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Old 08-25-2016, 07:11 PM
 
91 posts, read 75,161 times
Reputation: 72

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Hi there,

I need your expertise since last time I posted my deal didn't work out and got outbid a few times. Inventory is low and I realize with 3 generations of family and 2 dogs we need a bigger house.

My house is paid off (appraised at 450K) and was wondering if I can tap my home equity loan to afford a house for 900K. We have excellent credit and combined income of 150K. We have savings of 100K and no debt.

I always been very risk adverse when it comes to financial matters but I need your advice to see if I can actually pull this off.

For a 900K house I will need 20% down 180K plus 5% closing costs 45K a total of 225k.

Can I take out a home equity loan for the remaining amount (125K) to purchase this new home and get a new mortgage? I am not sure how to factor in the debt to equity ratio since this involves 2 loan transactions.

We plan to sell the home and not sure if we can sell it there is going to be a lien on it with the home equity loan? Would there be early prepayment penalties on home equity loan?

Any advice would be greatly appreciated.

Many thanks
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Old 08-25-2016, 08:33 PM
 
Location: MID ATLANTIC
8,688 posts, read 23,080,830 times
Reputation: 10549
You are looking for a bridge loan (loan on the old to buy on the new). You have to qualify carrying the bridge (home equity loan), taxes and insurance on current home and the PITI on the new home, the whole ball of wax. The problem is, the bridge loan is a product that dried up back in the mortgage crisis. You may find a portfolio lender wanting your new loan, but that could be a tough sell. Reason - the loan for the 900K loan is going to be paid down significantly and the other paid off. Each bank has a cost to put a loan on the books and it would actually shock most people. (I am talking about lenders that originate and hold the loans). This is why pricing gets cutthroat on the jumbo loans. When they pay off early lenders lose a lot.

I still think portfolio is your best bet and be honest when laying out your plans. A small regional bank or a credit union will be able to parse out the early payoffs and may even work with you on a principal curtailment and a payment recast. You may have to tell your story, over and over. But, don't let your credit be pulled over and over. But I think you will find something - whether it's in time to wrap up that home, I don't know. In many ways we are returning to old fashioned handshake deals, we are finding our way, back to where we started.
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Old 08-26-2016, 08:27 PM
 
91 posts, read 75,161 times
Reputation: 72
Quote:
Originally Posted by SmartMoney View Post
You are looking for a bridge loan (loan on the old to buy on the new). You have to qualify carrying the bridge (home equity loan), taxes and insurance on current home and the PITI on the new home, the whole ball of wax. The problem is, the bridge loan is a product that dried up back in the mortgage crisis. You may find a portfolio lender wanting your new loan, but that could be a tough sell. Reason - the loan for the 900K loan is going to be paid down significantly and the other paid off. Each bank has a cost to put a loan on the books and it would actually shock most people. (I am talking about lenders that originate and hold the loans). This is why pricing gets cutthroat on the jumbo loans. When they pay off early lenders lose a lot.

I still think portfolio is your best bet and be honest when laying out your plans. A small regional bank or a credit union will be able to parse out the early payoffs and may even work with you on a principal curtailment and a payment recast. You may have to tell your story, over and over. But, don't let your credit be pulled over and over. But I think you will find something - whether it's in time to wrap up that home, I don't know. In many ways we are returning to old fashioned handshake deals, we are finding our way, back to where we started.

Thanks for the info Money. Is the bridge loan like a HELOC?

Another option I have is to sell the home and put a contingency on it that I need to find a replacement home. I will discuss with lawyer about that.
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Old 08-27-2016, 06:53 AM
 
Location: MID ATLANTIC
8,688 posts, read 23,080,830 times
Reputation: 10549
Yes, a bridge is like a heloc, without requiring you to make the statement you plan to occupy the home for one year.

Your second option listed is how most people make their move happen. Things to consider, when you remove your contingency (or at the first pass with the contract), ask for a one week rentback for a leisurely move.
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Old 08-28-2016, 10:59 AM
 
18,567 posts, read 15,800,875 times
Reputation: 16277
Sell and rentback old house. I'm going to say it like it is - a 720k mortgage on a 150k income is not a good idea. Period.
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Old 08-29-2016, 10:49 AM
 
Location: Denver CO
24,201 posts, read 19,474,410 times
Reputation: 38274
Quote:
Originally Posted by ncole1 View Post
Sell and rentback old house. I'm going to say it like it is - a 720k mortgage on a 150k income is not a good idea. Period.
Yep, that's what I was going to ask too. At first I thought you were going to be putting the 450K equity into the new house, and taking out a 450K mortgage. That's seems a lot more feasible than 720K mortgage on 150K in income. I'm not sure you'd even get approved for that much.
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Old 08-29-2016, 11:52 AM
 
1,054 posts, read 1,445,303 times
Reputation: 2443
Quote:
Originally Posted by Darock View Post
Hi there,

I need your expertise since last time I posted my deal didn't work out and got outbid a few times. Inventory is low and I realize with 3 generations of family and 2 dogs we need a bigger house.

My house is paid off (appraised at 450K) and was wondering if I can tap my home equity loan to afford a house for 900K. We have excellent credit and combined income of 150K. We have savings of 100K and no debt.

I always been very risk adverse when it comes to financial matters but I need your advice to see if I can actually pull this off.

For a 900K house I will need 20% down 180K plus 5% closing costs 45K a total of 225k.

Can I take out a home equity loan for the remaining amount (125K) to purchase this new home and get a new mortgage? I am not sure how to factor in the debt to equity ratio since this involves 2 loan transactions.

We plan to sell the home and not sure if we can sell it there is going to be a lien on it with the home equity loan? Would there be early prepayment penalties on home equity loan?

Any advice would be greatly appreciated.

Many thanks
Your idea would work fine, but it would be much better if you take 80% of the equity of your old house, which would be about $360,000 and use that for the down-payment on the new place. This would make your new loan around $560,000 ($20kish in closing, $45k is too high for closing costs on a purchase unless you live in a place with $30k a year property taxes) which would be a easier amount to handle on $150k of income.
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