WWGRMD - "creative" bridge financing for a home purchase

Looks like I may have screwed the canine on this one, but given that GRM knows everything, somebody might have an interesting suggestion I'm not aware of.

My wife and I are planning to move East (mostly for her work) and as one does, "accidentally" found a house that would fit our needs well if I overlook the lack of a garage. Original plan - assuming I could qualify for the mortgage, which I should be able to - was to pull some equity out of our current house for the downpayment, move, sell the current house, dump a large chunk of the proceeds into new old house.

Problem is, I based this on a heavily discounted Zillow Messtimate and after talking to our Realtor Of Least Distrust here in NV, turns out I didn't discount it enough. Oopsie. Instead of having about 50% equity in the house, we only have about 30%.

According to a mortgage broker local to the new house, bridge financing like you could get in the 2000s isn't really a thing anymore, so the big question is, what do I do while the paint around the corner I painted myself into is drying?

Options I thought of so far:

• See if we can get away with a 10% instead of a 20%-30% downpayment. I can just about scrape that together if I sell the ND.
• 401k loan (as much as I hate those) isn't an option as the majority of my money is in a previous employer's plan that I like better than my current employer's plan. I don't think I'd be able to move the money in time to the current employer's plan and take the 401k loan.
• Put up the current place for sale, rent in the East, take it from there. This was plan B anyway.
• Pull out a much smaller HELOC and sell the ND. That might get us to 20%.

Any other options I'm overlooking?

BTW, all of this might be moot as our buyer's agent is still working on finding comps for the house we're interested in. The joy of looking at houses that are somewhat "special".

I think you can typically do as little as 5% down on a conventional mortgage. You could do that for the time being, then put a chunk towards the mortgage on the new place once the old one sells to get out of the PMI. I'm sure there are many more people here much more knowledgeable on the subject than I am, however. 

No need to panic..

You can qualify for a FHA (first time home buyer's) loan, because the you're moving out of state for work.  I've done it, we were equal in the house we moved from equity-wise, so we only had a few grand until we sold the old house.  We qualified for the FHA loan a few states over with 5% down or whatever little it requires.   Of course, we had mortgage insurance, and that sucks, but we've just about paid out of that.

1.  Do not overlook the lack of garage.

2.  Repeat Step 1.

In reply to AngryCorvair :

Our realtor is currently actively garage shopping. It's not being overlooked, I do need a place to work on my cars and bikes.

Thanks for mentioning the low downpayment options. I didn't realise those might be an option still without it being a first time purchase.

Of  course the whole thing currently hinges on the realtor dragging home some useful comps.

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.

I would probably do 5% down with a conventional loan and then payoff a bunch once you sell the old place - FHA is 3% minimum down but gets you PMI for the life of the loan, or until you re-finance and are at 20%+ equity to loan ratio. 

Conventional is 5% minimum down with PMI until you get to 22%+ equity, but you don't have to refinance to get the PMI dropped.

The FHA insurance nowadays is very expensive and does not automatically drop off when you get to 80% loan to value - I don't recall the exact life span of it but it's stuck to the loan for a certain amount of time. Refinancing gets rid of it, though.

One thing you could also look at is a home equity loan on the new place to cover any short fall in downpayment. On our last house purchase we had 20% down but the bank wanted to see 20% down and six months cash reserves since we were not selling the prior house right away. To make up the difference they had us do 10% down and 10% on a home equity line of credit. No PMI, totally conforming loans, no problem. We paid off the HELOC right away and closed it a year or two later when we were sure we weren't going to be using it.

Discuss the "plan to sell the old house later" thing - you might have to claim it's going to be sold sooner to avoid that "six months cash reserve" thing we ran into. I'll be honest, though, that was 10 years ago (post-meltdown, still) so things may have changed since. Likely for the looser since the pain is so distant for the banks and regulators now.

In reply to docwyte :

I hear you - I'm not super comfortable with the idea myself, which is why we do have the strong plan B of moving and renting. That said, while there are plenty of houses for sale in the general area, the kind of house we're looking at is really hard to find (1700s-late 1800s house, ideally stone, sympathetically renovated). Most of them are either "buy me before I fall down" or "the 60s want their bodged renovation back".

I should have pointed out that with the rental market in the greater Reno area being as nuts as it is, we can rent our existing house with positive cash flow from from day 1 (factoring in a 10% fee for a management company). That's not an ideal situation, but we don't have to make the "mortgages or food" decision.

