I recently bought a house and closed on it before we put our current home on the market. We moved in then turned around and quickly painted and cleaned then sold our old home.
We looked at two main ideas for financing in the mean time.
1. Getting a 1st and 2nd lien on the new house. We would pay off the 2nd after the old house sold. The closing costs on this seemed high to me.
2. Getting a bridge loan on the equity in the old house. It was high interest (9%) but only for a short time and intrest only. The fees were low, and the payments were intrest only. I used the money to put 20% down on the new house and kept back some to help me make payments in the meantime.
We took the bridge loan. I think that was wonderfulInterest only mortgage on new house until we sell our current home?
You are inquiring about what is commonly called a bridge loan. The name comes from the concept that the financing ';bridges the gap'; between the purchase of your new home and the sale of the previous home. Considering that you will need to borrow the entire amount of $190,000 for this period, a simple interest rate of 7% provides an annual interest cost of $13,300, which calculates to about $1,100 per month until you sell the other property.
Expect to be required to have a good income flow (since you will need to continue the mortage payments on your current home plus the interest on the bridge loan), a very good FICO score, and a low debt ratio.
OK, so this new place is a great deal... but the home market is really slow in most areas... how long can you hold both mortgages, paying interest (and taxes, utilities, etc) on both houses, and still call it a great deal? You can do interest only- but interest rates have been on their way up- just bear that in mind. Its pretty risky what you're hoping to do. Interest would likely be something like $1200 per month, dont forget about taxes, insurance, etc.
I know it is possible if your debt-income ratio isn't too big already. Also, your credit scores need to average probably in the upper 600's or higher to be approved for that second loan. I am guessing interest only on that home is likely going to be close to $650/mo.
If your credit is good, I see no reason why you shouldn't be able to do this. The rates and payments will vary from 1% negative am loans on up to the high 6's or 7's based on your credit and ability to pay. However, don't even think about carrying both mortgages unless you can qualify based on a 30 year fixed on both. This will give you peace of mind knowing you can handle the payments.
If you can't qualify carrying both notes based on 30 year fixed rates, instead of carrying two mortgages, I'd price my current home to sell. Normal marketing time is around 6 months these days, and it'll probably take every bit of that time to sell it if it is priced like the neighbors home.
Therefore, I'd take 6 months of my payments and subtract that from the initial price of the house today and see if I could unload it within a month or two. This seams to work in our area. Sell it as a FSBO so you don't have to pay and Agent as well.
You don't want to get caught a year from now with two mortgages and be suffocating from the payments or in the bucket from negative amortization. If the new home is that good a deal, take the hit on your current home, unload it quick and make up the money on this new one, instead of overextending yourself.
I would suggest putting your current house up for sale immediately. try to negotiate with the seller that you will buy his house as soon as you sell yours. Usually a contract, inspections and all take at least a month anyway. Make your house real appealing to buyers. I think you would come out better in the end. This creative financing going on has gotten allot of people in trouble.
No comments:
Post a Comment