Within the next three years, my wife and I would like to move to a town just a few miles away (two 5mo twins, better schools, closer to family, bigger/better house)
- 35M, 34F, 5mo twins
- HHI: $350k+
- NW: $1.25M
- Cash: $75k
- Brokerage: $160k
- House Value: ~$780k
- House Equity: ~$390k
- In three years, all of this could/should improve (less any recession)
- The house would likely be $1-1.25M
- We'd prefer to buy the house BEFORE we sell and take our time waiting for that "dream" house, maybe a little fixing
Questions
- How do you go about downpayment on next house?
- Would you use a HELOC, margin loan against brokerage or should I start saving cash?
- What would you do with the equity from first house sale?
How to go about your next house (moving, upgrade)
Re: How to go about your next house (moving, upgrade)
In 2021, we were in a similar situation. We had a quick closing and didn’t have the time to save up cash. So, here’s what we did:
- Refinanced the existing house to lower the payment
- Lowered my 401K contribution to the minimum to get the match
- Sold iBonds
- Received a “gift” from my MIL
- Borrowed from my 401K
- Withdrew contributions from my Roth
We sold the old house about 4 months after buying the new house. We paid off the 401K loan, returned the “gift”, and increased the 401K contributions to catch back up for the year. We used the extra $ from the old house to refinance the loan on the new house to make it qualifying and to lower the interest rate.
Hope this helps give you some ideas.
- Refinanced the existing house to lower the payment
- Lowered my 401K contribution to the minimum to get the match
- Sold iBonds
- Received a “gift” from my MIL
- Borrowed from my 401K
- Withdrew contributions from my Roth
We sold the old house about 4 months after buying the new house. We paid off the 401K loan, returned the “gift”, and increased the 401K contributions to catch back up for the year. We used the extra $ from the old house to refinance the loan on the new house to make it qualifying and to lower the interest rate.
Hope this helps give you some ideas.
-
vinhodoporto
- Posts: 436
- Joined: Tue Dec 24, 2019 9:14 am
Re: How to go about your next house (moving, upgrade)
All of this is very market dependent. So what works in one market at one time will not work as well in a different market at a different time.
A few options I’ve seen work over the years:
1) Get a HELOC on old home now and use it for down payment / moving expenses once you find new home. Pay it off when you sell old home. A 401K loan could be done in conjunction with this if it makes sense. Option 1 works well if you’re not sure on your timeline for finding new home. This is what I’d do in your situation.
2) Make an offer on new home with a longer closing period which will allow you to sell and use old home’s equity for down payment. This may be less desirable to sellers. In conjunction with this you will likely want to have an agreement to rent back old home for a period of time to facilitate your move to new home. You could also write your offer on new home as contingent on selling old home but this only works in very slow markets (unlikely today). Either way you have to be ready to put old home on the market as soon as you find new home so do all decluttering, touch ups etc before house hunting.
3) Sell old home with a relatively long rent back agreed to and the use the proceeds to help buy new home. This only works if you can identify and close on new home before your rent back of old home ends. I’ve seen this with new construction.
I’d do one of the above options which use your existing home equity ahead of trying to save more for a down payment or selling taxable investments.
A few options I’ve seen work over the years:
1) Get a HELOC on old home now and use it for down payment / moving expenses once you find new home. Pay it off when you sell old home. A 401K loan could be done in conjunction with this if it makes sense. Option 1 works well if you’re not sure on your timeline for finding new home. This is what I’d do in your situation.
2) Make an offer on new home with a longer closing period which will allow you to sell and use old home’s equity for down payment. This may be less desirable to sellers. In conjunction with this you will likely want to have an agreement to rent back old home for a period of time to facilitate your move to new home. You could also write your offer on new home as contingent on selling old home but this only works in very slow markets (unlikely today). Either way you have to be ready to put old home on the market as soon as you find new home so do all decluttering, touch ups etc before house hunting.
3) Sell old home with a relatively long rent back agreed to and the use the proceeds to help buy new home. This only works if you can identify and close on new home before your rent back of old home ends. I’ve seen this with new construction.
I’d do one of the above options which use your existing home equity ahead of trying to save more for a down payment or selling taxable investments.
Re: How to go about your next house (moving, upgrade)
Most people cannot qualify for two mortgage or make the payments so they figure out how to move directly from one house to another without owning two houses at the same time. In some cases they will find a temporary place to live for a few weeks or months between houses.
Closing dates are negotiable as well as possibly renting one house or the other before or after a sales.
