WWGRMD - "creative" bridge financing for a home purchase

NOT A TA said:

docwyte said:

I'm a really fiscally conservative guy, so my advice is based on that.

Dude, you're NUTS!  Do not even *think* of buying another house across the country from you before you have yours sold!  Particularly a house that doesn't even have a proper garage!

Do not pass "Go", Do not collect "$200"!  Do not pull money from another source like your retirement to do this! 

Believe me, as perfect as this house may seem, there are plenty of other houses out there.  Take care of selling your current house first, then go search and buy the next one.

This ^^^^^.   I rolled the dice and lost more than either house was worth. Everything that could possibly wrong did. Things I'd never even considered. I lost the money I'd saved for retirement. Lost all the equity in both homes and ended up with an upside down gutted shell of home B. Luckily I had a friend who let me live in her summer vacation home for a year and a half because I couldn't live in either home. Not married, no kids or things would have been even worse.  Paid mortgage, insurance, taxes, and utilities for years on a home I couldn't stay in. I'll never rebound, I'm too old at this point.  Don't risk it, I'll always wish I hadn't.

I feel for you.  I came pretty close to that same situation myself.  However, life, the gods, events, etc. change.  Sometimes for the better. 

Without risk there is no reward and just because you failed the last time doesn’t mean the next time you won’t succeed.  Some people do,  

Let’s  approach this from a different perspective.  I’ll assume you’re renting now?  If not congratulations, what can you tell me about the rent you pay?  The only thing that is absolutely certain is your rent will increase. If you’re lucky only by the amount of inflation. However if more people are in the rental market rents will go up more than the rate of inflation.  

What won’t go up is payments on a fixed mortgage.  While you may not live long enough to pay off a 30 year mortgage. At least you’ll have your social security that will help you make your fixed payments.  You paid into that all your working life and are allowed to live on it now.  

No down payment?  Get creative,  no realitor will help you with this but there are regularly homes sold with nothing down.  1/2 of all marriages end in divorce.  A fair share of those homes people are upside down on the mortgage when you add the realtors fees.  You go in and assume the mortgage and They don’t have a foreclosure on their record.  

Rent to own. ( be careful) but sometimes work out.  $1 homes needing complete renovation.  

Assume payments etc. 

In reply to dculberson :

Friend bought a house before his old one sold.  He went through 3 purchase and sales agreements that fell apart before he finally got his original house sold.  For far less than what he thought and he had to carry two mortgages for over a year.  It crushed him financially to the point that he's just finally recovering now, something like 12 years later.

Even if I could "afford" it, I still wouldn't do it.  It's such a huge purchase and has the chance to go sideways so quickly.  Just not worth it.  Lots of houses out there.

frenchyd said:

In reply to BoxheadTim :

Or how great is your credit?  If good enough apply for a few zero interest for a year credit cards to come up with the required down payment once your credit history has been checked, and you’ve got the loan. 

Do not do this. They will ask you if you have acquired any new obligations prior to the closing. If you lie, it's fraud. If you tell the truth, you might not get the loan. Don't try to sneak anything past the bank when buying a house. This is bad advice and I've seen at least one house purchase fall apart over this sort of thing. (Person bought a ton of expensive furniture for the new house, on credit, and the bank then wouldn't close the loan due to the changed debt:income ratio.)

docwyte said:

In reply to dculberson :

Friend bought a house before his old one sold.  He went through 3 purchase and sales agreements that fell apart before he finally got his original house sold.  For far less than what he thought and he had to carry two mortgages for over a year.  It crushed him financially to the point that he's just finally recovering now, something like 12 years later.

Even if I could "afford" it, I still wouldn't do it.  It's such a huge purchase and has the chance to go sideways so quickly.  Just not worth it.  Lots of houses out there.

