Update on House Buying When You Haven’t Listed Current Home

[ny96]

Update: Our mortgage person came back to us with a small bridge loan option, but we’d still have to come up with $400k and our offers would be contingent on selling our place. So we are going full speed ahead with our plan to remodel our house.

H and I saw a house over the weekend that we decided we were interested in putting an offer on. We haven’t been seriously looking, but know that we have to move or remodel soon as our house is too small and we don’t have much of a yard. Our realtor immediately sprung into action, but when we reached out to our mortgage broker he said that we couldn’t afford to carry two mortgages and although he offered bridge loans we would have to have our house on the market and be under contract on a new one to qualify. Our realtor found another lender who didn’t have that requirement, but when I spoke with him he said that the bridge loan would be set up as if we were buying an investment property and would require about $500,000 up front, which is basically all of our investments and which we wouldn’t want to liquidate. I don’t know if there are any other options, but I keep thinking there must be. We have great credit, no debt other than our mortgage and a car lease and would be able to put about 10% down. We also have about 75% equity in our current house which we plan on rolling into the new house. Any options we haven’t thought of?

ETA: we are planning on putting our house on the market right away, but we’ve done the thing where we go under contract and then race to buy a new house which is how we ended up with our current house that is too small for us, and we don’t want to do that again.

[Susie]

Do you have a preapproval yet?  We went through the preapproval process basically as soon as we decided we were serious about moving, because we knew we would have to offer quickly on anything, and that we would need to have a preapproval letter in hand to accompany the offer in order for it to be taken seriously.  We did our preapproval with our credit union, who held the mortgage on the house we would be selling, although we ended up financing the purchase with a different lender (better rate).  

A pretty baseline question in determining our preapproval amount was whether we would be making a contingent offer or not.  We could have been preapproved for a much higher amount with a contingent offer, but we did not go that route because the likelihood of winning a contract with a contingent offer was low.  It was pretty fluid at that point though, we could have changed our minds at any point and gotten a new letter.  Neither lender we worked with (one credit union and one broker) offered bridge loans, so that was never on the table.

We did the preapproval in January, made an offer that was accepted in March.  Got through attorney review and inspections, and then listed our house for sale in April.  Went under contract right away on our sale.  We closed on the purchase in late May with 5% down, conventional loan.  Sold our old house in late June.  The plan is to put the proceeds from the sale into the new mortgage, drop PMI, and recast.

Our lender on the purchase asked a few times toward the end, to confirm that we were really selling our old house, and that we were moving, not investing in a 2nd house.  By that point though, there was a "pending" MLS listing for our sale that we could show.  We didn't need to show it until we were working toward clear to close.

[ny96]

Susie - We were seeking pre approval and it didn’t sound like we could get one without the contingency, and our realtor said we would be wasting our time putting in a contingent offer. The preapproval with contingencies might be our only option, but I don’t think we’ll be able to win any bidding wars, even though I’m sure we could sell our house quickly.

[minzy]

Aug 24, 2021 14:43:39 GMT -5 ny96 said:

Any options we haven’t thought of?

It’s kind of out there but do you have any family members who could float you for like three weeks? We are considering doing this for close relatives (it was my husband’s idea, not theirs), so they don’t have to liquidate their 401(k)s just to change homes.

[ny96]

Aug 24, 2021 21:04:51 GMT -5 minzy said:

Aug 24, 2021 14:43:39 GMT -5 ny96 said:

Any options we haven’t thought of?

It’s kind of out there but do you have any family members who could float you for like three weeks? We are considering doing this for close relatives (it was my husband’s idea, not theirs), so they don’t have to liquidate their 401(k)s just to change homes.

Unfortunately, I think the ask would be too big.

[lucygoosey]

I know things might have changed but in 2018, I used Quicken Loans to get a non-contingent preapproval. I was just looking for any lender who would say yes. We are by no means millionaires (combined annual income of $160k) so I wasn’t sure what kind of approval they would offer but it all worked out fine.

Old home was listed a week after making the offer on our new home and old home closed the week after new home. We put 10% down from savings. Old home sold for $369k, new home purchased for $515k with a closing credit of $5k.

To get out of the PMI, we refinanced the following year and since the value had increased, we had to bring less funds to the table.

