I've been in my current house since soon after graduating. Between paying on my mortgage 13 years and market appreciation I have some good equity in the house. I'm looking at upsizing, but I don't know the sequence for buying and selling at the same time. Do I need to talk with a lender first?

I could probably scrape together enough to put 20% down on the new house before selling the old one, but if I can put all the equity into the down payment that would be about 40% down with lower payments. I've heard of contingent offers, and will probably end up going this route, but the possibility of losing out on something I want has me a little concerned. Are there other options I'm not thinking of?

Another question: one of the houses I'm looking at has a tax appraisal of $640k. It was originally listed at $550k 8 months ago, and they've been dropping it steadily down to $490k now. Do I need to be concerned about the gap between tax appraisal and market value? Any chance I can use the sale price to lower the tax approval?

Ogre09 said:

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I've been in my current house since soon after graduating. Between paying on my mortgage 13 years and market appreciation I have some good equity in the house. I'm looking at upsizing, but I don't know the sequence for buying and selling at the same time. Do I need to talk with a lender first?

I could probably scrape together enough to put 20% down on the new house before selling the old one, but if I can put all the equity into the down payment that would be about 40% down with lower payments. I've heard of contingent offers, and will probably end up going this route, but the possibility of losing out on something I want has me a little concerned. Are there other options I'm not thinking of?

Another question: one of the houses I'm looking at has a tax appraisal of $640k. It was originally listed at $550k 8 months ago, and they've been dropping it steadily down to $490k now. Do I need to be concerned about the gap between tax appraisal and market value? Any chance I can use the sale price to lower the tax approval?

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1. Tax appraisals are meaningless to the true valuation of the property. It isn't selling because it was listed in a time when rates are extremely obstructive to that price range. It was also likely listed too high (no matter what the tax guy says), or has some potential issues, which is why it hasn't sold yet. But not knowing the location, it is hard to give anything other than those generalities.

2. Many here won't agree, but I would not be looking to move from a place where you have substantial equity and significant downside protection in the event the housing market dips and valuations drop, especially if you have to take on 6%+ interest rate to move to a lesser equity position. But it all depends on the rest of your finances. Do you have a sizeable liquidity position, whether it be cash or other sources, that could lean on in the event of sizeable market correction - to be able to service your new, higher debt payments? If not, I'd advise caution and to hang on a year or two. If so, I'd be absolutely sure you are confident that you could take care of all of your needs without a direct income source. Otherwise, your eggs are going in to a single basket.

3, One of the lenders here will fund the entire sales price - giving you the advantage of paying "all cash" should you choose to move forward and buy. This lets you get the house you want without worrying about rushing the sale of yours. I'll let him speak more on that.

Contact any of the lenders on this board. I've used both Jay and Jed.

They'll give you options, and you'll be set.

If you're in position to pay 20% down and then pay another 20% after the sale of your existing house you can recast the mortgage you close with after the sale.

Thanks for the response.

Do you see rates or prices dropping in the next couple of years?

I saw the term "recasting" in an article. Is that different than refinancing? Are there additional fees involved?

jj is correct. The lender for a small administrative fee will recast your payment, at the same interest rate, once you sell and able to put the additional 20% down or what ever you want to down. It needs to be at least 5% but even that varies by lender to a degree.

A 20% down payment avoids PMI so anything more does not change the terms except one action. Putting 25% down in the buying transaction offers a very slight better rate. Not much but it could get you an 1/8 better rate.

Don't buy down the interest rate now since there is a 90% chance you will refinance. Especially if it's your "coffin home". Get in the new house, sell the old one, decide additional loan reduction and sit tight. Refi into a 15 year when rates come down.

Steve

Ogre09 said:

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I saw the term "recasting" in an article. Is that different than refinancing? Are there additional fees involved?

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Recasting just recalculates your payment with current lender to account for the substantial chunk you just paid off of principal. In effect a new Lower monthly payment of principal and interest on the remaining term of your loan. Usually an admin fee of a few hundred bucks

Thanks! So if you pay in a big chunk and don't recast, your payments continue at the same value but you reach the end of the loan sooner. If you recast the loan afyer paying in a big chunk the monthly payments decrease but you make your final payment at the original end of the loan term. Is that correct?

Yes but with no prepayment penalty you're able to shorten the term.

We have a 10/1ARM option on a 30 year amortization that allows a fone time float down on the rate if rates decline to the point it makes sense. There is a fee but much less than the cost of a refinance.

Unless you are looking in an area with new builds where there's something you like hitting the market every few weeks, buy first, sell second.