I don't doubt that some people would have difficulty navigating it, but it's not that hard to handle two house payments if you're frugal and aren't buying the limits of what you can afford. The people that would have difficulty navigating it are the same folks that are at the limits of what they can handle with just one house payment. 12 years to recover from how long? "Over a year" being less than two? Sounds to me more like a lifestyle issue than the actual two house issue.

I'm not saying it's ideal, and I'm not saying it's impossible to go wrong. I'm just saying it's not a bright line "never, ever do this" scenario. As I said, I did it and it turned out fine and we never noticed the strain, financially. And it was for more than a year for me, too. Anecdote, yes, but same as with your friend.

frenchyd said:

NOT A TA said:

docwyte said:

I'm a really fiscally conservative guy, so my advice is based on that.

Dude, you're NUTS!  Do not even *think* of buying another house across the country from you before you have yours sold!  Particularly a house that doesn't even have a proper garage!

Do not pass "Go", Do not collect "$200"!  Do not pull money from another source like your retirement to do this! 

Believe me, as perfect as this house may seem, there are plenty of other houses out there.  Take care of selling your current house first, then go search and buy the next one.

This ^^^^^.   I rolled the dice and lost more than either house was worth. Everything that could possibly wrong did. Things I'd never even considered. I lost the money I'd saved for retirement. Lost all the equity in both homes and ended up with an upside down gutted shell of home B. Luckily I had a friend who let me live in her summer vacation home for a year and a half because I couldn't live in either home. Not married, no kids or things would have been even worse.  Paid mortgage, insurance, taxes, and utilities for years on a home I couldn't stay in. I'll never rebound, I'm too old at this point.  Don't risk it, I'll always wish I hadn't.

I feel for you.  I came pretty close to that same situation myself.  However, life, the gods, events, etc. change.  Sometimes for the better. 

Without risk there is no reward and just because you failed the last time doesn’t mean the next time you won’t succeed.  Some people do,  

Let’s  approach this from a different perspective.  I’ll assume you’re renting now?  If not congratulations, what can you tell me about the rent you pay?  The only thing that is absolutely certain is your rent will increase. If you’re lucky only by the amount of inflation. However if more people are in the rental market rents will go up more than the rate of inflation.  

What won’t go up is payments on a fixed mortgage.  While you may not live long enough to pay off a 30 year mortgage. At least you’ll have your social security that will help you make your fixed payments.  You paid into that all your working life and are allowed to live on it now.  

No down payment?  Get creative,  no realitor will help you with this but there are regularly homes sold with nothing down.  1/2 of all marriages end in divorce.  A fair share of those homes people are upside down on the mortgage when you add the realtors fees.  You go in and assume the mortgage and They don’t have a foreclosure on their record.  

Rent to own. ( be careful) but sometimes work out.  $1 homes needing complete renovation.  

Assume payments etc. 

STOP!

Yes you can buy a home with no down payment, how do I know? I just did it. 

They don't do 80/20, 90/10, 96.5/3.5 loans anymore. They have what is called "down payment assistance" loans if you qualify. Essentially, it's an FHA loan with a slightly higher interest rate and you are get a grant for the down payment. 

The realtor has NOTHING to do with getting you financing other than suggesting a mortgage company or bank to use. 

frenchyd said:

SVreX said:

I just did it. 

New loan is an FHA, and yes the PMI stays with it for the life of the loan. But the rate was lower too, which offset the cost of the PMI. 

I could have made a 20% down payment, but there was no advantage in the rate or terms. I chose to hang on to my cash for renovation funds for the new place. 

So, yes I will have PMI as long as I have this loan. But I didn’t borrow anything to do the renovations, and my rates are lower. 

No regrets. 

Clever approach. You bring up a good point. Mortgage loans only exist as long as you want them.  While it would be wonderful to get a perfect loan fixed for 30 years and never have to change it because of circumstances. Few people ever have a 30 year run without a significant bump in the road.  

Yes I know the arguments about 15 year, 10 year, 7 year renewable, adjustable,  all of which have consequences.  

