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Posted by BRH on October 7, 2006, 8:29 pm
I expect to be offered early retirement within the next 6 months or so
and, should it come to pass, I plan to relocate closer to family. My
idea is to not rush into buying just any home, but to wait until I find
the "right" home for me in my retirement. Consequently, I expect that I
would not put my existing home on the market until I find the specific
home that I will purchase.
Because of this, it's conceivable that I might have to carry two
mortgages for a few months before I'm able to sell my existing home.
Assuming that scenario, would it be smart for me to open a Home Equity
Line of Credit to provide most of the downpayment on the new home? I
have approx $100K equity in my existing home and would like to put at
least that amount down on any new home that I purchase. (I could add
approx $40K to the downpayment out of savings, if need be). I would pay
off the HELOC with my equity as soon as I close on my existing home sale.
I have never taken out a Home Equity Loan or a HELOC, but have received
many offers to do so. So, I have a few questions:
1. Would the scenario I describe be a good way to carry me over between
buying the new place and selling my existing home?
2. It's my understanding that a HELOC is merely a set amount of $$$
that's available for my use and I don't make any payments on it until I
actually use it. Is that correct?
3. In retirement, I will be receiving a substantial federal pension,
and don't plan to work another job. I have more $$$ in my 401(k) and
various IRA's than what the new house would cost. How will this affect
my ability to get a mortgage on the new house?
Thanks!
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Posted by Elle on October 8, 2006, 6:49 am
Too risky. You do not want to feel pressured into accepting
an offer on your current home because you already have
purchased another home. Instead, when the time comes, sell
your home, then rent in the area where you want to live.
Meanwhile, use tools like www.realtor.com to get an idea of
what the housing market in your new location is doing.
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Posted by HW \"Skip\" Weldon on October 8, 2006, 9:49 am
On Sun, 8 Oct 2006 05:49:14 -0500, "Elle"
>Too risky. You do not want to feel pressured into accepting
>an offer on your current home because you already have
>purchased another home.
I agree with Elle. In fact, I would go further and suggest that there
are other real estate strategies that used to be "somewhat aggressive"
and which are now "substantially aggressive". (My opinion.)
Included in this category are accepting a contingent sale offer and
taking one's home off the market while someone else tries to sell
their house; accepting offers with only modest earnest money deposits;
and providing mortgages for the buyer where there is not a substantial
down payment. (Regarding taking back notes, I would insist on a
variable rate mortgage.)
In fact, I am asking clients to forego looking for new homes before
closing (actually getting the cash) on their old home. The likelihood
is that they will find the house-to-die-for quickly and place great
pressure on themselves to accept offers on the current home that they
would not normally entertain.
-HW "Skip" Weldon
Columbia, SC
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Posted by Will Trice on October 8, 2006, 11:25 pm
HW "Skip" Weldon wrote:
> In fact, I would go further and suggest that there
> are other real estate strategies that used to be "somewhat aggressive"
> and which are now "substantially aggressive". (My opinion.)
>
> Included in this category are <snip>
> accepting offers with only modest earnest money deposits;
How does it help to accept higher earnest money? Do you think this
brings more motivated buyers? In my (limited) experience selling
property, it seems that the buyer can get their earnest money back for
many reasons which are pure bull, although that gets harder as the deal
progresses.
Just wondering what your thoughts are on this,
-Will
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Posted by speednxs on October 8, 2006, 11:24 am
> 1. Would the scenario I describe be a good way to carry me over between
> buying the new place and selling my existing home?
Nobody can predict the future. If house prices are falling and you buy
now and sell later you lose the difference in price. If house prices
rise and you rent now and buy later you lose the difference in price.
The opposite situations you win. Life if risk, go with the
percentages. Doing a double move with a rental is a big hassle.
> 2. It's my understanding that a HELOC is merely a set amount of $$$
> that's available for my use and I don't make any payments on it until I
> actually use it. Is that correct?
Yes. Carefully factor in fees. You may have fees to open the account
and to close it early. My HELOC was $0 to open, but $500 to close
early (less than 3 years). I ended up paying that fee when I closed it
without using it when I sold the house. Your HELOC gets paid off when
you sell your house. This isn't a total ripoff, house appraisals can
cost a couple hundred of bucks and the lender had to do this to give me
my HELOC. You may only be borrowing for 3 months, so carefully look at
fees to determine the real cost of borrowing.
It is good to be able to put down 20% of the purchase price. This
avoid Private Mortgage Insurance (PMI) which is very expensive
insurance for the benefit of the lender. If you are retired and can't
easily earn a higher rate than the cost of your mortgage, paying off a
bunch of your house may be a good thing. You may be in a low income
tax bracket in retirement. Just make sure you have enough income to do
this, without relying on savings.
> 3. In retirement, I will be receiving a substantial federal pension,
> and don't plan to work another job. I have more $$$ in my 401(k) and
> various IRA's than what the new house would cost. How will this affect
> my ability to get a mortgage on the new house?
Lenders like you to have money in IRAs and 401Ks, but it is not
collateral.
ERISA (IRA and 401Ks) often cannot be attached by a judgement (except
by the Federal Government of course). There are ins and outs here, so
you have to know your state laws and the "articles of incorporation"
for the instrument. The money IS fair game once you distribute it
(take it out). How close to 59 1/2 your are and able to take
distributions is an important factor. You want to take many small
yearly amounts rather than a few big chunks to keep yourself in a low
tax bracket.
Enjoy your new house and retirement!
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