[tealblue]

My only thought was take a 401(k) loan or open a HELOC on your current house to take out most of the equity. I’m not sure that works here since it sounds like you are taking pretty big numbers on your house sale and purchase… but just throwing it out.

[atarianna]

Aug 25, 2021 7:26:31 GMT -5 tealblue said:

My only thought was take a 401(k) loan or open a HELOC on your current house to take out most of the equity. I’m not sure that works here since it sounds like you are taking pretty big numbers on your house sale and purchase… but just throwing it out.

Be careful with a HELOC, they sometimes have massive penalties if you close out the loan (ie sell the house and pay it off) within X months/years of opening.

[janegold]

Aug 25, 2021 8:02:11 GMT -5 atarianna said:

Aug 25, 2021 7:26:31 GMT -5 tealblue said:

My only thought was take a 401(k) loan or open a HELOC on your current house to take out most of the equity. I’m not sure that works here since it sounds like you are taking pretty big numbers on your house sale and purchase… but just throwing it out.

Be careful with a HELOC, they sometimes have massive penalties if you close out the loan (ie sell the house and pay it off) within X months/years of opening.

Also, you often can't take out a HELOC after you list your home on the market, so you'd want to do it before to the extent it's workable for you.

[janegold]

We decided to put in an offer on our current house a couple years ago, before we had listed our condo. We were able to carry two mortgages but really didn't want to. The market in our area was not nearly as hot as it is right now, so we made our offer contingent on selling our house. The buyers accepted as long as we could sell our house within a certain time frame - and then we had to BUST ASS to get it listed in like a few weeks. It turned out that we had to carry both mortgages for a few weeks anyway, but only because that's what worked best in terms of timing for us - we did end up getting our condo listed and under contract within the time allotted.

If there's really no way that you can qualify to carry both mortgages (are there other debts you can pay off to lower your DTI ratio?), then a contingent offer (which might not fly, depending on how hot your market is currently), or waiting to sell and then buy, are probably your only choices. You could also keep talking to other lenders about their bridge loan terms.

[megkat]

We just did this (bought before selling our current house) and we used an HELOC on our current house to have the down payment/closing costs for the new house. We do have to pay back the closing costs for the HELOC when we finalize the sale of our house- but in our case, that’s only around 700 dollars, which was worth it to us to be able to put in non-contingent offers when we were house shopping

[ny96]

Aug 25, 2021 8:25:36 GMT -5 janegold said:

We decided to put in an offer on our current house a couple years ago, before we had listed our condo. We were able to carry two mortgages but really didn't want to. The market in our area was not nearly as hot as it is right now, so we made our offer contingent on selling our house. The buyers accepted as long as we could sell our house within a certain time frame - and then we had to BUST ASS to get it listed in like a few weeks. It turned out that we had to carry both mortgages for a few weeks anyway, but only because that's what worked best in terms of timing for us - we did end up getting our condo listed and under contract within the time allotted.

If there's really no way that you can qualify to carry both mortgages (are there other debts you can pay off to lower your DTI ratio?), then a contingent offer (which might not fly, depending on how hot your market is currently), or waiting to sell and then buy, are probably your only choices. You could also keep talking to other lenders about their bridge loan terms.

. The only debt we have is an auto lease. Our mortgage broker ran the numbers and taking in both mortgages would add up to about 80% of our take home, whereas with only our current mortgage we’re paying about 25%. The predicament we are in is that we live in LA and have normal incomes but in order to pay LA prices in a decent area we had to put a lot of our money down on our current house. Which means that the mortgage on the new house would be massive if we only put 10% down, and we’d have a hard time qualifying. We still have a decent amount in investments, but we don’t want to liquidate long-term investments, especially because they have made us quite a bit of money in the past few years and we would pay a lot of capital gains.

[janegold]

Aug 25, 2021 10:13:03 GMT -5 ny96 said:

Aug 25, 2021 8:25:36 GMT -5 janegold said:

We decided to put in an offer on our current house a couple years ago, before we had listed our condo. We were able to carry two mortgages but really didn't want to. The market in our area was not nearly as hot as it is right now, so we made our offer contingent on selling our house. The buyers accepted as long as we could sell our house within a certain time frame - and then we had to BUST ASS to get it listed in like a few weeks. It turned out that we had to carry both mortgages for a few weeks anyway, but only because that's what worked best in terms of timing for us - we did end up getting our condo listed and under contract within the time allotted.

