All Forum Posts by: Michael Kaminski

Basically, you would close on the house with little or no cash down and all of the equity would be in the form of a loan by the sellers- you could agree to whatever terms you like for that loan. The better the terms for YOU, the lower your DTI, which would help you with the loan on your end.

After you own the house, you can start working on a mortgage to refi the loan that the sellers gave you and they'd be paid in full by the bank when you close on THAT loan. 

Hey Michael!

There are a few options that some people have used when they were looking to buy a new home before selling (and ran into DTI issues). The true bridge loan could work, but as you might have seen you'll be paying interest on that difference and so you may still run into DTI issues. The alternative we've used is a "Buy Before You Sell" program. There is an additional cost, but with that you don't make payments and there is no interest in the interim and you can still access the equity in the home to use towards your downpayment of the new home. Feel free to reach out if that's something that might be helpful for you

Came here to suggest a bridge loan as well. 

You are looking for a specific product and you have a situation that creates more liability for a lender, so it's going to be more costly no matter how you slice it. 

Get your DTI down by pulling cash out of an investment and paying taxes OR paying more for a bridge loan.

One other possibility- depending on the seller's situation, maybe they could carry a note for you in the short term with a balloon in six months? It's a long shot, but worth asking. 

A lot of these details will be lender specific - especially for bridge loans. As an example, in your case, the bridge loan would be used to convert your existing mortgage into a temporary loan with a very low monthly payment. For instance, with how we set up our bridge product, we convert the house that you will be selling (your old home) into an investment property and payoff the existing mortgage with a bridge loan refi that has a 6 month term and monthly payments that consist of only tax and insurance escrow. The loan is interest only and it accrues and is paid when the loan is paid off - there are no monthly interest or principle payments during the life of the loan. This gets rid of the old mortgage payment and replaces it with a very low monthly payment, reducing your DTI.

Simultaneously, we close the new mortgage on your new home. This process allows you to get a new mortgage for the purchase and roll any cashout from any equity (whatever is leftover after the existing mortgage is paid off on the old house) as the downpayment - all without having to actually sell the old home first. The result is that you get a 6 month window in which to sell the old home after buying the new home without needing the income to carry two mortgages via DTI.

The term, structure, LTV, and rate for bridge loans will vary by lender. Using rental income via a short term leaseback on the new residence will not help your DTI unless you're getting financing as in investment property - it will only give you cash income to pay for the new mortgage until you sold the old home and actually moved. I'm not a huge fan of these short term leasebacks as you could have a serious problem on your hands if the sellers refused to move out.

Bridge loans like this are not without risk - in this example, you have to get the old home sold within 6 months, and this may require you to sell if for less than you would like. In our case, we would absolutely call the loan after 6 months unless there was reason for an exception. I'm not licensed in Ohio, but I'm sure you wont have any problem finding a lender who has access to a similar product. 

I second this - a bridge loan is probably your best option. Equity and retirement assets wont do anything for DTI unless youre retirement age, have a plan in place to create income via IRA distributions, and have a sufficient balance for the distributions to continue for at least three years.

@Michael Kaminski

If your existing home is on the market the bank could do a traditional bridge loan which is short term and gives you time to sell your home - just want to make sure you have plenty of equity that when it sells it can pay off that loan

What state you in ?

More important than what you owe on your current home is why are you moving and what did you pay for it.

If you’re moving for a lifestyle upgrade or other non-financial reason go ahead and move. (Since it sounds like the new home is more expensive.)

Now the important question is what did you pay for it? If you have a gain over a couple hundred thousand I’d’ pry sell. Every $100k in gain up to the limits, $250k (if single) or $500k (if married) will save you $15k in federal taxes and I’m guessing $5-10k in state taxes?  So if you have $200k in gains you’d have to make $50k on your rental NET, after expenses. So you can pay $10k in taxes and be back to where you would be today by selling. Except you’d also have to make up the interest expenses on that extra $500k you borrow, so you have to make that plus $2,500/mo profit (another $30k) to pay the interest. 

So if you think you can net say $45k/yr in profit it will take you 3 years to break even if you ignore income taxes. Most rentals won’t bring in $4k/mo in profits. (Not rent, profits after expenses.)