HELOC availability has gotten scarcer over the last few years. I'm guessing there may be some big HELOCs still available, but not from any banks i have looked at. My bank (Chase) stopped HELOC lending a couple years ago and cancelled my $100,000 HELOC.

[Bogle101]

With your massive wealth, just assuming you’re doing really well, based on the vague details you posted, I’m surprised you have no one in your social circle to help give you an interest free loan.

I borrowed like 500k from family for a few months to secure a new mortgage and lower rate.

Is there no one in your family or business circle that can float you an interest free bridge?

[yog]

Here's a good overview from Schwab of the various options for tapping into assets (HELOC, margin at broker, pledged asset line with bank) as well as Schwab's Pledged Asset Line offering:
https://www.schwab.com/learn/story/3-wa ... our-assets
https://www.schwab.com/pledged-asset-line

[cowdogman]

I ended up talking to a mortgage broker yesterday and his recommendation was to do a standard mortgage on the new house and to accept a higher interest rate in exchange for negative points (which would pay for closing costs). It's not a great deal for the ultimate mortgagee, but works for everybody else in the deal.

I'd rather do that then fool around with a margin loan in this market.

[professor_americus]

OP, I have investigated options in the bridge loan space but far below your price points and without the significant taxable account for margin loan. Have not transacted so cannot speak from experience.

On the bridge loan, I found my credit union ETFCU offered a great bridge loan offering. I don't think you need to be a member to qualify, though members may get a small rate incentive. Financing up to 90% of current home equity with interest-only payments up to 9 months. Standard mortgage fees. Rates comparable to conventional 15 to 30 year fixed rates. https://etfcu.org/personal/#loans

Other options might be cross-collateralization loans. I am aware Wa Fed has an option.

Otherwise call a few mortgage brokers and see what types of strategies or vehicles they can come up with.

[DonIce]

We have $4+ million in equity in our current home, but we plan to buy before we put our house on the market. We also have a substantial after-tax account, but the cap gains in it are large and I don't want to liquidate/incur cap gains tax.

Move your after-tax investments to a brokerage that offers low margin rates (like for example Interactive Brokers, or you can negotiate with other brokers for a low rate if your account is large). Then just withdraw cash from the taxable account on margin. IB is charging 2.58% right now on margin, which is better than you can get on any mortgage or HELOC.

Don't withdraw too much, make sure that the leverage remains low enough that your investments are in no danger of margin calls / liquidation under any reasonable market drop scenario. Being conservative, you could very safely borrow ~20% of your account value on margin. Your portfolio would have to decline in value by about another 60% from here to trigger a margin call or liquidation, typically. Such drops also don't happen over night, giving you plenty of time to react if needed.

Honestly it's the cheapest and easiest option and the risk seems low.

[cowdogman]

OP, I have investigated options in the bridge loan space but far below your price points and without the significant taxable account for margin loan. Have not transacted so cannot speak from experience.

On the bridge loan, I found my credit union ETFCU offered a great bridge loan offering. I don't think you need to be a member to qualify, though members may get a small rate incentive. Financing up to 90% of current home equity with interest-only payments up to 9 months. Standard mortgage fees. Rates comparable to conventional 15 to 30 year fixed rates. https://etfcu.org/personal/#loans

Other options might be cross-collateralization loans. I am aware Wa Fed has an option.

Otherwise call a few mortgage brokers and see what types of strategies or vehicles they can come up with.

Thanks. I have had a couple WA Fed mortgages over the years--very good lender.

The mortgage broker I talked to yesterday did mention a cross-collateralization loan, but he said the upfront fees were substantial.

[rgs92]

When I did research into bridge loans a few years ago they seemed to be something non-existent, like some urban myth. So, as others have posted, I think if you need to borrow more than you qualify for when you are holding 2 big mortgages at once for any amount of time, you need to fund it yourself, possibly by asset-backed loans, but I don't even know if that is allowed.

Mortgage lenders seem pretty strict in my experience and will count any debt you have (again, as far as I have seen).

