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Topic: Cash
& Debt Management, Consumer
Issues
Q: Last year, we paid our mortgage
off! YEAH! Now we want to buy a new (translation: bigger) house. I
anticipate that we will sell our current house for $130,000 and will buy a
$250,000 home. I only want a $120,000 mortgage, vice a $250,000 mortgage.
What type of mortgage do I need so that I can use the proceeds from the
anticipated sale of my current home (without selling it first) so that I
can get a lower loan amount?
A: Congratulations on paying off your mortgage! If your
income is sufficient and your other debt levels are low, you may be able
to purchase a new home with a larger mortgage and then when your home is
sold, use the equity to prepay or remortgage the first amount. You also
can get pre-approved for a mortgage up to a pre-set amount from the lender
of your choice while you are house shopping. You would not be able to lock
in a rate until the exact amount of the mortgage is known.
You may be able to get a home equity line on the first home to use for the
down payment. Then at the sale, you could pay off the home equity line. It
is possible to get a 100% home equity line based on the tax bill or
comparables (if you know the right lender) for about $50. This can be set
up and ready to go when you find the right house to buy. If you plan to
build, the home equity line can be used instead of a construction loan for
some of the costs if the rates are more favorable
It is possible to get a bridge loan if you buy a new home before selling
your old one. This allows you to not pass up a house you like prior to
selling your old home. Many mortgage companies will structure loans that
allow a pay off of large sums without further costs. Be sure you also
re-amortize based on the new lower mortgage. You should discuss these
options with the mortgage broker/banker first.
You can get any type of mortgage available to you for the new home.
Right now, with rates as low as they are, you may want to lock in a
fifteen-year or thirty year fixed rate mortgage. Since we do not know your
age and credit history from your email, the rate and terms you can
negotiate is unknown.
If you need more detailed information relative to your specific
circumstances, we would advise you to seek the services of a Certified
Financial PlannerTM professional who
could help you with your particular situation.
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Disclaimer
"Ask Our Experts" is intended as a medium to reply to
frequently asked financial questions and to provide answers which are
appropriate for most consumers. We make every effort to ensure that
responses are technically accurate, but we cannot guarantee such accuracy.
We attempt to provide responses that are appropriate to the circumstances
of the person submitting the question, but we cannot guarantee our response will
be appropriate because the Q&A format precludes responders from gaining
personal insight into the submitter's circumstances and other factors that
influence advice rendered in a financial planning relationship. Similarly,
you should not assume that a response to a given question will be appropriate in
your situation, because your individual circumstances may differ from those of
the person who submitted the question. You are always urged to seek the
advice of a qualified professional who is aware of the details of your personal
situation prior to making any important financial decisions.
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