Your approach, take what you can get and deal with the negatives when you’re ready shows your sophistication dealing with mortgages.  

Thanks. 

Part of my consideration was how long the loan was actually likely to exist. 

In my case, I’d give it 30% odds that I will sell the house within 6 years. 10 years it bumps to 70% odds. There is less than a 5% chance that I will own this house 15 years from now. 

So, the real cost of the PMI to me is more like the cost of carrying it for about 10 years. 

In reply to dculberson :

I guess my main point is why?  Why would you want to pay two mortgages for a year?  How is that a good situation to be in?  Wouldn't you have been better off if you only had 1 mortgage for that time?

My friend got caught by the market.  First as each P&S fell apart, the market went down, so his 1st house was worth less and less.  By the time he finally got it sold for a cut rate price, he had very little to roll into his 2nd house.  And he'd been paying two mortgages the entire time.

Not a move I ever would've done.  I would've sold my house first, then gone and bought the next one. 

Glad it worked out for you, although I'm not sure it really did if you ended up paying two mortgages for a year.  Just because you could afford to do it doesn't make that a success story...

Sorry, spent the afternoon traveling and just got back to this thread.

Strizzo said:

Where in NV are you now?  I believe that right now is about as good as the RE market gets in Vegas and as good as its been in a while in Reno.  I would think that you could get the most for your place now as you could since 2009.

Housing market is looking pretty good, especially as there is a housing shortage both in the Reno and the Carson City (where we are) areas. Based on both what we've seen locally and what several realtor confirmed, our house should sell pretty quickly if priced right. I don't think we'll be in bidding war territory, but at least it shouldn't sit on the market forever.

RX Reven' said:

Hi Tim,

Even though it sounds like your wife is staying with the same company and only transferring to a new location, I’d still factor in a significant probability that the position doesn’t work out.

Wife's starting a new position, I'm looking at keeping my current job as mine is location independent.

Yes, there is a significant risk that her job doesn't work out. Chances are higher that it will work out in the new location compared to where we are now (mainly because there is no real demand for her specialised work where we are).

If it were me, I'd rent out my Reno home and rent a place in the new location while the new position was being confirmed good and in the meantime, I'd gain an understanding of what to look for in the new geography (traffic, snow clearing, internet quality, utility reliability, etc.) and establish a relationship with a capable realtor.

I think we've come to the conclusion that we'll put our current house up for sale no matter what. We're kinda done with Northern NV either way and aren't particularly in love with our house, so taking the money and running sorta makes sense. At the end of the day I don't think we'd come back to the area even if the new area doesn't work out.

We are somewhat familiar with the area we're planning to move to and have contacts on the ground there through my wife's work. That's kinda jump started the whole thing and we're not flying completely blind. Same goes for the house we have an eye on, it belongs to friends of friends and we have more insights into what was done to the house than a normal buyer would. Not saying that it makes it a risk free purchase, but it's not quite as nuts as it looks like on the surface. But my nuts scale is a bit  in need of recalibration anyway .

Driven5 said:

BoxheadTim said:

Any other options I'm overlooking?

Seller financing.

I don't think that is going to be an option - sellers are an older couple that dumped a metric ton of money into the property to renovate, but are now looking at moving into an assisted living facility and need money from the sale of the house.

dculberson said:

frenchyd said:

In reply to BoxheadTim :

Or how great is your credit?  If good enough apply for a few zero interest for a year credit cards to come up with the required down payment once your credit history has been checked, and you’ve got the loan. 

Do not do this. They will ask you if you have acquired any new obligations prior to the closing. If you lie, it's fraud. If you tell the truth, you might not get the loan. Don't try to sneak anything past the bank when buying a house. This is bad advice and I've seen at least one house purchase fall apart over this sort of thing. (Person bought a ton of expensive furniture for the new house, on credit, and the bank then wouldn't close the loan due to the changed debt:income ratio.)

