Starting to look for new house

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AAA
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Starting to look for new house

Post by AAA »

After many years in our current house, we are looking to move for purposes of downsizing, among other reasons, and I am trying to get an initial grasp of the financial aspects. We can say for simplicity that the cost of the new house will probably be close to what we'd anticipate getting for our current modest house, so a roughly even exchange less fees, moving expenses, etc. We've also been advised by friends to make the new house purchase contingent on selling our current house, which we think might sell quickly based on recent history. We would probably plan to move into the new house and have some quick renovations done to the current one before putting it on the market.

I realize that a detailed analysis is not possible absent firm numbers but am looking more for general guidance at this point. So some questions:

o Does making the offer contingent significantly reduce the chances of acceptance, especially in a seller's market?

o It seems there are several approaches to financing (or a combination thereof):

- A bridge loan. My understanding is that they are generally higher interest loans provided for a short term.

- A no prepayment penalty mortgage? Would a lender do this if the life of the loan would just be a month or two? What would distinguish this from a bridge loan?

- Take early withdrawal from CD's - it appears that the penalty for early withdrawal is still treated as an adjustment to income, not an itemized deduction. How common is it for a bank to refuse an early withdrawal?

From those who have done this recently, if there's anything you can add for me to start thinking about it would be appreciated.

Thanks.
BogleTaxPro
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Re: Starting to look for new house

Post by BogleTaxPro »

AAA wrote: Thu Sep 03, 2020 3:57 pm We've also been advised by friends to make the new house purchase contingent on selling our current house, which we think might sell quickly based on recent history. We would probably plan to move into the new house and have some quick renovations done to the current one before putting it on the market. [If you do this, it's not a contingency. I'm confused.]

o Does making the offer contingent significantly reduce the chances of acceptance, especially in a seller's market?
[It's just one factor. Talk to some realtors about what experience they're seeing.]

o It seems there are several approaches to financing (or a combination thereof):

- A bridge loan. My understanding is that they are generally higher interest loans provided for a short term.

- A no prepayment penalty mortgage? Would a lender do this if the life of the loan would just be a month or two? What would distinguish this from a bridge loan? [A bridge loan uses your current home as collateral. Were you thinking that you would get the no prepayment penalty mortgage on your current home or your new home? In any case, you'll need to compare closing costs.]

- Take early withdrawal from CD's - it appears that the penalty for early withdrawal is still treated as an adjustment to income, not an itemized deduction. How common is it for a bank to refuse an early withdrawal? [Check your CD terms and conditions. If it wasn't specified there when you opened the CD that you could not do an early withdrawal, the bank can not refuse it now. But remember that CD rates are dismally low now.]
Kookaburra
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Re: Starting to look for new house

Post by Kookaburra »

If you really think your current house will sell quickly as you stated, then it might not make sense to make your purchase offer contingent. It detracts from the quality of your offer and might cause you to lose the deal. Sellers are less inclined to accept a contingent offer (especially in a hot market) because it effectively pulls their listing from the market (for all intents and purposes) and exposes them to stagnation risk.
rich126
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Re: Starting to look for new house

Post by rich126 »

I would never consider a contingent offer in any kind of decent seller's market. Too many things can go wrong. And right now in my market I don't think anyone would recommend such an offer. In other areas the situation could be vastly different.
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Watty
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Re: Starting to look for new house

Post by Watty »

I would highly suggest that you sell your house before buying your next one even if that means you need to live somewhere else temporarily. Lots of people have run into trouble with trying to juggle two homes like that only to have some Murphy's Law situation come up. There is a lot of weird stuff going on in the world right now so there is no telling what sort of unexpected things might happen which could upset the housing markets.

Closing dates are also negotiable and you can sometimes arrange to rent one house or another so that you can move directly from one house to another.
AAA wrote: Thu Sep 03, 2020 3:57 pm ...and have some quick renovations done to the current one before putting it on the market.
Fixing things that are actually broken likely makes sense but very cautious about doing other improvements. You rarely get you money back and your taste may be different than the buyers. Someone in our neighborhood put in new carpets to get a house ready to sell. Before the buyer moved in they had the new carpets torn out and installed hardwood floors. :oops:

Be sure to talk with your real estate agent about what actually needs to be done to get the house ready for sale. In a hot market you may need to do very little.

