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Home buying question
Old 02-14-2018, 11:05 AM   #1
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Home buying question

We currently own our home. We are looking to downsize in the same city, and I am wondering the best approach. If possible, I would like to buy the new home, take a few months to get minor upgrades and moving accomplished, and then sell the existing home. For arguments sake, let's say both housed are worth about $400k.

I don't want to liquidate investments and pay capital gains, but I also hate the idea of paying $1,000-3,000 in various fees and closing costs on a mortgage that I don't intend to carry forward. I guess the third choice is to take a "line of credit" loan against our investments.

Has anyone navigated through this? Suggestions?
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Old 02-14-2018, 11:26 AM   #2
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Is your current house paid for? What about a home equity line on your current house?

The mortgage rate for a home equity will be lower than a margin loan on investments.
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Old 02-14-2018, 11:43 AM   #3
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I would not go through the traditional mortgage process unless I planned on keeping the mortgage for many years. On a $400,000 house the fees would be much higher than $1,000 - $3,000 for a lot of non-refundable mortgage origination costs. Plus the pain in the neck factor of dealing with a mortgage company at closing.

If it is just a few months could you take out an equity loan on both homes with the intent of paying off the second home entirely when you close on home #1 ? A percentage point or two difference in rates may be a better choice for such a short term.

Also, how soon do you think it will take you to sell house #1 ?
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Old 02-14-2018, 12:02 PM   #4
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Originally Posted by ChiliPepr View Post
Is your current house paid for? What about a home equity line on your current house?

The mortgage rate for a home equity will be lower than a margin loan on investments.


This.

We used a HELOC on old home as a bridge loan for new home until old home sold. Paid off the heloc with proceeds of old home sale just a few months later.
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Old 02-14-2018, 12:10 PM   #5
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Originally Posted by ocean view View Post
This.

We used a HELOC on old home as a bridge loan for new home until old home sold. Paid off the heloc with proceeds of old home sale just a few months later.
+1

Only think I wish I had done different was to get approved for the HELOC while I still had a paycheck. As it was we had to liquidate some investments. Maybe not a bad thing as after our old home closed we kept some extra cash.
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Old 02-14-2018, 12:24 PM   #6
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There is what is called a "pledged asset line" that uses your investments as collateral. Merrill and Schwab both offer it. The interest for a $500k line at Schwab is 30-day LIBOR + 2.75%. You can borrow up to 70% of your investments' value. There are no application fees or early payment penalty; you only pay for the interest based on the amount you borrowed.
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Old 02-14-2018, 12:25 PM   #7
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You're looking for a bridge loan.
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Old 02-14-2018, 12:26 PM   #8
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get a heloc on the current house
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Old 02-14-2018, 02:05 PM   #9
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My vote is for a margin loan. Depending on how much money you borrow, and how much you have invested, you can negotiate the rate. You cannot negotiate the amount they will loan, this is set by the regulators and varies by type of security. The rate can be lower than mortgage loans (my rate is currently 2.25%), but will be variable (important in a rising rate environment). Margin interest can be tax-deductible as well.
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Old 02-14-2018, 02:12 PM   #10
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Agree with those suggesting heloc. Not sure if you would face any special issues when selling the current home and wrapping up the heloc (could possibly just transfer it to new home). Heloc is usually limited to a percentage of home's equity value so won't provide the entirety of the funds.
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Old 02-14-2018, 03:49 PM   #11
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In our area there are plenty of no closing cost lenders. The rate is maybe .3875 higher than one with normal closing costs. A 5/1 ARM is usually lower rates.
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Old 02-14-2018, 04:53 PM   #12
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I'd be very cautious of a margin loan. With the current situation in the market you could conceivably be in a position to liquidate equities (at low values) to pay down the margin.
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Old 02-14-2018, 05:35 PM   #13
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... Not sure if you would face any special issues when selling the current home and wrapping up the heloc (could possibly just transfer it ...
Nope and nope.

HELOC must be extinguished at closing of sale to new owners, same as a mortgage or any other lien.

A HELOC is not transferable per se for the same reason. However, they could open a new HELOC on their new home.
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Old 02-14-2018, 05:46 PM   #14
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I did this four years ago. First, if you take a home equity loan do not tell them you are selling the house. They will not approve it. I pulled whatever hair I had out chasing the bridge loan. Then I realized that I could borrow on my portfolio at 1% over Libor without liquidating. So between these two sources we were proud owners of two houses. Sold the old one in no time
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