Should I do second mortgage or bridge loan? (interest rate, 2010, heloc)

[rusheib]

I will be moving from Houston to Ohio June of 2010. We will probably buy in Ohio before our Houston home sells. We have a long time to look for the right home, and if we find something we will put an offer on it.

How does the second mortgage work? If I am going to live in the Ohio house while selling my Houston house do I need a second mortgage since the Ohio house will be my primary residence? Or is a bridge loan a better deal?

My family will move to the Ohio house during the summer of 2010. I may still be working in Houston until the fall. If we move all of our possessions to Ohio and I sleep on an air mattress for a few nights here and there in Houston (I travel for work) will the Ohio house still be the primary residence?

I can handle two mortgages for about 6 months.

Thanks for the help!

[Joseph Marnix]

IIRC, the primary home is where you reside at least 6 month + 1 day.

2nd mortgage is the same as home equity line of credit. So this determines whether you have equity, and some 2nd mortgage can extend up to 125% value of the (first) house.

[rusheib]

I have $70K equity on a $270K mortgage. Are the interest rates diferent if I would buy before selling? If the rates are higher for a 2nd mortgage, do they lower once the first home sells?

thanks!

[Joseph Marnix]

Your current mortgage = whatever rate it is now. It's fixed?

If you get a 2nd mortgage = rate is usually fixed. Just inquire your bank / lender what is the rate. Rates are usually higher than a 1st mortgage rate.

I think when you sell your 1st house, both 1st and 2nd mortage will have to be paid off because the house being used as collateral is no longer yours after it's sold.

New house (2nd house) = rate is whatever you locked on at the time of purchase.

[chet everett]

For a short post this is confusing.

Seems like you currently have a home that is worth $340k and you owe about $270k.

Also sounds like you feel you like you have enough income to cover ANOTHER mortgage on another home , but you don't say how much so I have to guess. If you are comfortably covering your $270K mortgage and I would guess you make at least $90K. If you really make about $180k then ya, you could probably, on paper, afford a whole other house for about $270k

Of course you would need down payment to buy the new house, and you would need to have low debt and stable job and all the other standard stuff.

Bridge loans are designed as short term financing to allow you to buy a home you otherwise could not afford and are secured by the equity in your existing home. They now have very high rates because it is VERY risky to lend to people that could have very rapidly shrinking equity and are in the process of selling where they MIGHT be forced to accept far less than what they think a house is worth.

A different sort of a beast is a "second mortgage" or "home equity loan/ line of credit" such a think if used to tap the equity one has in their home. If the "loan to value" exceeds 70% you will pay a higher interest rate, BUT these are still generally a better deal than almost any other way to borrow money. Technically you are not supposed to use HELOC to buy new property and the lender generally has some penalty if you sell the home that secures it sooner than about 3 years.

Your question about rates is unclear. If you have sufficent income to qualify for a separate loan on a new house that rate is set by your FICO score, debt:income ratio and the prevailing rates in your area. If you are pretty sure that you can sell your home in Houston before you buy in Ohio that would result in a better rate. It is not smart to buy before you sell if you will need to finance a lot of the purchase for a variety of reasons including the fact you could get a better rate. A short term rental or even hotel would be the way to go for the transition.

As far a lenders are concerned if you are MOVING to a new "primary residence" you can start down the path on buying a new home before the old home has sold, but if the old home does not sell before you close on the first you are going to have more hoops to jump through.

[rusheib]

Thanks for the info. I have a house that is worh $270K and I owe $200K. That's the $70K equity I have down. I make $100K. I have no debt except the mortgage.

[rusheib]

Sorry about the rate confusion, I know the second mortgage will cover the down payment. I was thinking differently than I was typing!

[suzie02]

Originally Posted by rusheib

I have $70K equity on a $270K mortgage. Are the interest rates diferent if I would buy before selling? If the rates are higher for a 2nd mortgage, do they lower once the first home sells?

thanks!

What do you mean a 70k equity on a 270k mortgage? Have you had the house appraised recently?. Most people's houses have gone down in value quite a bit.
In the old days buying a new house while putting the previous home for sale was very common. Things have changed a lot. Unless you can easily carry both houses forever you will have a very hard time getting approved. Have you done any numbers? What would be your debt to income ratio?

[rusheib]

Originally Posted by suzie02

What do you mean a 70k equity on a 270k mortgage? Have you had the house appraised recently?. Most people's houses have gone down in value quite a bit.
In the old days buying a new house while putting the previous home for sale was very common. Things have changed a lot. Unless you can easily carry both houses forever you will have a very hard time getting approved. Have you done any numbers? What would be your debt to income ratio?

In Katy, TX Cinco Ranch area homes are holding their value well. Values actually went up a few percentage points last year.