AAA wrote: Thu Sep 03, 2020 3:57 pm It seems there are several approaches to financing (or a combination thereof):
One other option is that you can get a home equity loan on your current house. You need to do this before your house is listed since they will not want to give you a loan like that if you will be paying it off in a few months. Unless they specifically ask don't tell them that you will be selling the house soon. It would be fair to say that you want the money to buy a second home.
Admiral
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Re: Starting to look for new house

Post by Admiral »

You could consider selling your home and asking the new owners to allow you to rent it from them for a few months. If they are not in a hurry to move in, that might be a good option.
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galawdawg
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Re: Starting to look for new house

Post by galawdawg »

AAA wrote: Thu Sep 03, 2020 3:57 pm ... We've also been advised by friends to make the new house purchase contingent on selling our current house, which we think might sell quickly based on recent history.

We would probably plan to move into the new house and have some quick renovations done to the current one before putting it on the market...
Those two approaches are inconsistent. You'd have to do one or the other.

If you buy with the home sale contingency, you move after closing on the sale so you can just use your sale proceeds to pay cash for your new home if you so desire.

If you buy and move before listing your current home, just get a mortgage on your new home (assuming your current home is paid off or if not, that you can qualify for an additional mortgage). You can then pay it off when you sell your current home if you choose.
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AAA
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Re: Starting to look for new house

Post by AAA »

galawdawg wrote: Fri Sep 04, 2020 7:14 am
AAA wrote: Thu Sep 03, 2020 3:57 pm ... We've also been advised by friends to make the new house purchase contingent on selling our current house, which we think might sell quickly based on recent history.

We would probably plan to move into the new house and have some quick renovations done to the current one before putting it on the market...
Those two approaches are inconsistent. You'd have to do one or the other.
Ha - of course what you say makes sense. A couple of people we know had recommended the contingency approach but from the advice here so far, and given the current market, I now realize that it's not a good idea.

Thanks all for the advice so far. We bought our current house over 30 years ago, so it's good to get the input.
delamer
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Re: Starting to look for new house

Post by delamer »

AAA wrote: Fri Sep 04, 2020 9:41 am
galawdawg wrote: Fri Sep 04, 2020 7:14 am
AAA wrote: Thu Sep 03, 2020 3:57 pm ... We've also been advised by friends to make the new house purchase contingent on selling our current house, which we think might sell quickly based on recent history.

We would probably plan to move into the new house and have some quick renovations done to the current one before putting it on the market...
Those two approaches are inconsistent. You'd have to do one or the other.
Ha - of course what you say makes sense. A couple of people we know had recommended the contingency approach but from the advice here so far, and given the current market, I now realize that it's not a good idea.

Thanks all for the advice so far. We bought our current house over 30 years ago, so it's good to get the input.
Is your current home mortgage-free? Do you have sufficient funds to cover the downpayment & closing costs of the new house? Can you qualify for a mortgage on the new house?

If so, I’d look into a no- or low-cost mortgage, buy the new house, and then put the old one on the market.
kaudrey
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Re: Starting to look for new house

Post by kaudrey »

We are in the same position.

We've lived in our house for 20 years. We've just started looking for a new house, but have some work scheduled on this house next month. I expect we will move before this house is sold (but, who knows?).

I looked into bridge loans, and they don't make sense for us - more expensive and they use your current house as collateral. We got a pre-approval from a mortgage brokerage for a traditional mortgage on whatever house we buy. My criteria to him was "low closing costs and no pre-payment penalty". I told him I didn't care about the interest rate because we plan to pay it off as soon as we sell this house. He said people do it all the time.

Our buyer's agent told us that if we had a an offer with a contingency that we couldn't close until we sold this house that no one would look at it (seller's market here, too - we aren't the only ones with this idea).
anoop
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Re: Starting to look for new house

Post by anoop »

If you are in an area where an iBuyer service is available, it might be better for your situation.
https://www.curbed.com/2020/2/7/2112480 ... -to-expect
Golf maniac
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Re: Starting to look for new house

Post by Golf maniac »

Watty wrote: Thu Sep 03, 2020 7:43 pm I would highly suggest that you sell your house before buying your next one even if that means you need to live somewhere else temporarily. Lots of people have run into trouble with trying to juggle two homes like that only to have some Murphy's Law situation come up. There is a lot of weird stuff going on in the world right now so there is no telling what sort of unexpected things might happen which could upset the housing markets.

Closing dates are also negotiable and you can sometimes arrange to rent one house or another so that you can move directly from one house to another.
AAA wrote: Thu Sep 03, 2020 3:57 pm ...and have some quick renovations done to the current one before putting it on the market.
Fixing things that are actually broken likely makes sense but very cautious about doing other improvements. You rarely get you money back and your taste may be different than the buyers. Someone in our neighborhood put in new carpets to get a house ready to sell. Before the buyer moved in they had the new carpets torn out and installed hardwood floors. :oops:

Be sure to talk with your real estate agent about what actually needs to be done to get the house ready for sale. In a hot market you may need to do very little.