Yeah, no, that was never something I would even consider. I do have rather good credit (800+) and a decent income and if we can't qualify on that alone, this house purchase will fly about as well as the proverbial lead duck.

To sum things up a bit (and thanks to everybody who responded) - we're kinda dual tracking this in as much as we're starting the process of selling our place, my wife is investigating the rental options at the new location and we're also trying to see if we can make progress on the potential purchase.

One thing that didn't initially register on my radar yesterday when we got the not so good news re the value of our current house is that I have enough vested shares in my employer to cover a large part of a 20% downpayment if we're able to delay the closing until the lock-in expires in a couple of months.

And by then we'll know if our house sold or not - if it hasn't sold by the end of September, wife and cats are moving east first (and renting) while I prep the house for the next sale season.

docwyte said:

In reply to dculberson :

I guess my main point is why?  Why would you want to pay two mortgages for a year?  How is that a good situation to be in?  Wouldn't you have been better off if you only had 1 mortgage for that time?

My friend got caught by the market.  First as each P&S fell apart, the market went down, so his 1st house was worth less and less.  By the time he finally got it sold for a cut rate price, he had very little to roll into his 2nd house.  And he'd been paying two mortgages the entire time.

Not a move I ever would've done.  I would've sold my house first, then gone and bought the next one. 

Glad it worked out for you, although I'm not sure it really did if you ended up paying two mortgages for a year.  Just because you could afford to do it doesn't make that a success story...

That is completely dependent on the circumstances. 

I paid 2 mortgages for a year. Why?  Because the area I moved into is growing exponentially, and delaying the purchase for a year would have meant significant price increases due to appreciation. The deal I was looking for came along, and I bought. 

I was able to rent a room in the new house through Air BnB for nearly 100% occupancy, which paid the 2nd mortgage. 

Why wouldn’t I buy?

I really think these decisions are sometimes made in a vacuum, without all of the variables considered. 

In reply to SVreX :

Yes, exactly. The person best able to evaluate it is the person that is planning to or has gone through it.

In today's housing market, Tim's house will not sit for sale for a year.

dculberson said:

frenchyd said:

In reply to BoxheadTim :

Or how great is your credit?  If good enough apply for a few zero interest for a year credit cards to come up with the required down payment once your credit history has been checked, and you’ve got the loan. 

Do not do this. They will ask you if you have acquired any new obligations prior to the closing. If you lie, it's fraud. If you tell the truth, you might not get the loan. Don't try to sneak anything past the bank when buying a house. This is bad advice and I've seen at least one house purchase fall apart over this sort of thing. (Person bought a ton of expensive furniture for the new house, on credit, and the bank then wouldn't close the loan due to the changed debt:

oops ! I meant to say apply for credit after the loan is approved.  My mistake, trouble with starting these and being interrupted.  

It’s not fraud because the company granting you the credit pulls your credit prior to granting the loan and the loan company that granted you your mortgage is well aware that you have the ability to purchase things on credit post approval.  

i did not know about loan assistance and if that’s available in all 50 states that’s most likely the approach I’d take. 

BoxheadTim said:

Driven5 said:

BoxheadTim said:

Any other options I'm overlooking?

Seller financing.

I don't think that is going to be an option - sellers are an older couple that dumped a metric ton of money into the property to renovate, but are now looking at moving into an assisted living facility and need money from the sale of the house.

They need money from the sale of the house right now, but assuming low or not debt on the house, they are also unlikely to need all of it right away. Short-term partial seller financing could ultimately be beneficial to both parties. Of course it's also unconventional, and thus even bringing it up has the potential to scare off some homeowners/realtors, so still maybe more of a last resort option.

