I want to sell my current home & purchase a condo. I am a retired senior with a fully paid-up home. The condo is in construction to be finished in a couple of months.
If I list my current home, it may not sell in time to simply pay for the condo. Therefore I have been to see lenders. They all recommend against a bridge loan due to unavailability and also due to high costs. They also recommend against a Home Equity loan. The one I think would be the best is this scenario but I am asking for your guidance on which one is the better way to do this for any and all reasons.
Re-finance my current home and take a $100k loan at less than 5%. This loan would have no prepayment penalty. I would make a $50k down payment on the condo Then sell my home and pay off the refinance loan on the home & owning the condo free & clear.
The other alternative, is to take a mortgage on the new condo & pay it off when the house sells but that mortgage cannot be done until it is completed. Again, there would be no prepayment penalty. Also the seller will not do a contingency.
If I would take the loan on my current home I would not have a problem making the mortgage payments because they would be low enough for me to afford to do this for a few months while the house is listed. But I’m not sure if it makes things more complicated to sell a home with a mortgage on it or not?
I would like to keep the home & rent to my son for property taxes only but it would be less rent than FMV & I think the IRS calls it my second home & the tax benefit is lost. What a shame not to be able to help out.
Thank you,
Nathaniel
Jeanne
If you declare your current home a rental by filing a schedule “E” federal income tax then your current home would be considered a rental as oppose to a second home. You determine that by how you file your federal income. There are tax advantages to keeping your current home and renting it.
It is also an excellent idea to refinance your current home and purchase your new condo. Make sure you understand all the condo rules by getting a copy of the CCRs and by-laws of the condo prior to moving in and signing the settlement statement.
It is not as complicated as you think in selling a house with an existing mortgage as 90%-95% of all houses sold have a mortgage on them.
If there is an existing mortgage on the house you are selling, when the escrow close the mortgage is paid off by the escrow closing agent. After the closing cost have been paid you are given a check for the difference in the mortgage being paid off as well as the closing cost.
Perhaps the rent your son would pay you would cover the mortgage monthly payment. Of course there is the stigma of renting to family and friends.
I hope this has been of some benefit to you, good luck.
“FIGHT ON”
Comment by loanmasterone — May 17, 2010 @ 6:30 pm
Tracy
Hello Leeway,
Seems the drop dead simplest solution is to get a mortgage on the new home. If construction has already started, then that seems to imply you have already given them a deposit, so why would you need a bridge loan with only 2 months remaining til completion – a “couple” means (2) to me? People generally get bridge loans at the beginning of the process so construction can get started.
On the thought of refinancing your current home and then paying it off in a few months, lenders expect that when you refinance your home, you will remain in the home for at least 12 months and would not like the thought of you selling the home after making just a few payments on the loan. The lender could suffer chargebacks for that.
Think about this. By refinancing your current home at the low rates for a primary residence, you are indirectly getting a bridge loan to buy your condo – but at a rate you would not otherwise obtain for a true bridge loan. But by telling the lender that you intend to occupy that home for the next 12 months, you would be committing mortgage fraud.
I can’t see why someone recommended against a home equity loan. I’ve had many clients get home eq loans to buy other property. Better yet, get a home equity line of credit. You’ll get a really low start rate. Then pay it off after the home is sold. Be aware there may a fee involved to close out a home eq line of credit that soon. Be sure to get all the details. But more than likely, the fee for the early close-out will be less than the closing costs on a refinance – and no fraud would be involved.
For the record, selling a home with a mortgage is par for the course. Most people who sell their homes have a mortgage outstanding.
You should seek competent tax advice on the second home and rental issue.
Good luck.
Comment by Carol — May 20, 2010 @ 6:23 am
Esther
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Comment by Laura — May 23, 2010 @ 12:54 am
Georgia
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Comment by Brodie — May 23, 2010 @ 1:13 am