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.

I am also a fiscally conservative guy, but sometimes steps have to be taken slightly out of order. I imagine that Tim can make both mortgage payments or he wouldn't be pursuing this. Also, banks wouldn't loan the money if he couldn't. We made two mortgage payments for the better part of a year (yay trying to sell a house right after the 2008 meltdown) but I have no regrets and the overall cost wasn't that bad. I actually look back on that year fondly since the new house was so low stress compared to the old house (and compared to the current house, ugh).

^IIRC, the PMI on FHA loans is for the entire life of the loan. 

In reply to z31maniac :

Ewww.

We should be able to scrape 5-10% down payment together either way.

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. 

as for PMI, it will stay on the note for the life of the loan, and you have to pay for another appraisal and usually jump a few hoops to get rid of it later on, possibly a refi (not the best plan going forward with rising rates). 

personally, I don't like making decisions like these quickly, and the bigger the transaction, the less I like being rushed.  For that reason, and the fact that the house doesn't exactly fit your criteria says you should probably just rent in the new location for now so you can get the old place sold and get your feet under you out east.   It would suck to get into a pickle where you are saddled with two house payments that you can't really afford because you got in a hurry to buy a place you didn't really want in the first place.  

Step 1: Determine the worst case scenario. In this case that might be something like buying a 200 year old house, finding out it needs expensive repairs (because 200 year old house), and having to sell your current place for peanuts because a trade war caused the economy and housing markets to come to a halt.

Step 2: Determine how likely you think that "worst case" is to occur.

Step 3: Determine how comfortable you are with your ability to weather the worst case if it were to occur.

Step 4: proceed according to your level of risk tolerance.

Personally, my #1 financial rule is "Don't gamble with the roof over your head!", but everybody has to make their own choices based on their situations and acceptance of risk.

I had to do something a bit similar to this on my recent move. Last time, I used a bridge loan. This time, I was going to use a home equity line of credit on my fully paid up old place, but that got shot down at the last minute. My lender was happy to mortgage the new place to 95% without hesitation. Made for one hell of a payment, but the old place sold fast (as expected) and so we were able to pay off 80% of the new place immediately. The PMI came off when we recast the loan, so now we're back where we wanted to be all along.

Moral of the story is that you'd be amazed at how much the banks are willing to loan you. No wonder people get themselves in trouble.

When I bought the house I'm in now, I was able to get the seller to do a 2nd mortgage to bring the down payment over 20%. Paid off the 2nd in 5 years.

Sounds familiar. After the hurricane seasons of 2004 and 2005, and as I watched the housing market get ready to blow up, we decided to sell out and relocate to Western North Carolina.

We sold our house in Bradenton for a nice profit, and plowed almost all of the cash into renovations on a house in North Carolina.

The new job didn't work out, wife decided moving back to her hometown wasn't  great. We were back in FL the next year, broke.

I vote for renting, BTDT.

In reply to BoxheadTim :

Are you or her a Vet?  Then GI nothing no down all you need is closing costs.  

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.  

The scary thing about that approach is you’ve only got a year to finalize the sale

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.

Personality clashes, corporate politics, false promises, etc. are hard to identify until you’re actually there so I suggest you operate from the assumption that there’s a 10%+ chance she’ll be gone (voluntarily or involuntarily) within the first few months.

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.

Added later…

Floating Doc shared his experience while I was typing my cautionary note about the same thing.

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. 

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.

Personality clashes, corporate politics, false promises, etc. are hard to identify until you’re actually there so I suggest you operate from the assumption that there’s a 10%+ chance she’ll be gone (voluntarily or involuntarily) within the first few months.

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.

Added later…

Floating Doc shared his experience while I was typing my cautionary note about the same thing.

 

I sure found out the hard way. My income was based on production, with a minimum salary, adjusted at the end of the year.

I started at the beginning of the summer season, and it was going okay financially, even though I wasn't a good fit for the position. We were super busy.

Then, the week school started, I saw two clients. That's in six days. They never planned to keep me.

I'd rent where you think you want to live for a year.  You'll see how the job situation works out, how you like the location, which are the neighborhoods you like, etc.

It's tough moving cross country and getting your decision 100% right.

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.

BoxheadTim said:

Any other options I'm overlooking?

Seller financing.

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.