Scenarios to buy before closing on our current house? (insurance, escrow, credit)
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Our house is now under contract and we'll have the buyer's deposit next week after a few contingencies are signed off on. We are then planning to move to a much lower cost area. Our closing is quite long however, not till Dec 1 or so.
From financial point of view the easiest and cheapest scenario would presumably be to close on the new house after closing on the old. Proceeds from the sale would provide about a 35-40% down payment on the new place. From a logistical point of view this isn't very appealing because it would mean moving in winter and temporary storage of our stuff.
OTOH, our closing on the old house is so far out that we'd have enough time to find and close on a new house, allowing us then move directly out of the old house into the new without interim storage or other logistical issues. We'd also have time to do any necessary work on the new place before moving.
However, there are several obvious problems with this scenario. First, we obviously won't be able to flip our equity from the existing house into the new house so some kind of interim financing would be needed. Our credit is excellent and we have a large IRA as security. There's also the risk that we don't close on the old house at all and it goes back on the market. The deposit is ~$75k, however, so that could help mitigate the downside.
I hope that the situation is described clearly. If not I'll try to elaborate. Any thoughts on how to approach this? Thanks in advance.
You seem to understand the pitfalls involved, so I will keep it nuts-and-bolts.
Is your income sufficient to qualify for the new mortgage with the existing one as well?
Could you tap the IRA for 5% down on the new home purchase? You could then do a Principal Reduction when the existing home closes. Of course, make sure that the lender you are using will service the loan, and allow for such a scenario. Also, you will want Conventional Borrower-Paid Monthly mortgage insurance, and will want to confirm that it will expire upon paying the funds toward that mortgage down.
Wow, that scenario gives me chest pain. So much can go wrong with your Sale by December. There are some great Realtors on this board who might have a better solution.
What part of the country are you moving from, and to?
You seem to understand the pitfalls involved, so I will keep it nuts-and-bolts.
Is your income sufficient to qualify for the new mortgage with the existing one as well? YES (I think).
Could you tap the IRA for 5% down on the new home purchase? YES.
You could then do a Principal Reduction when the existing home closes. Of course, make sure that the lender you are using will service the loan, and allow for such a scenario. Also, you will want Conventional Borrower-Paid Monthly mortgage insurance, and will want to confirm that it will expire upon paying the funds toward that mortgage down.
Wow, that scenario gives me chest pain. So much can go wrong with your Sale by December. Unless buyer can somehow claw back their deposit it doesn't seem so bad. With $75k I can put house back on the market in the spring and it will almost certainly sell fast (I got on the market too late this time around). That buys a lot of double-mortgage months. There are some great Realtors on this board who might have a better solution.
What part of the country are you moving from, and to? NY 'burbs to Utah.
Thanks. See above. Does any of that relieve chest pain? I have some chest pain too!
So long as the very large $75,000 deposit is held by a proper escrow agent I would not feel too freaked out but I sorta wonder why you did not instead execute a sale / lease back instead of going with the exceeding long close...
In my experience, the more costly the home the lower the risk of the sale / lease back arangment. Folks that can afford expensive homes (and I assume a deposit of $75,000 would only be appropriate on a very costly home...) also have experience with attornies that are only too happy to explain to them the upsides and pitfalls of all outcomes of sale / lease back arrangements.
1. So long as the very large $75,000 deposit is held by a proper escrow agent I would not feel too freaked out but I sorta wonder why you did not instead execute a sale / lease back instead of going with the exceeding long close...
In my experience, the more costly the home the lower the risk of the sale / lease back arangment. Folks that can afford expensive homes (and I assume a deposit of $75,000 would only be appropriate on a very costly home...) also 2. have experience with attornies that are only too happy to explain to them the upsides and pitfalls of all outcomes of sale / lease back arrangements.
1. absolutely.
2. I'll be hashing this out with lawyers this week. Wanted to get other input/insights in the meantime. Thanks much.
Hey I neglected to mention: the Principal Reduction will not reduce your monthly payment. It may trigger the removal of Mortgage Insurance, but the base payment will not go down, only your balance.
Have you asked your mortgage broker about a bridge loan? It's for exactly this situation.
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