Much easier to sell than to buy. You have to have all your criteria met including checklist, budget, and area to buy. When you go to sell your house, it will only be a matter of price, so that is more likely to happen when you want it to. With a new house, you will also be able to move all your crap to the new house, which will make selling the old one easier. Any repairs/cleaning/painting will also be easier.

Buy first then sell second while not the least risky financial option it is close to the norm for my clients. If the quality. So getting that answer early is the best way plan your move.

The downside to buying then selling is the potential to get stuck with 2 mortgages for awhile. I just need to have enough cash together to put 20% down on the new house and to be ready to cover 2 mortgages for a few months? Anything else? Any other good alternatives that don't eat up all my loose cash now?

Where is your existing home? City/state?

If a major metro in Texas id call Red Pear who is a sponsor for the site and get an honest opinion of how fast you can sell your home at what price point. Then I'd call me/jj/Jay to see if you can qualify buying first then sell.

At that point you would the information to make a decision. Btw your question on reducing the tax appraisal is you would dispute the value by using your sale documents to show reduced market value. You should prevail but no promises.

What about a bridge loan? I think Jay has talked about those before on here.

The issue with the recast option is that you have to be able to qualify with your debt to income ratio being low enough with BOTH your current mortgage and the new mortgage (plus all your other debt) to get that new mortgage. IF that is the case and you can out down 20% or more before selling then that is an option. But, if your debt to income is two high with both mortgages then you would have to make a contingent offer or a bridge loan.

We offer bridge loans out of our funds so we make the rules. For example, if you debt to income ratio with both mortgages is say 55% when the max is typically 45% but you have good credit and good assets including your departing home equity then we are ok with the 55% debt to equity. AND we only require 5% down, not 20% on the new house. That allows you the liquidity to pay two mortgages. This approach will cost about 1.3% of what you are borrowing then not doing the bridge loan, so money but not a huge amount. So, a few advantageous to this route:

1. You do not have to make a contingent offer.
2. You do not have to fire sell your current house to make everything work so you can sell at actual market value not discounted.
3. Hell of a lot more convenient as you can move into the new house then put the departing residence on the market not having to deal with showings, stage the house, just get all the clutter out etc.
4. We give you a proof of funds letter instead of a pre-approval letter guarantying the close for the sellers acting as a cash offer.

Any of those 4 pro's can actually get your 1.3% back on the selling side or in the case of 4 on the buying side. So, you actually end up financially better when all costs are taken into account.

Can you explain how the bridge loan works?

The bridge loan is for the full purchase price of the new house. My existing equity in the old house is the collateral for the bridge loan. The bridge loan lender pays the seller. Then I owe that amount to the lender. What are the terms of the loan? Am I making principal payments, or just interest? Is the 1.3% the expected total of the interest payments after some number of months to sell the old house?

Then I sell the old house. The lender on the old house gets the pay off for that mortgage, and I get the rest.

What happens then? Somehow I pay off the bridge loan and get a new mortgage on the new house? The net from my old house gets rolled in as a down payment and the new mortgage is for the balance. Does the new mortgage need to be from the same lender as the bridge loan?

I am assuming you are in Texas here as it can work differently in other states because of Texas unique home equity laws and can only speak of how we do it. (although there are very few other lenders who make bridge loans in Texas due to said home equity laws.) The only loan in put on the house you are buying, so no lien against your current home and we will lend up to 95% on the house you are buying. That loan pays the seller. We only require interest only and it is generally a 6 month loan with the ability to extend further if needed. You close the loan, and we can often do it in 10-15 days which might also give you a negotiating point for a lower price from the seller.

You now own the new house, move in, do some improvements on it, whatever your needs are. Then you put your former house on the market. Once you sell the property you will free up the equity to be able to put it into the house you just purchased. So, when you have sold that house and taken that debt away from your debt to income ratio going from 55% to 35% for example, you refinance the bridge loan into a market rate conventional loan with loan amount what you want it to be because you know have the equity to lower the loan amount. (or, to pay it off in full in some cases). There is NO pre-payment penalty so you can do this as fast as you would like. A lot of people never even make a monthly payment on the bridge loan because all of this can happen pretty fast.

The 1.3%~ is the extra closing costs this approach costs vs just having one closing. But, again, as I mentioned a lot of our buyers are able to sell there previous house for more then they would have or buy the next house cheaper or even both more then making up for those costs. Not mention much less stressful then trying to time a buy/sell perfectly. And with our bridge loans you do NOT have to use us for the refinance but of course we will compete for the business.

