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Old 08-28-2019, 09:27 PM
 
84 posts, read 144,386 times
Reputation: 186

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My wife and I currently own a condo realistically worth around $510k, with roughly $240k of equity ($270k left on the mortgage). We are casually searching for a standalone home in the $650-$700k range, and plan to use about $150k of our condo value towards the purchase of a new home. We also have $100k in a savings account that we'll combine with that $150k for around a $250k down payment.

What is the best option to tap into this equity for the purchase of a new home? I've read various articles about HELOCs or bridge loans (high fees, yuck); is there a better option between those two or something I might not be considering? We have fairly specific things that we're looking for before we buy, which is why it isn't really an option for us to sell first and then scramble to purchase a new place. We are pretty frugal and have no debt/800+ credit scores.

Thanks!
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Old 08-29-2019, 05:32 AM
 
Location: The Triad (NC)
28,917 posts, read 63,054,479 times
Reputation: 32964
Quote:
Originally Posted by Reveille1984 View Post
My wife and I currently own a condo realistically worth around $510k,
with roughly $240k of equity ($270k left on the mortgage).
We are casually searching for a standalone home in the $650-$700k range...

What is the best option to tap into this equity for the purchase of a new home?
Some sort of bridge loan would be the most common.
Find and buy the new house. Pack up and move. Sell the condo.
Then... Pay off the $270K when the condo closes and establish a new mortgage.

The specific numbers you'll actually net at each transaction stage, the longish duration
involved (6-12 months to get it all done) and your credit worthiness are where the gotcha's lie.
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Old 08-29-2019, 05:46 AM
 
Location: San Diego, CA
499 posts, read 390,622 times
Reputation: 1237
Quote:
Originally Posted by MrRational View Post
...
Find and buy the new house. Pack up and move. Sell the condo.
Then... Pay off the $270K when the condo closes and establish a new mortgage...
Unless you're considering renting out your current residence - the Government pretty much pays you to be a landlord - something to think about.
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Old 08-29-2019, 07:25 AM
 
Location: The Triad (NC)
28,917 posts, read 63,054,479 times
Reputation: 32964
Quote:
Originally Posted by GuyInSD View Post
Unless you're considering renting out your current residence...
Which virtually NO homeowner should EVER consider doing.
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Old 08-29-2019, 07:28 AM
 
Location: Columbia, SC
9,138 posts, read 18,211,301 times
Reputation: 6786
Heloc
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Old 08-29-2019, 07:39 AM
 
Location: Columbia, SC
9,138 posts, read 18,211,301 times
Reputation: 6786
Quote:
Originally Posted by MrRational View Post
Which virtually NO homeowner should EVER consider doing.
Why?
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Old 08-29-2019, 07:56 AM
 
Location: The Triad (NC)
28,917 posts, read 63,054,479 times
Reputation: 32964
Quote:
Originally Posted by Brandon Hoffman View Post
Why?
I'll call it common sense.
Why do you suppose such advice might be offered?

(Anyone inclined to read the deeper reasons
is welcome to look for the hundreds of threads exploring the issues)
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Old 08-30-2019, 10:18 AM
 
647 posts, read 478,425 times
Reputation: 410
Do a HELOC, but you need to get it done WELL before you are under a contract. If you are under contract, no one will let you do a HELOC. Bridge loans could work.

What about:

401(k) loans, and pay them right off with the capital proceeds from your sale;
Just assume two mortgages until you sell the second?
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Old 08-30-2019, 12:05 PM
 
54 posts, read 7,369 times
Reputation: 79
Quote:
Originally Posted by RJA29 View Post
Do a HELOC, but you need to get it done WELL before you are under a contract. If you are under contract, no one will let you do a HELOC. Bridge loans could work.

What about:

401(k) loans, and pay them right off with the capital proceeds from your sale;
Just assume two mortgages until you sell the second?
401k loans are a bad deal unless you can pay them off in short order. If one is laid off, quits or otherwise terminates employement, the loan converts to a distribution if you can’t pay it back in full by the end of October of the year following your separation. A distribution is taxed as income in its entirety and, if under 59.5 years of age, an extra 10% penalty is paid. I read a tax case where a person took a distribution from their 401k (not a loan) to bridge two houses with the intention of putting it back inside of the 60 day (I think 60 anyway) no penalty window. Things didn’t go according to plan and they ended up missing the window to return the distribution by a few days - bam - full income tax on the entire amount distributed plus 10%. That hurt I imagine.
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Old 08-30-2019, 12:25 PM
 
3,597 posts, read 7,787,587 times
Reputation: 4517
Quote:
Originally Posted by Reveille1984 View Post
My wife and I currently own a condo realistically worth around $510k, with roughly $240k of equity ($270k left on the mortgage). We are casually searching for a standalone home in the $650-$700k range, and plan to use about $150k of our condo value towards the purchase of a new home. We also have $100k in a savings account that we'll combine with that $150k for around a $250k down payment.

What is the best option to tap into this equity for the purchase of a new home? I've read various articles about HELOCs or bridge loans (high fees, yuck Where are you seeing "high fees" on bridge loans? Prime +.5% Interest-Only, with only an appraisal and Title policy is "high?" ); is there a better option between those two or something I might not be considering? We have fairly specific things that we're looking for before we buy, which is why it isn't really an option for us to sell first and then scramble to purchase a new place. We are pretty frugal and have no debt/800+ credit scores.

Thanks!
.
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