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Financial advice on moving and buying or renting home without selling home first, bridge loans, lease purchase option, string credit, equity rich but cash poor
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?
I'm by no means a professional, but from the sound of your situation, renting a home in your new market would be your best bet. At the moment, the cost to rent is cheaper than the cost to buy a home. Having the weight of two mortgages on your shoulders with only six months of cash in reserves will be extremely stressful.
There is no guarantee that you can sell your current home in the time frame you are looking for. By renting a home, your cash reserves will last longer while you get a feel for your new area. Six months to a year in a rental will give you plenty of time to find the perfect home for you new family.
Lease/purchase options are generally not a good idea, unless you are certain that the home you are renting is also the home you want to own. In my opinion, it would be smarter to take the difference you are saving each month from renting vs. buying and putting it away in a high interest savings account. This way, you can ensure that you have a sizable down payment for you new home after your old one sells.
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.
Jason
Jason, sounds like your in a very difficult situation right now because you HAVE to sell your house in a very short time period. 5 to 6 months is a VERY short time period in today's market. My advice would be to not fool around w/your listing price and get as aggressive as you can. Live as frugal as you can starting now because what happens in a couple months if there's an emergency and you have no cash?
Jason, I'm going to second Aaron's advice. If I were in your position, I would price the home at or slightly below where I think it will sell fast. That way I would not have to continue making payments on it.
I would move to the new location and rent for awhile to watch the market and take my time locating a home to buy. If you leave a little money on the table with your current home, you will probably make it back up on your purchase, providing you buy while the inventory is still high.
The longer you leave your home on the market, the greater chance you'll end up selling it for less anyway, and you'll still have the out of pocket expense of maintaining the home and making mortgate payments.
Jason, sounds like your in a very difficult situation right now because you HAVE to sell your house in a very short time period. 5 to 6 months is a VERY short time period in today's market. My advice would be to not fool around w/your listing price and get as aggressive as you can. Live as frugal as you can starting now because what happens in a couple months if there's an emergency and you have no cash?
I wish you the best...
I agree that pricing your home VERY aggressively is your best bet to get a quick sale and free up your cash. If the sale doesn't happen before you need to make the move, you may want to relocate ahead of your family and rent a studio or one bdrm as cheaply as possible.
Another option, which will be difficult to do at this point, would have been to take out a home equity loan on your current home and access some of your equity before you have to make the move. Unfortunately, most lenders will not do a HELOC on a home that's currently on the market.
The lease/purchase option would have to be a pretty sweet deal before I'd consider that route. There's a lot of pitfalls with those and really limits your housing selection.
Hopefully you currently live in an area where there's some decent buyer activity; although even in an extremely slow market a home that's truly priced aggressively will sell quickly.
Here's wishing you a quick sale and a successful and stress-free relocation!
Another option, which will be difficult to do at this point, would have been to take out a home equity loan on your current home and access some of your equity before you have to make the move. Unfortunately, most lenders will not do a HELOC on a home that's currently on the market.
Jason, do not take out a HELOC if you are planning to sell your home. Essentially, you will be paying the bank interest for equity you take out of your house. When your cash reserves are that low, and you future that uncertain, taking on additional debt can be extremely dangerous.
Plus, any equity you take out of your house now will affect how much you can sell your house for when the time comes. If you take out more equity than the market is willing to pay for your home, then you will be forced to bring money to closing.
Anyone ever used a bridge loan? Any potential pitfalls?
Jason, I would be careful with bridge loans. They usually have high interest rates (updwards of 15% or more) and can be very risky. The money from the bridge loan is secured by the value of your current residence. So if you can't sell your current home, you won't be able to pay the bridge loan down in a reasonable amount of time. In order to qualify for a bridge loan, you will need to have an existing contract on your current residence.
If you do take out a bridge loan, you need to be VERY aggressive in the sales price of your current home. You do not want potential sellers to back out of a contract over price. Holding out for last year's prices because your neighbor sold for a certain amount can put you in very serious financial trouble when you're carrying a bridge loan.
In this market, I wouldn't risk a bridge loan. If you don't get your house under agreement by February, my advice would be for you to find a smallish apartment to rent while you start your new job, and have your wife remain in your current home until it sells.
Been there, done that. Yes, it's stressful, but not as stressful as trying to carry two mortgages and worrying about running out of money (some people don't sell for nearly a year or longer these days).
Just get an apartment big enough to accommodate the family when they're staying with you, until you find a new house. (and take note of local storage facilities...)
In this market, I wouldn't risk a bridge loan. If you don't get your house under agreement by February, my advice would be for you to find a smallish apartment to rent while you start your new job, and have your wife remain in your current home until it sells.
Jason, its smart that your trying to plan for the worst case scenerio.
The advice by boomerang is great advice IMO. I wouldn't fool around w/loans. Start combing your future area for small apartments. You basically have a month or so left only to come to an agreement and set a closing date. Again, get as agressive as hell in your listing because worst case is two mortgages and then bankruptcy.....don't tiptoe.
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