AAA wrote: Thu Sep 03, 2020 3:57 pm It seems there are several approaches to financing (or a combination thereof):
One other option is that you can get a home equity loan on your current house. You need to do this before your house is listed since they will not want to give you a loan like that if you will be paying it off in a few months. Unless they specifically ask don't tell them that you will be selling the house soon. It would be fair to say that you want the money to buy a second home.
+1. Don’t do major renovations. Talk to your realtor about what needs fixing and what should wait. I agree on selling your current house and either leaseback for a few months or rent somewhere while looking for home. Don’t complicate your life by juggling two houses.
Robdac
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Re: Starting to look for new house

Post by Robdac »

We had a similar experience and only started looking for a new home once the current home was under contract. Worked out fine.
barnaclebob
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Re: Starting to look for new house

Post by barnaclebob »

How much equity do you have? You may be able to take out a HELOC to cover the down payment on the new house. When the old house sells then pay it off. The HELOC method may cost you a few grand in closing/interest but thats small potatoes in the grand scheme of things if it allows you to get the house you want.

I would avoid needing to make your purchase contingent on the sale of your current house. Many sellers will not go for that unless maybe your offer is really high and you can cover an appraisal shortfall.
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AAA
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Re: Starting to look for new house

Post by AAA »

barnaclebob wrote: Fri Sep 04, 2020 12:53 pm How much equity do you have?
No mortgage on current house. Looking at houses of roughly the same value.
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AAA
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Re: Starting to look for new house

Post by AAA »

A followup question - as I guard my personal information closely, I'm anticipating some discomfort about the short-term financing with this potential move. (Some people have suggested selling our house first and renting for a while which would not be our approach for several reasons). As I mentioned, the new house and our current one will be close in price.

If one puts in an offer to buy a house, I believe the seller will request financial disclosure so they don't take the house off the market for any length of time only to find out that the buyer can't afford it, which is understandable. What is usually asked for?

Ditto if one applies for a loan (bridge, mortgage or home equity). Is there a minimum amount of assets the bank would be happy with or do you have to show everything (income taxes, all accounts, credit check, etc.)? Say, for example, the house price is $300K and you will put down 20%. What would the bank want to see in order to approve the loan?
onourway
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Re: Starting to look for new house

Post by onourway »

AAA wrote: Sat Sep 05, 2020 9:15 pm A followup question - as I guard my personal information closely, I'm anticipating some discomfort about the short-term financing with this potential move. (Some people have suggested selling our house first and renting for a while which would not be our approach for several reasons). As I mentioned, the new house and our current one will be close in price.

If one puts in an offer to buy a house, I believe the seller will request financial disclosure so they don't take the house off the market for any length of time only to find out that the buyer can't afford it, which is understandable. What is usually asked for?

Ditto if one applies for a loan (bridge, mortgage or home equity). Is there a minimum amount of assets the bank would be happy with or do you have to show everything (income taxes, all accounts, credit check, etc.)? Say, for example, the house price is $300K and you will put down 20%. What would the bank want to see in order to approve the loan?
The bank will want to see bank/brokerage statements demonstrating you have the estimated cash needed to close. This will include the down payment, closing costs, plus enough cash to pre-pay a year of taxes and insurance.

When you make your offer, you’ll indicate to the seller how you’ll be paying for the home (with a mortgage) and how much you intend to put down. You offer is then contingent on you actually getting that loan from the bank which will not be fully processed until after you’ve made your offer.
delamer
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Re: Starting to look for new house

Post by delamer »

AAA wrote: Sat Sep 05, 2020 9:15 pm A followup question - as I guard my personal information closely, I'm anticipating some discomfort about the short-term financing with this potential move. (Some people have suggested selling our house first and renting for a while which would not be our approach for several reasons). As I mentioned, the new house and our current one will be close in price.

If one puts in an offer to buy a house, I believe the seller will request financial disclosure so they don't take the house off the market for any length of time only to find out that the buyer can't afford it, which is understandable. What is usually asked for?

Ditto if one applies for a loan (bridge, mortgage or home equity). Is there a minimum amount of assets the bank would be happy with or do you have to show everything (income taxes, all accounts, credit check, etc.)? Say, for example, the house price is $300K and you will put down 20%. What would the bank want to see in order to approve the loan?
When we sold recently, our real estate agent asked for a financial statement showing annual income and assets in the bank for a downpayment from anyone who made an offer. They could have lied through their teeth and we’d have no way to know, though. We also required a pre-qualification letter for a mortgage.

When we applied for a mortgage recently, we only listed our taxable brokerage assets not the money we did in our retirement accounts. We believed the taxable assets were sufficient and didn’t want to disclose more than we had to. (We were right.)
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