I see Jay has discussed the bridge loan, which is a solid option.

I haven't seen it mentioned, but may have missed it, but I feel like first step is finding out your debt to income ratio currently as well as with the new mortgage. It's completely possible that you're within the acceptable range even with 2 mortgages.

Also, I'd consult with your realtor. If you're moving in a highly desirable, established neighborhood, then an offer contingent on selling your house is probably a bad idea and will kill any deal. If you're moving in the suburbs and working with a builder on a new spec home in a master community, probably not an issue at all.

If debt to income is tight or close you might look at a HELOC on the trailing house. This takes the remaining balance and makes it interest only which might give you some room.

But is still a debt, and you will have to sign an occupancy affidavit attesting that you will occupy the property for at least 12 months as there are very few HELOC options for non-owner occupied properties. Can not do that if that reason to borrow is to buy a new home.

Yes it's still a debt but goes from amortizing to interest only if that helps with DTI. The rest I believe is a non-issue.

It is not a non issue if you sign that you will occupy the property and move out a month later paying off the loan. If that lender sees that they lost money on that loan and audits the file trying to find out way, and see you lied on your closing docs. It can be a very big issue.

I've worked at banks that do HELOCs and that question isn't asked. You have to occupy the house at closing but no requirement afterwards.

A standard closing package for a first or second mortgage for an owner occupied loan has that language. You work for a bank that offers them but do you close or originate the second lien loans? I ask because most banks run those through their consumer division so the LO"s are generally order takers. So sure they likely so not ask upfront because they do not know to. but the attorney prepared doc package asks.

Is there any opportunity to access home equity prior to the sale with a bridge loan? To make improvements prior to sale for example? Or is that typically something we would have to float until the sale when we'd get all the equity paid out

well, as I mentioned you would only have to put 5% down on the bridge so could use additional cash that you might have to use to put down to make the numbers work on a new purchase.

If the OP can put down 20% with available cash I don't see a need to have a bridge loan. And pay the fees. Maybe I am missing something

sure, IF you can qualify with both mortgages from a debt to income point of view.

The issue with the recast option is that you have to be able to qualify with your debt to income ratio being low enough with BOTH your current mortgage and the new mortgage (plus all your other debt) to get that new mortgage. IF that is the case and you can out down 20% or more before selling then that is an option. But, if your debt to income is two high with both mortgages then you would have to make a contingent offer or a bridge loan.

That why in one of my previous posts state he needed to talk to mortgage person and run his numbers first, then talk a Realtor on his selling options. If he doesn't qualify go to plan B.

sure, I am just explaining how the bridge loan works as an option if needed. I tell all my borrowers that we can do both plan A just a straight conventional loan and plan B being the bridge loan if we have to. Most can only do plan A.

We use the retail bank HELOC in different situations. Most recently in November 2023. Borrower closed a HELOC on the trailing house to increase down payment on the new home. Retail bank wasl aware of the use of the HELOC. It's not a problem because the borrower occupied the trailing house as their primary at the time it closed. That's the only requirement. Your experience may be different but I've never run into the situation you described.

Have you looked in the closing package? There will be a "notice of penalties for making false and misleading written statement". if some audit committee decides they do not like the rash of first payment payoffs in a branch could easily make trouble for any buyer who stated there "intent to occupy the residential property secured by the home loan" and had a contract on a new house or did shortly after. Does not really matter what the LO and underwriter told the borrower at that point. Just not some thing I would ever suggest a buyer putting in writing.

But, it is really not a terribly important point in that most folks a reduction to interest only payment from a low rate to prime at 8.5% does not actually lower their debt to income.

There's no misleading statement. The borrower is occupying the house as their primary residence. Banks use HELOCS to create other opportunities such as facilitate the new purchase mortgage. No one wants an early payoff but if it happens it happens and it's understood as part of another transaction.

When rates were low people refinanced primary residences anticipating transitioning that house to investment in the future.

Say a guy has a 15 year loan and can get a promo HELOC rate it can definitely make the difference in DTI..

Anyway banks treat HELOCS differently than non-bank lenders and that's understandable.

"intent" is the key. Intent is not today but what you intend to in the future in every other aspect of the mortgage world not sure why it would be different here. But, I will not belabor that point any longer.

And you are right that a lender that is not selling into the secondary market can make what ever loan they would like (as long as it meets federal ability to pay standards for owner occupied standards.) as we do on our portfolio side. We make loans for specific purpose that your bank and most others would not make, see the bridge example above but borrowers should never withhold intent (not saying you are saying that) as not all banks or lenders will feel the same way.