Bridge loan for a new house?

[kork13]

So an outstanding opportunity to dramatically pivot my career popped up for me yesterday, and DW & I decided to try to pursue it. If it pans out (relies upon a 3-star general cutting through some hefty military bureaucracy to change my upcoming assignment), my family could be headed to South Carolina in the spring vs. Idaho. Besides the improved career prospects, it's got some distinct financial perks too -- namely, housing is 25% cheaper! Which also means that with the $150k downpayment that we've got, we'd likely only have a $50k-$100k mortgage. However, we're also going to sell our current home, but don't want to rely upon that selling before getting our next house (we can easily handle both mortgages if needed). That sale should give us $110k-$120k in equity, allowing us to pay off the next house immediately....which is downright THRILLING!!!!!

But my question comes in on how do we handle the loan for that situation? I feel like I'm basically looking at some sort of a bridge loan... Can (should) we get a mortgage for a relatively small (<$100k) amount, knowing that we'll only have it for a very short (likely 3-6mo) period of time? Would it make sense to do that? Would the bank even make that loan? I also kinda doubt that it would be worth the closing costs... So do we do a HELOC on our current home, or our paid-off rental? Again, closing costs might make that a poor choice -- even if the lender pays closing costs upfront, if I pay it off too soon (<3yrs), I have to repay closing costs... So would it make the most sense to find some sort of general bank loan? Is a loan of that type/size even possible? I assume interest & fees on that would also be rather hefty...

Any ideas?

[Jluke]

Do not put your current home up for sale until you decide on whether to take a HELOC. Limited experience and it might be state specific or lender specific but if the house has been up for sale you can’t get a HELOC.

seems like you should put yourself in position to pay cash for the next house.

[MonkeyMama]

Personally, I'd just get a mortgage on the new home and pay it off when old house sells. Instead of getting the lowest (long-term) rate possible, you will be shopping for a cheaper loan instead. The terms don't matter so much (a less favorable interest rate) if you will just pay off shortly.
As Jluke brings up, if you do any refinance/loan on current home, you have to do any financing before you put the home up for sale. I'd consider both options. Maybe your current lender would love to give you a HELOC for pennies, who knows. You just have to shop around and see what your options are.

Whatever you do, don't do a "bridge loan" from the bank. There are real estate bridge loans but the interest/terms absurd. I understand the risk the bank takes on and why they are so expensive, but someone in your shoes has the cash/income to go around a bridge loan. When we bought our 2nd home before selling our 1st home, the bank bridge loan was clearly a terrible option and so we just pulled the down payment out of our first home. (We were in our early 20s and didn't have a lot of assets or cash, during the real estate bubble so we could borrow whatever the heck we wanted to). I suppose we could have just done some creative financing on the new home, but it was a long-term mortgage so we borrowed against our #1 house and got the long-term/low-interest loan we wanted on the new house. Today, I'd probably just take whatever I could on the new home because I'd pay it off as soon as first home sold. Refinancing house #1 could likely delay sale of home #1. So is probably not a risk I would take (we learned the hard way).

[corn18]

We’re in the same boat. Unexpected move back to OH right after I paid off our current house. We do have a HELOC we could use but I’m just going to take a confirming mortgage out on the new house and pay it off when I sell the old house.

[scfr]

What about a short-term loan from a family member or friend, with an interest rate set to make it a win-win for both parties? If you were my brother/son/cousin/friend, you're the type of person I'd have no problem loaning money to.

Good luck with the upcoming move. Although exciting and positive, I know it will be stressful too.

[disneysteve]

What about a short-term loan from a family member or friend, with an interest rate set to make it a win-win for both parties? If you were my brother/son/cousin/friend, you're the type of person I'd have no problem loaning money to.

I would suspect that few people have someone in their lives who they can trust and who trust them enough to lend them 50-100K.

That said, we did lend my cousin money in a somewhat similar situation when he bought his current home. He is extremely responsible and had plenty of assets; he just couldn't access what he needed when he needed it. It wasn't anywhere near 50K though in our case. Had he needed that much, I don't think we would have been willing to help.

[kork13]

Appreciate the responses so far.

MM -- By "cheaper", I assume you mean closing costs, etc.? I'm thinking to evaluate our options based on total cost, including closing and monthly interest costs. If there's a different/better method for crunching the numbers, I'm all ears.