You can even get creative about how to set up the temporary housing if there is a gap when you do not own any house. I have heard of retired people traveling while they were waiting for a newly built house to be finished. A few years ago someone posted that they needed to find a place to live for a few months and they were having difficulty in finding a place because they had pets. They had retired parents who lived in the area but their house was too small for everyone to live in. Then ended up renting a condo in some place like Florida for the parents to live in for a few months so they could live in their parents house and the parents could get a free vacation.
It is easy to underestimate the monthly costs of owning a second house at the same time. With interest, mortgage payments, property taxes, insurance, maintenance, etc it would not be hard for the monthly cost to approach an extra $10K a month own two houses at once. That can cover a lot of inconvenience of structuring the deal so that do not own two houses at once. You can also run into Murphy's Law situations where something like storm damage or a burst pipe delays the sale of a house for six months.
A huge risk of owning two houses at the same time is that when you are ready to sell the second house that the housing market has changed and it is much harder to sell than you expected so it takes longer to sell and you get less for it than you hoped for.
There was a recent thread where someone has run into this where they bought a house last spring and remodeled it so they are now ready to sell it but it is not selling.
viewtopic.php?p=8125933#p8125933
You may also not have realistic expectations about what it will take to sell your first house. With you being in your mid-30s for basically all of your adult life the housing markets have been pretty strong once they started recovering from the 2008 financial crash/housing bust. Especially if you live in an area where housing has been strong you have likely never seen a normal housing market much less a bad housing market. I don't know what the statistics are but in a normal housing market you can easily have a house for sale for four months and not have it sell even if priced right, but not heavily discounted. For example if there are 20 similar houses in your subdivision for sale for about $500k over the next four months 10 of them might sell for $500k. Your house might be priced at $500K and only have a 50% chance of selling at that price. To get it to sell you might discount it to $450K or less if you are desperate but that is a hard decision to make when other houses are still selling for $500K.
If a bad housing market the only houses which sell will be the forced sales like when there is a death, foreclosure, or divorce so you may not be able to sell your house without dropping your price to that level.
Closing dates are negotiable as well as possibly renting one house or the other before or after a sales.
You can even get creative about how to set up the temporary housing if there is a gap when you do not own any house. I have heard of retired people traveling while they were waiting for a newly built house to be finished. A few years ago someone posted that they needed to find a place to live for a few months and they were having difficulty in finding a place because they had pets. They had retired parents who lived in the area but their house was too small for everyone to live in. Then ended up renting a condo in some place like Florida for the parents to live in for a few months so they could live in their parents house and the parents could get a free vacation.
It is easy to underestimate the monthly costs of owning a second house at the same time. With interest, mortgage payments, property taxes, insurance, maintenance, etc it would not be hard for the monthly cost to approach an extra $10K a month own two houses at once. That can cover a lot of inconvenience of structuring the deal so that do not own two houses at once. You can also run into Murphy's Law situations where something like storm damage or a burst pipe delays the sale of a house for six months.
A huge risk of owning two houses at the same time is that when you are ready to sell the second house that the housing market has changed and it is much harder to sell than you expected so it takes longer to sell and you get less for it than you hoped for.
There was a recent thread where someone has run into this where they bought a house last spring and remodeled it so they are now ready to sell it but it is not selling.
viewtopic.php?p=8125933#p8125933
You may also not have realistic expectations about what it will take to sell your first house. With you being in your mid-30s for basically all of your adult life the housing markets have been pretty strong once they started recovering from the 2008 financial crash/housing bust. Especially if you live in an area where housing has been strong you have likely never seen a normal housing market much less a bad housing market. I don't know what the statistics are but in a normal housing market you can easily have a house for sale for four months and not have it sell even if priced right, but not heavily discounted. For example if there are 20 similar houses in your subdivision for sale for about $500k over the next four months 10 of them might sell for $500k. Your house might be priced at $500K and only have a 50% chance of selling at that price. To get it to sell you might discount it to $450K or less if you are desperate but that is a hard decision to make when other houses are still selling for $500K.
If a bad housing market the only houses which sell will be the forced sales like when there is a death, foreclosure, or divorce so you may not be able to sell your house without dropping your price to that level.
Re: How to go about your next house (moving, upgrade)
Just from my own experience having bought and sold several homes over the years, moving up with each sale...we always sold our home first.
If we were buying new construction we had a few builders who pushed to take a "bridge" loan but we always sold first. I recall one builder who gave us a week to sell our home or they would refund our deposit and move on to the next.
We are in Northern CA and homes can move very fast. It does depend on the market but I never felt comfortable with any type of bridge loan.
If we were buying new construction we had a few builders who pushed to take a "bridge" loan but we always sold first. I recall one builder who gave us a week to sell our home or they would refund our deposit and move on to the next.
We are in Northern CA and homes can move very fast. It does depend on the market but I never felt comfortable with any type of bridge loan.