Buying new home questions

[CtownCyclone]

Mark,
The wife and I are likely going to be buying a new house in the next 6 months or so. Combination of growing family and proximity to (her) work are the major reasons for the new purchase. We've been in our current house for 5.5 years on a 15 year note.

Right now, we're envisioning much of our down payment on the new house coming from the sale of our current house. How does that work with getting a mortgage on the new house? We want to be able to put 20% down on the new house to avoid PMI. I've heard of people getting 2 loans, but didn't ask enough questions to understand how that works. Do you get 1 loan for 80% of the home value and another loan for the rest that you're waiting on the sale of the old house to pay off?

 

[ArgentCy]

I know I'm not Mark and don't have a ton of experience in this area. I'm sure you could find some mortgage brokers or someone to make a loan so that you technically own both houses at the same time. I guess that I did this in order to buy a foreclosure that we moved into a couple months later. However, its very common to purchase a house on a, I believe its called a contingent to sale contract. That way then you can wait to close on the new house until you get a contract to sell yours. It usually means that you could lose the house you want to buy do to another offer but that's usually not a problem in my area but it can be in a hot neighborhood.

 

[chadly82]

Youll get the proceeds on your current home and can have the funds transferred same day since there is no recission period on purchases.

 

[IowaRealEstate]

It depends on your circumstances. If you are wanting to buy your new home before the old one is sold, then you will likely need a "bridge loan" which is temporary financing while the other homes sells.
One of the keys to a bridge loan is the bank wants to know you have enough money to pay for both houses for a period of time if you need to. Typically 6 months worth or so.
If you other home will be sold first, then no big deal, sell one and but the other on the same day. That happens all the time.
If you need specific lending questions answered feel free to email the best lender in central Iowa at [email protected] and he would be happy to answer those for you.

 

[Gossamer]

What you are talking about is what is called a "simultaneous second" and it happens when you sign the documents for your first mortgage.

Often times a bank will secure your first mortgage (80%) with a larger entity...a Wells Fargo, US Bank or if you're lucky, a more local aggregator of mortgages (this assumes you are working with a community bank and not one of the aforementioned). At the same time, they will have negotiated with you terms and conditions for a second mortgage that will be signed at the same time...and often that second mortgage is with the bank itself. This avoids the PMI as you are suggesting.

This scenario is necessary when you have not sold your current home and don't have the proceeds to put down the 20% you want to put down. Once your home is sold, you can then use the proceeds from the sale and pay off the second mortgage.

All that being said, you have to be able to "budget" in order to do that. You must be able to afford the current mortgage you have along with the new mortgages on the new purchase. If you can do that, it won't be an issue. If you can't, you'd have to put your offer "contingent to sale" of your current home...which means the seller of the home you want can accept another offer, giving you 24 hours to secure financing. If you can't perform, you'd most likely lose the home, as was said above.

There are some banks, and I'm not sure of any or I'd tell you where to go, that may still offer "bridge" loans. That is where they will lend you a percentage of the equity you have in your home for sale as a down payment on the new home. Those typically have a "due on sale clause" meaning the proceeds from you home sale would be due on sale and would go to that debt first and then to the remaining debt owed.

I wouldn't recommend those for a number of reasons...feel free to PM me if you'd like to talk more.

 

[CtownCyclone]

Thanks for your help! I wasn't sure how the "contingent to sale" aspect worked on the old house to pay the new down payment.

I guess I could just go with a loan that's got a lower down payment, and then when I sell the old house dump the money on the new loan. Doesn't seem like the smartest use of money, however.

 

[Gossamer]

Find a strong mortgage banker who is working for you long term and not just on a transactional basis. They will be able to facilitate a first and a second so that when you do sell your home, you'll be able to pay off the second...or as much as you can with your proceeds...and then not have PMI on the remainder.

I won't give out names publicly but if you are in the DSM area, I'd be happy to refer you to a couple of people. If you have your own, I respect that. It's a very personal process and should be treated as such.

 

[Gossamer]

If you're in Texas...it's a whole different ball game. TX has some WEIRD rules on second mortgages...sorry for not picking up on that earlier.

 

[CtownCyclone]

If you're in Texas...it's a whole different ball game. TX has some WEIRD rules on second mortgages...sorry for not picking up on that earlier.

No problem. I'll just walk into the lending institution with a cowboy hat and a gun, I'm sure they'll treat me right!