Equity Rich...Cash Poor (foreclosure, mortgage, landlord, price)

[PotterGeek]

Ditto what CJ, Boomerang, and Aaron said.

Trying to buy before you sell in this market equals financial suicide.

Just say no

[stevep]

I'm just going to add a bit of a twist to what the others said. Like the others said, get aggressive and sell your home. I'd also completely forget about the words "bridge loan", because it will only get you in more trouble. My suggestion is since you have a lot of equity in your house, try and take out a home equity line of credit (heloc) if you know you're not going to sell your home before moving. This loan should only, and I repeat ONLY, be used for emergencies... for ex: it's now 8 months later, you've moved but haven't sold your home, you're cash poor and don't have any money left to pay the mortgage, because this will be your safety net from going into foreclosure. If on the other hand you're not financially disciplined to only use the heloc in times of emergency and will instead go on a spending spree, then don't take one out, because it will get you in more trouble.

As for your new place, I wouldn't look for a lease option, because you'll end up paying more each month. Instead, find a rental (and if it's a house) ask them to sign an agreement giving you 1st right of refusal if they decide to sell.

[boyohboyohboy]

We faced a similar situation. My husband went ahead with his job and I stayed behind with the kids to sell the house. He rented a room in someone's house to live to keep expenses down (found through Craigslist). On the pro side of this arrangement we didn't have to pay 2 mortgages/mortgage+rent, and he got familiar with the area so when twe finally sold our house we knew where to buy. On the con side we missed each other a great deal. Our house finally sold and we close mid March. Time to start househunting in earnest! Best wishes to you,
Anne

[pghquest]

Originally Posted by tbljason

You guys have been great with all my other questions so I thought I would throw this out to you as well.

I have accepted a new job that will cause me to relocate by March 1. At the age of 37, this will be the first time that I have packed up the family and move out of town.

My home is already on the market. We priced it aggressively and are probably willing to even come down a little more. We have a good bit of equity in the current house that I will roll over into a down payment on a new house. However the odds of me having that money in my pocket before March 1 are slim and none.

After doing the math, we have the ability to pay the current mortgage along with a mortgage/rent in the new city for 5 to 6 months. After that, the cash dries up.

The question for the experts is, "What are my options for getting into a new place?" I would prefer to move my family only once, so in a perfect world I'd like to find a house that I like and stay there. I have read about lease/purchase options. From what I have seen that option is usually taken by people that are having trouble getting financing. Not so with us, we have excellent credit and will have no problem getting approved. I have also looked into a bridge loan, but it does not look like any of the major lenders are in the bridge loan business. Anything out there that I am missing?

Thanks in advance for your guidance.

Jason

Jason, go to your current bank and get a home equity line of credit, but make sure its enough to pay off your current mortgage, not just one to "last". (pncbank.com only charges $99 for this, so the cost is very cheap)

Use this home equity line of credit, pay off the current mortgage and use that line of credit to pay the ongoing mortgage, which will free you up to move, and pay your current mortgage for an unlimited period of time.

Example:
If your monthly payment is $1,000.. take $800 monthly from your home equity line of credit, put it in your checking account, then cut the check for $1,000 to pay the line of credit. (i.e. $200 out of your pocket to cover the interest, so you dont go further into debt).

This frees up the $800 a month, not coming out of your pocket, will act as a perminant "bridge loan", and will stretch that 5-6 months out to "forever", long as you can afford the $200 a month in interest. It also will protect your credit scores, keep you from going further into debt, cause your home to not go into forclosure, and keeping you from losing your equity.

As others have suggested, you could consider renting out your home, but considering that you have it on the market, fat chance you'll find a tenant willing to move in, and allow you access to show it to buyers, knowing that they will have to move out in months.

This also does one other important thing, which will allow you to purchase a home now, in a great buyers market, without the fear of running into a financial hardship over the old home. Renting makes sense, but if you wait till you sell your old home, the market will be turning around, and you'll probably be buying in a sellers market, loosing out on any negoating power that you have.

One final thing, before you take a step like this, discuss it with a mortgage company your planning to use for your new homer, getting pre-approved for the new mortgage, with the understanding you are going to refi the old one into a home equity, while your total debt does not change, this moves the debt from a mortgage status on your credit report, to a credit card status, and you want to make sure that this will not harm your ability to purchase a new home.

[AaronS]

Originally Posted by pghquest

Jason, go to your current bank and get a home equity line of credit, but make sure its enough to pay off your current mortgage, not just one to "last". (pncbank.com only charges $99 for this, so the cost is very cheap)

Taking out a loan against the value of your home is not a smart idea when you are trying to sell. Essentially, you are taking out a loan for money (that you already have once you sell the house) at a rate of 7-10%. Capital gains laws allow you to keep the equity of your house tax free when you sell it. Why pay a bank thousands of dollars for money that is already yours?

Originally Posted by pghquest

Use this home equity line of credit, pay off the current mortgage and use that line of credit to pay the ongoing mortgage, which will free you up to move, and pay your current mortgage for an unlimited period of time.

Example:
If your monthly payment is $1,000.. take $800 monthly from your home equity line of credit, put it in your checking account, then cut the check for $1,000 to pay the line of credit. (i.e. $200 out of your pocket to cover the interest, so you dont go further into debt).

This frees up the $800 a month, not coming out of your pocket, will act as a perminant "bridge loan", and will stretch that 5-6 months out to "forever", long as you can afford the $200 a month in interest. It also will protect your credit scores, keep you from going further into debt, cause your home to not go into forclosure, and keeping you from losing your equity.

This is the same logic people use to pay one credit card off with another. It is generally not a good idea to take on more debt to pay outstanding debt. You can get into serious financial trouble this way.