I wish I was in a position to just do a clean, cash-only purchase, but we're not quite there yet. We're looking for our next house (if it's here in SC) to be somewhere between $200k-$250k, and only have ~$150k-$160k available for DP. All of our assets are otherwise tied up between retirement accounts, EF, DKs' 529s/UTMAs, and our 2 (rental and current) homes. So the majority of our assets are relatively illiquid/inaccessible. However, we want to get totally debt free ASAP, and then we can turn the firehose toward building up regular taxable investments (since we're already maxing retirement & DKs' future needs are covered). So the eventual sale of our current home will jumpstart that process.

Looks to me that the only way for us to make a cash/pseudo-cash purchase would be to sell the current house quickly (ideal), or get a HELOC. I don't think I want to muddy the water of selling our current home with a new HELOC on it only to close the HELOC immediately when it sells, so if I go the HELOC route, I'd probably use our rental house (in spite of the slightly higher interest rate for a non-owner-occupied HELOC).

I'm not willing to ask family for a loan, I view family debts as fairly toxic (relationally)... Besides, I highly doubt that anyone in DW's family, nor anyone in my family (except possibly my father) would even be capable of giving us a $50k-$100k loan.

If the current house sells fast, that's great -- problem solved! Otherwise, it seems the best options are:
(A) get a normal mortgage & eat the closing costs when we pay it off ASAP;
(B) get a HELOC & eat those closing costs when we pay it off ASAP;
or perhaps, if it's even possible, (C) keep a small amount (say, $500) on the HELOC to keep it alive for the 3 years required for me to not repay the closing costs... if that could work, it would only cost me ~$100 in interest to carry it (not counting the interest accrued while using it as a bridge)... Though that would technically keep us "in debt" for that time -- not really a big deal, except for the mental/emotional aspect.

I'll have to look into the closing costs for a regular mortgage vs. HELOC. But in the end, it's probably less than $3k-$4k, so maybe I'm splitting hairs over relative peanuts with all of this...?

[corn18]

Two other options we looked at:

1. 401k loan. Min fees. Interest isn't real. Risk losing any gains while money is out. Since my 401k is mostly bonds, not a big risk.
2. Margin loan on taxable account. Rate is the same as HELOC. If the market tanks in the middle of the transaction, you could get a nasty surprise with a margin call.

I am lucky in that we are buying from a builder and they are paying $5k of closing costs. We expect to pay nothing at closing including our first year of home owner's insurance. The $5k covers that. I asked if I could get $5k off the purchase price if I pay cash and they weren't interested. Big builder so national programs = no flexibility (so they say). It's like when we bought our new car and they gave us $4k off the price if we financed. Notta if we paid cash. So I financed the car and paid it off the next month. Will do the same with the house. Maybe you can ask for closing help on the new house.

[bjl584]

I think it's a fairly common thing.
A lot of those listings that are in contingent status are in situations like you.
I'd think most lenders who write mortgages can handle this.

[LivingAlmostLarge]

i'd probably just get a mortgage and then worry about it after selling the other place.

[Like2Plan]

Oh my goodness! Zombie thread alert... Until I noticed the date I was thinking--Kork, you are moving again? I can't keep up. LOL

[kork13]

Oh my goodness! Zombie thread alert... Until I noticed the date I was thinking--Kork, you are moving again? I can't keep up. LOL

Gosh, I sure hope not... At least give me year or two to get my bearings! Lol
This thread is definitely OBE... I bought that house in cash (scraping nickels from the corner of the couch), and couldn't be happier for it. No debt on your home? And at a pretty young age? Amazing feeling.

Although in all reality, I am expecting my next move to happen sometime during the summer of 2023... Ugh.... Can I retire yet & finally somewhat settle down into one place??

[Petunia 100]

Gosh, I sure hope not... At least give me year or two to get my bearings! Lol
This thread is definitely OBE... I bought that house in cash (scraping nickels from the corner of the couch), and couldn't be happier for it. No debt on your home? And at a pretty young age? Amazing feeling.

Did you need any money from your previous house, or did you make it work with what you had on hand? Just curious.

[kork13]

Did you need any money from your previous house, or did you make it work with what you had on hand? Just curious.

The previous house gratefully sold right on time -- iirc, I closed on the sale in mid-June, then closed on the purchase in early July (2-3 weeks later). I still had to drain our taxable investments almost to nil, but we did it, and not looking back.

[Petunia 100]

The previous house gratefully sold right on time -- iirc, I closed on the sale in mid-June, then closed on the purchase in early July (2-3 weeks later). I still had to drain our taxable investments almost to nil, but we did it, and not looking back.

Enjoy your new home!