Down payment when buying a new home before first one sells

[tripleshot]

Just curious what the best options are here. We’re not planning on moving for a few years but if we need to save cash for this, I need to start planning now.

If we want to move and buy a new home before our current home sells, can we use the equity in our home as a down payment on the new home and then pay it off when the house sells? Maybe a home equity loan? Juggling the sale and purchase of a home at the same time so they line up makes me nervous but I’m sure people do it all the time. What are your real life experiences and advice?

[Cappy]

We were successful in making a contingent offer on the new home and then removing the contingency when we accepted an offer on ours. We then managed to get a dual closing the same day. Our agent seemed skeptical but it worked out. We were buying a bank-owned home too.

Before we chose that option we contacted our mortgage guy to go over the options. The were: contingent offer on a purchase, contingent on the sale side, HELOC to tap equity, making a tiny downpayment with cash on hand then recasting the new loan after the sale, or a huge bundled loan on the 2 homes if we met the criteria (riskiest of the options).

[madringal]

Some banks offer a bridge loan that does exactly that. Back before 2008, Chase offered this. I think it was like 20% of the equity of your home for up to 30 months. They seem to be harder to find these days, but if you have access to a CU, I would start there.

[lessel]

We did a bridge loan. I think it ended up costing us probably $600 in costs. Worth it. It's basically a short-term HELOC, I think.

We were in a hot market for the house we were selling, so we were confident in getting a sales price and trusted our realtor's assessment of our sales price. That gave us about 200k equity in the house, so we took out a $100k bridge loan. (We were looking at homes in the 475k range). I can't exactly remember the timing, but I think we locked in our bridge loan before we made our offer. So there were no contingencies on our offer. I want to say we did the bridge in April. Made an offer on a house in early May. Closing was early June, but they requested a few weeks occupancy to move. I think we put our house on the market right around Memorial Day and were under contract on the sale in under 48hrs. We moved in early July and then closed on our sale a week after we moved. The bridge was paid off immediately at the sale and the remaining funds were wired to us.

[redredwine]

We listed our home, got an offer, and then made an offer on our current home - and closed - before our old one officially sold. We did a 401k loan, it was actually fairly easy and we repaid it immediately when we got the funds from our home sale. They set up a payment plan from payroll deduct, with interest, so you don't really lose anything in your 401k when you do It. It's not for everyone, but worked well and relatively easy for us with little risk. 

ETA: We also recasted our loan with the remaining proceeds from our sale - and after we repaid back our 401k -  so we kept the rate we already locked in) and that was pretty easy as well. 

[lolalolalola]

We used our HELOC.

Our bank would do a bridge loan only if we were already under contract to sell the current house before buying the new one.

We needed to qualify to carry the mortgages on both homes to do this.

[icedcoffee]

We sold, moved into a short term rental and then bought. It was a pain in the ass and I do not recommend. But actually it was stress free in terms of being a very low risk way of doing it.

Some people sell, rent back and then buy. This requires it to be a seller's market and have a reasonably accommodating buyer, but it does work.

[elcjet]

We did this three years ago by taking out a HELOC on the house we owned and using those funds as the 20% equity in the new house. We had one month with interest on the HELOC + 2 mortgages, and then we sold the original house and took out the HELOC and original loan with the proceeds. We were lucky it worked out for us, because it was a LOT of leverage to carry.

[sandandsea]

We did a separate down payment for the second house and refinanced when the first house sold a month later to “add” to the down payment. We have since paid a couple of large sum chunks and have recasted the mortgage once to reduce the monthly payment without changing the loan terms.

ETA. Technically we could have survive paying 2 mortgages for a year and live in a very hot market. Our house sold after one weekend of open houses and the house we bought was listed Friday and we were in contract Monday morning. We were comfortable with the risk of 2 mortgages for a short while.

[k3am]

It’s also going to depend on your local housing market.. we bought in 2018 in a VERY hot market, and even though we had a down payment and no contingencies in our offer, sellers wouldn’t accept our offer prior to our house selling - we lost out on a house even when we were under contract for our current house.

[awkwardpenguin]

We live in a market where there's almost no chance of contingent offers being accepted. We used a combination of cash we'd saved and a 401k loan for our down payment, then paid off the 401k loan when the sale of our previous home closed.

I found that no one was offering bridge loans these days. Our mortgage broker suggested using a HELOC if we needed to borrow the money, but that it all had to be done a bit in advance of making an offer. It seemed complicated and we had enough cash to make the 401k loan option work so we went with that.

[MrsE]

We hoarded cash for a DP and used that for the new house. We replaced our savings with the proceeds from the old house. I do not recommend having two mortgages at the same time if you can avoid it, although we needed somewhere to live during major renovations (and do not have local family) so we bought our new home and lived in our old home for 2 months during renovations before we sold our old one.

[steamboat185]

We took a loan from DH’s 401k. We paid it back as soon as our house sold and I think it cost us about 100 dollars. We did lose a bit of potential growth, but I think the money was only out for about 60 days. There was a chance DH could have lost his job during that window, but it was a risk we were comfortable with.

[macmars45]

Sept 28, 2020 12:36:19 GMT -5 icedcoffee said:

We sold, moved into a short term rental and then bought. It was a pain in the ass and I do not recommend. But actually it was stress free in terms of being a very low risk way of doing it.

This is what my family is currently doing. We moved into our rental at end of June, got our TH on the market the endish of July and it sold within 5 days. Sale was final mid August. We bought a house middle of last month but it's a new construction and won't be done until December due to COVID delays. We are so grateful for our rental. We aren't happy about needing to move again though (moving is a pain in the ass) and are really hoping we'll be in our new house before snow flies. We'll see.

ETA: we looked into a bridge loan and buying before selling but in the low inventory sellers market we're in it didn't make sense.

[janegold]

We did this earlier this year - there was about a 3 week gap between buying our new home and selling our old one. We looked into many of the options mentioned here but ultimately decided to use a 401k loan. We paid it back the same day our first home sold, and it didn’t cost us anything other than a few weeks’ interest on that money (which we had to “repay” to ourselves anyway).

The HELOC option is something to consider but from what I understand, you may need to take it out before you put your first home on the market because many lenders won’t allow you to take out a HELOC on a property that is listed for sale.

As others have said, we did have to quality to carry both mortgages (the bank didn’t care that we were under contract to sell our first home within weeks), so make sure you take that into consideration.

If I were to do it over again, I would probably plan to sell first and then buy. As annoying as it would be to rent, it would have been a LOT less stressful.

[rubytue]

We did this in 2011. Just used savings for down payment, the moved, then listed the house. We had to qualify for both mortgages. The house didn’t sell and we ended up renting it bc paying two mortgages was annoying. The market being as weird as is it right now, our tenants moved out and we sold the house in days. It closes this week, and we are close to making an offer of another house. We need that equity for the new one, but are qualifying for the next house as it being a second house, bc we won’t list the current until we move.

[chedifuen]

We're doing this right now. We're using cash on hand for the down payment and we'll sell our current house after we move. It's a great option if you can swing it, a lot less stressful trying to buy and we can take our time.

[froggy76]

Not the best idea in all circumstances, but I borrowed from my 401(k). My job was stable and I knew the old house would sell quickly. We just wanted the opportunity to move out, fix a few things and then put it on the market. It sold in 3 days and I was able to repay the loan quickly.

[woowoo]

We used a 401K loan. We were moving FOR my job, so I felt it was stable and we were in a hot housing market and I knew it wouldn't take more than a few weeks to sell.
It made the whole process SO much easier.