In reply to frenchyd :

You would need the credit advance prior to closing to be able to use it as a down payment. You would need to disclose that additional loan at closing to the bank, at which point they would refuse to close and would reevaluate your loan based on the new debt. You can not do what you are proposing. (putting part of down payment on credit card without mortgage lender knowledge.)

dculberson said:

In reply to frenchyd :

You would need the credit advance prior to closing to be able to use it as a down payment. You would need to disclose that additional loan at closing to the bank, at which point they would refuse to close and would reevaluate your loan based on the new debt. You can not do what you are proposing. (putting part of down payment on credit card without mortgage lender knowledge.)

Also, correct. Just because your loan is "approved," before you go to closing, it really isn't. They pull everything again and verify. So you could be moved in your new home (we moved in the date I closed) and be told the mortgage didn't go through.

When I bought my house last year, I wasn't thinking about that, and the mortgage company asked that. I had just purchased a washer, dryer and refrigerator the night before closing. 

She told me the possible consequences, so I had to immediately get my girlfriend to drop some money in my account then pay it off before we proceeded with the paperwork. 

frenchy, you don't seem up-to-date on the current home buying practices, because you keep doling out incorrect advice.

You almost had me convinced. So I spoke to Debbie, wife of my friend who has been doing closings for the past 16 years. 

She said that they don’t wait until closing to resolve credit issues. Your credit is approved by underwriting before you get to a closing or the closing is canceled or rescheduled until your credit is approved.  

She also told me there is nothing new about zero down. It’s been done for non GI’s Since the Clinton era. All that’s changed is the proof and documentation requirements. 

So you could be moved in your new home (we moved in the date I closed) and be told the mortgage didn't go through.

Umm, that doesn’t sound right at all. 

Once the deal is closed, it’s closed. For all parties, including the lender. 

Fraud might change it, but there would probably have to be a lawsuit.

Pretty sure your loan officer was BSing you about the potential “consequences”. 

SVreX said:

So you could be moved in your new home (we moved in the date I closed) and be told the mortgage didn't go through.

Umm, that doesn’t sound right at all. 

Once the deal is closed, it’s closed. For all parties, including the lender. 

Fraud might change it, but there would probably have to be a lawsuit.

Pretty sure your loan officer was BSing you about the potential “consequences”. 

Knowing the benevolent entities that are financial institutions, I'm sure they wouldn't appreciate fraudulent claims on mortgage documents. 

But everyone here will use their own personal anecdote to prove that they are right and everyone else is incorrect. So I'll move on from this one.

In reply to z31maniac :

I certainly didn’t say a word suggesting anything fraudulent. 

I’m simply saying the claim that a mortgage could be denied after closing sounds very suspect. 

SVreX said:

In reply to z31maniac :

I certainly didn’t say a word suggesting anything fraudulent. 

I’m simply saying the claim that a mortgage could be denied after closing sounds very suspect. 

That was what my post was about, when the loan officer asked me if my credit had changed, it had. Because I purchased $3800 in appliances the night before. 

It may have been caught, it may not have been caught. But if I had said, "No, nothing has changed" I would have committed fraud on the mortgage documents. I suspect had I done that and it had been found, they would have a strong case against me. I suspect obtaining a mortgage/loan under false pretenses is an easy win to deny it or demand the money back.

So I wasn't trying to say it WILL happen, I'm saying it COULD happen. And I don't fancy myself a gamblin' man. 

In reply to z31maniac :

“Not that I’m aware of”. Done. Not fraud. 

SVreX said:

In reply to z31maniac :

“Not that I’m aware of”. Done. Not fraud. 

ignorantia legis neminem excusat

In reply to z31maniac :

Now you are being argumentative. 

It’s not ignorance of any law. I know what fraud is. 

You admitted you didn’t know if your credit score had changed. Saying “I don’t know” is not fraud, nor illegal. It’s honest. 

A mortgage closing is when all parties to a mortgage loan sign the related documents. After that moment, the borrower becomes responsible to repay the loan. 

Lenders have a lot of negotiating and jockeying coming up to a closing, including multiple changes to the settlement statement, and possible verifications of credit scores, etc. 

But they can’t refuse the loan after the closing. It’s done.