It is very difficult to borrow more than your income and DTI ratio will support.

[MikeWillRetire]

I recently applied for a HELOC from Bank of America, and it was denied because I said that I wanted to use it as a bridge loan. Sounded odd to me, but that's what they said.

[jharkin]

I recently applied for a HELOC from Bank of America, and it was denied because I said that I wanted to use it as a bridge loan. Sounded odd to me, but that's what they said.

That is typical.. Ive had multiple HELOCs over the years and a standard application question is asking if you intend to stay in the home. The appraisers are also instructed to look out for For Sale signs.

HELOCs are supposed to be for home improvement. Yes people do use them for bridge financing (I have) but its best not to say so and have the loan secured well before putting the home on the market and pull the funds before listing.. If the lender gets wind the house s on the market they can and will freeze the line.

[iamlucky13]

How does one build 4m equity in a home ?! Have you been living in it since the 1960s ?

By starting with an already extremely nice home, and watching with one's jaw on the floor as the Seattle area real estate market goes insane around you.

I received my property value assessment yesterday (in the outlying suburbs where a lot of white collar workers moved as remote work became normal). They claim my value went up 43% in a single year!

Since unlike the topic author, we don't have any plans of downsizing, we're effectively stuck in what we thought when we bought, back before we had kids, would be our "starter home." Yet even staying in place is looking increasingly daunting. If last year's pace continues, my property taxes will exceed my mortgage in 3 more years. It could be worse than that though. Since the suburban areas saw bigger value increases than the urban areas, my tax increase is likely going to accelerate.

My brother just gave up entirely on staying in the region we grew up in, even though prices in his county are almost 30% lower than my county. He's selling his house for almost $1/4 million more than he paid for it 4 years ago, despite the fact there was a drug related shooting next door last year. That was the final straw with their problems with their neighborhood, not to mention desire to have more space now that they also have kids. They've been searching ever since, but ended having to go a lot farther than they expected or wanted, to comparably ranked metro area in a completely different part of the country. He'll be paying enough less I think it will cover his selling expenses on the old house, and he'll get 33% more square footage, over 4 times as much yard space, and room in the garage for both cars in a nearly new home.

[Valuethinker]

My wife an I are thinking of downsizing and moving back to Seattle from the suburbs.

A few years ago I put aside about $800,000 in short-term investments to allow us to shop for a downsize home in a small town/city somewhere, but we are coming to the conclusion we want to stay in the Seattle area. So the house budget has gone from $800,000 to probably just under $2M.

We have $4+ million in equity in our current home, but we plan to buy before we put our house on the market. We also have a substantial after-tax account, but the cap gains in it are large and I don't want to liquidate/incur cap gains tax.

HELOCs are unlikely to offer enuf cash--they are usually capped at a few hundred thousand. I don't want to do a margin loan because a significant drop in the market could trigger a margin call.

Does anybody have any experience doing bridge loans, especially in the Seattle area? What is the cost?

Thanks.

1. your intuition is right. Do not under any circumstances take a loan which is secured against volatile securities ie a margin loan. Technically you would then be "short volatility" ie a sufficient market drop could ruin you (even if in the long run markets tend to rise). It happens.

2. I don't know the US home loan system well enough, but your strategy would seem to be reasonable. Shop around financial institutions for a bridge loan.

3. US housing markets are dropping. You are doubtless a reader of Calculated Risk? If not, you should be - most of the stuff is free, and there's no better blog for tracking US housing related things.

So you do have to be careful - what if your home sells for 20% less than you expect? Or takes a year to sell?

4. I would consider liquidating securities and taking the capital gains hit. Cash in hand. Maybe some combination of that plus a bridging loan.

[David Jay]

How does one build 4m equity in a home ?! Have you been living in it since the 1960s ?

By starting with an already extremely nice home, and watching with one's jaw on the floor as the Seattle area real estate market goes insane around you...

My nephew purchased a rather modest, $300,000 home in Belleview about 20 years ago. Zillow says it is worth 1.6M