Originally Posted by pghquest

As others have suggested, you could consider renting out your home, but considering that you have it on the market, fat chance you'll find a tenant willing to move in, and allow you access to show it to buyers, knowing that they will have to move out in months.

If you are looking to sell as soon as possible, as you have indicated, then renting out your current home will only get in your way. Not only do you have to worry out finding a renter willing to pay enough to cover your PITI, you also have to deal with the headaches of being a landlord.

Originally Posted by pghquest

This also does one other important thing, which will allow you to purchase a home now, in a great buyers market, without the fear of running into a financial hardship over the old home. Renting makes sense, but if you wait till you sell your old home, the market will be turning around, and you'll probably be buying in a sellers market, loosing out on any negoating power that you have.

Jason, if you are serious about selling your house in six month's time, then you need to price your home right. This doesn't mean looking at comparable homes that sold over six months and giving your home the same price. You need to severely undercut the competition. If you simply price your home like others in the neighborhood, you're only going to follow the market down. In today's market, the only thing that sells a home is price.

And I wouldn't worry about missing out on this buyer's market. Current economic analysts (not that NAR) are saying that this bust will last until at least 2010. And from then on, any gains in home prices will be modest at best for a few years to come.

[pghquest]

Originally Posted by AaronS

Taking out a loan against the value of your home is not a smart idea when you are trying to sell. Essentially, you are taking out a loan for money (that you already have once you sell the house) at a rate of 7-10%. Capital gains laws allow you to keep the equity of your house tax free when you sell it. Why pay a bank thousands of dollars for money that is already yours?

Incorrect... I said take out a HELOC for the exact amount he already owes, he will be paying for this in a mortgage, or a HELOC, he is not paying "extra" for anything. There is no thousands of dollars your speaking of. The cost of a HELOC is usually very cheap, $99 at pncbank.com for example.

Originally Posted by AaronS

This is the same logic people use to pay one credit card off with another. It is generally not a good idea to take on more debt to pay outstanding debt. You can get into serious financial trouble this way.

I did not tell him to take on more debt, I told him to move the debt from a mortgage, to a HELOC, and by doing it the way I suggested, it moves it essentially into an interest only loan until the time sold. I did not tell him to take out extra or live off the funds. Re-read what I stated because I did not tell him to take on more debt.

Right now he has enough funds to last 5 months, in the current economy what will happen if he keeps going as is, and 4 months comes along? Does he drop his home price to the point that it gives him no equity? Does he get to the point that he essentially give the home away? Does he let it go into default? With only 5 months of funds available, the status quo is unacceptable and he needs to slow down the bleeding.

Originally Posted by AaronS

If you are looking to sell as soon as possible, as you have indicated, then renting out your current home will only get in your way. Not only do you have to worry out finding a renter willing to pay enough to cover your PITI, you also have to deal with the headaches of being a landlord.

agree, renting is a poor option for someone trying to sell

[AnthonyB]

I'm going to second AaronS's advice (and also disagree with pghquest on this one - playing around with a heloc could get you into serious trouble if you don't sell withing a specific timeframe. Playing games with money worked well in the hot, couldn't lose market of a couple of years ago, but in this market could be financial suicide.

Price to sell and get on with your life.

I would also second the advice for you to move and your family to stay until the house sells. While it would be hard emotionally, it would probably be easier in the long run than moving your family twice or having to store your stuff. Plus the house may appear less "desparate" on the market if it isn't empty.

Good luck and hope your eventual choice works out for you.

[pghquest]

Originally Posted by AnthonyB

I'm going to second AaronS's advice (and also disagree with pghquest on this one - playing around with a heloc could get you into serious trouble if you don't sell withing a specific timeframe. Playing games with money worked well in the hot, couldn't lose market of a couple of years ago, but in this market could be financial suicide.

Well I welcome the disagreement, please explain this part..

Playing around with the heloc could get you into serious trouble if you don't sell within a specific timeframe.

I have a HELOC on one of my properties, its an open ended 30 year term, are you suggesting that he wont sell it within 30 years? What type of trouble could he face exactly? How exactly is moving his mortgage to a HELOC, suicide if he doesnt borrow any more/less then he currently owes and continues to make the payment, and continues to cover the interest out of his pocket, rather then the whole payment?

By failing to act, he is committing suicide, his own posting says that he will run out of money in 5 months. Taking actions to make sure he can pay his mortgage past that 5 year period is being responsible, not suicide.

[AnthonyB]

Originally Posted by pghquest

Well I welcome the disagreement, please explain this part..

Playing around with the heloc could get you into serious trouble if you don't sell within a specific timeframe.

I have a HELOC on one of my properties, its an open ended 30 year term, are you suggesting that he wont sell it within 30 years? What type of trouble could he face exactly? How exactly is moving his mortgage to a HELOC, suicide if he doesnt borrow any more/less then he currently owes and continues to make the payment, and continues to cover the interest out of his pocket, rather then the whole payment?

By failing to act, he is committing suicide, his own posting says that he will run out of money in 5 months. Taking actions to make sure he can pay his mortgage past that 5 year period is being responsible, not suicide.

The HELOC is just a second mortgage. You are advocating taking a second mortgage to pay off the first. When the house sells he still has to pay them all back. It doesn't stop the bleeding, or give him his equity, it just moves money around to make it all look OK.

Much better to price to sell now and walk away with what he can get. The OP already said he had significant equity. He does have wiggle room, and the market is hardly skyrocketing right now.

[Brandon Hoffman]

I don't think many lenders will take out 2nd's or equity lines on homes that are being sold anyway. At least that's what I've heard, never tried it.

Bridge loans are something you'd want as a last resort if you bought.

Renting something very affordable is an option I'd strongly suggest looking at.