Q&A - Mortgage Comparison

 

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.