If there's really no way that you can qualify to carry both mortgages (are there other debts you can pay off to lower your DTI ratio?), then a contingent offer (which might not fly, depending on how hot your market is currently), or waiting to sell and then buy, are probably your only choices. You could also keep talking to other lenders about their bridge loan terms.

. The only debt we have is an auto lease. Our mortgage broker ran the numbers and taking in both mortgages would add up to about 80% of our take home, whereas with only our current mortgage we’re paying about 25%. The predicament we are in is that we live in LA and have normal incomes but in order to pay LA prices in a decent area we had to put a lot of our money down on our current house. Which means that the mortgage on the new house would be massive if we only put 10% down, and we’d have a hard time qualifying. We still have a decent amount in investments, but we don’t want to liquidate long-term investments, especially because they have made us quite a bit of money in the past few years and we would pay a lot of capital gains.

What about a 401k loan?  We ended up doing that to help with our DP before our condo sold, and it was super easy, no expenses (other than a few weeks of missed interest), and we paid it back immediately when our condo sold.  

[onomatopoeia]

Aug 25, 2021 10:16:48 GMT -5 janegold said:

Aug 25, 2021 10:13:03 GMT -5 ny96 said:

. The only debt we have is an auto lease. Our mortgage broker ran the numbers and taking in both mortgages would add up to about 80% of our take home, whereas with only our current mortgage we’re paying about 25%. The predicament we are in is that we live in LA and have normal incomes but in order to pay LA prices in a decent area we had to put a lot of our money down on our current house. Which means that the mortgage on the new house would be massive if we only put 10% down, and we’d have a hard time qualifying. We still have a decent amount in investments, but we don’t want to liquidate long-term investments, especially because they have made us quite a bit of money in the past few years and we would pay a lot of capital gains.

What about a 401k loan?  We ended up doing that to help with our DP before our condo sold, and it was super easy, no expenses (other than a few weeks of missed interest), and we paid it back immediately when our condo sold.  

This is what we did (the 401k loan) in 2019 and it worked out well. We were looking in a really small geographic area with limited inventory, so we didn't want to list our first house until we found our second (although we had worked to make it somewhat list-ready). We were able to make an offer with no contingencies and once it was accepted we immediately listed our house. It was very busy a bit stressful with the worry that it wouldn't sell, but we could manage the two mortgages in a pinch if needed.  We also got the seller to have a delayed closing date which helped ease my fear about not being able to sell our house quickly, I don't know if you could do that in today's market but it might be worth a try.  In the end it wasn't necessary, our house sold really quickly. Good luck!

[ny96]

Thanks for the 401k suggestions. We’ll look into that. Perhaps with a loan on those funds plus some investment funds we’d be able to put something together.

[madringal]

If you are comfortable PMing me some more specific information and numbers I can see if I can do anything to help you. I am a lender and can do loans in all 50 states.

[chpmnk1015]

What about selling first and doing a short term rental while you look? Or any family you could stay with for a few months? We did this when we sold 10 years ago.
.. sold house first, moved into my parents for 3 months... we put an offer in on house like week before our closing so closed 3 months later

[scout8]

It's not ideal, but what about selling and requesting a 60 day rent back from your buyers? (60 days is probably the max the buyers can do if they are getting a loan). That would buy you a little time to find a place and be in a position to make a an offer without a sales contingency. Worst case, you don't find a place and/or can't close in time and then need to find a short term housing situation, but most likely, you will find a place.

[vmars]

So we actually were able to sell our house without listing it, we had a realtor in our neighborhood and he knew someone who wanted to buy our house to get into the neighborhood. They saw it for 20 mins and quickly thereafter we accepted an offer from them and were out of attorney review very quickly. After we got out of attorney review we put in a full price offer on the house we liked snd they accepted. I thought buying would be much harder, but it worked out well.

[ny96]

Thanks for all the suggestions. The house we wanted is now under contract. It looks like we may have a few different options next time, but none of those are ideal.

madringal I may still pm you at some point, thanks.

[egishere]

Does your area have anything like Open Door or Zillow buying homes? We have that here and I'm not totally sure of what all the fees are but they just buy your house from you-no listing it and then they will make the necessary repairs, etc and list it later.