For the money savvy

[(Im)poster]

I plan to sell my house and buy another. Since I don't know how quickly my house will sell, the realtor suggested that I take out a home equity loan before I put my house on the market so I can use it toward the downpayment on the new house. If I can get a line of credit loan with no points or fees, would it make sense to do this?

I'm pretty sure I'd have to pay the equity loan back soon after the house sold and would plan to use money from the sale to pay it off right away.
I know in some cases banks charge the interest up front and that I might end up paying the same amount no matter how quickly I paid off the loan. Still, I wonder if it would make sense to do this so I could have 20 percent to put down on the new house, avoid PMI and have lower monthly mortgage payments. Anyone?

[mhd]

what's the market like where you live? you should have some idea what you could get for your place and how long it would take, and yes you would have to pay back the loan immediately upon the sale of your house

[ July 15, 2003, 09:32 AM: Message edited by: mhd ]

[MarkK]

You can write a contingency into any purchase of a new house. The contingency in this case is that you sell your other house before the contract on the new on is enforced.

Of course, if you are in a hot market, the seller can reject this contingency. That is why buyers who have the downpayment ready, and do not need to sell an existing house, have an advantage.

[darrow]

I don't know about the equity loan option, but if you're looking to not have PMI, I do know you can avoid PMI by taking out a first and second mortgage on the new home. If you go to google and type in 80/20, you'll get a bunch of hits. Also check with your lender about their specific program.

[Ken1015]

I'd like to see someone explain how this can work for you because I don't understand how it could. The way I look at it is if you take the loan you will indeed have a higher down payment and avoid PMI but you will then have an outstanding loan payment which may or may not be higher than a PMI payment. If you take a loan and pay it off when you sell your existing home that seems pointless because you're not using the money for its intended purpose, which is for a down payment. You may be able to take the loan, make the down payment then take a home equity loan from your new home to pay off the old loan but I don't know, and the new loan may put you into PMI territory.

My advice would be to price your house correctly. That is the most important thing. Houses that are priced correctly sell very fast. A coworker recently sold hers in 5 days and mine sold in 2 weeks. My wife has friends who are living in another friend's basement because their house sold quick. Price your house right and you'll have that problem too plus all of your money without having to finagle a loan. Make sure you and your realtor do a good study of recent sales in your area. It should take much longer to find a new home than to sell your existing one especially in today's market.

[jsd540]

Originally posted by Ken1015:
I'd like to see someone explain how this can work for you because I don't understand how it could. The way I look at it is if you take the loan you will indeed have a higher down payment and avoid PMI but you will then have an outstanding loan payment which may or may not be higher than a PMI payment. If you take a loan and pay it off when you sell your existing home that seems pointless because you're not using the money for its intended purpose, which is for a down payment. You may be able to take the loan, make the down payment then take a home equity loan from your new home to pay off the old loan but I don't know, and the new loan may put you into PMI territory.

My advice would be to price your house correctly. That is the most important thing. Houses that are priced correctly sell very fast. A coworker recently sold hers in 5 days and mine sold in 2 weeks. My wife has friends who are living in another friend's basement because their house sold quick. Price your house right and you'll have that problem too plus all of your money without having to finagle a loan. Make sure you and your realtor do a good study of recent sales in your area. It should take much longer to find a new home than to sell your existing one especially in today's market. Example:

your house is worth 200,000 and you will get roughly this amt when you sell.

you currently owe 125000 on your existing mtge.

if you sold the house you would put that 75000 into your new property.

Since you have'nt sold the house yet you will use the second mtge to access your equity and pay it back immediatly when you sell.

this is very rough example that does not take interest, closing costs, Agent fees and the amt of time you will be paying the second mtge till you sell your house.

[(Im)poster]

Originally posted by mhd:
what's the market like where you live? you should have some idea what you could get for your place and how long it would take, and yes you would have to pay back the loan immediately upon the sale of your house I'm selling in an OK market and trying to buy in a hot market. So the contingency thing would not work here at all. I need to have the cash up front. I have some other options, though.

Thanks all for the tips. I will check into the idea of taking out two loans. I've heard that before as well.