Moving up to a bigger house: Is it possible?

[Anonymous]

We have lived in a small house for about 5 years, which we think is too small that we want to move to a bigger one in 1-2 years.
I wonder what would be the best strategy/timing to sell the current house and buy a new one?

Houses that we want to move in are in 800k-1M range and
our current house is valued at around 650-700k (according to Zillow and the recent sales)
Ideally I want to buy a new one first and then sell the current house.
But we have only 150k in cash+mutual fund.
Current mortgage balance is 400k (monthly payment 2500) and HHI 220k.
We may be able to take out some 401k loan (up to 50k)
Is there a way to take out a loan to buy a new house without selling the current house or
should we sell first and then buy?

[Anonymous]

Anonymous wrote:We have lived in a small house for about 5 years, which we think is too small that we want to move to a bigger one in 1-2 years.
I wonder what would be the best strategy/timing to sell the current house and buy a new one?

Houses that we want to move in are in 800k-1M range and
our current house is valued at around 650-700k (according to Zillow and the recent sales)
Ideally I want to buy a new one first and then sell the current house.
But we have only 150k in cash+mutual fund.
Current mortgage balance is 400k (monthly payment 2500) and HHI 220k.
We may be able to take out some 401k loan (up to 50k)
Is there a way to take out a loan to buy a new house without selling the current house or
should we sell first and then buy?

sell first. Also note that a 401k loan is still a loan which counts against your monthly and you will need reserves to quality for a loan.

[Anonymous]

Why would you want to buy and then sell? Wouldn't it be best to do it simultaneously?

I think there are two ways to approach:

1. If you know your current house will sell quickly, spend some time looking for a new house, then put in an offer with a home sale contingency. List your house and plan to close right around the same time. (This is of course a risk, but people do this all the time.)

2. If you know you will be able to find what you are looking for quickly, then list your house. Once you have an offer on your house (with a long closing period), put an offer on a house to buy. Plan to close on your house sale before your house buy. This seems MUCH riskier to me because too many factors are out of your control, but obviously people do it this way all the time, too.

[Anonymous]

You really should talk to a financial planner. That house price seems high relative to your HHI and savings. You realize that your mortgage would increase quite a bit if you purchase a $900K house. And don't forget to factor in closing costs.

[Anonymous]

We did this by taking a home equity loan on our current property (effectively raising the mortgage amount on our home to about 80%). That money, plus savings, was used to purchase the new home. You pay off both the first and second mortgages when you sell the house…but you're carrying a lot of debt until you do that, which is why it is risky. (We did it in 2005, when the market was shooting up and we were pretty sure we'd sell quickly and for our asking price.) Note the caution others have made about your total potential debt.

[Anonymous]

Is an addition out of the question?

[Anonymous]

Anonymous wrote:You really should talk to a financial planner. That house price seems high relative to your HHI and savings. You realize that your mortgage would increase quite a bit if you purchase a $900K house. And don't forget to factor in closing costs.

OP said their mortgage balance is 400k. If they sell for 700k then that leaves maybe 250k or so after closing costs to put down on a 900k house, which is more than 20% down. I think a 650k mortgage could be a bit of a stretch on their budget, but they mentioned having some extra cash that maybe they can put down to lower their monthly payment. For this area, this is unfortunately not an unreasonable amount to spend on housing. Of course this depends on what their other debt is like and whether they have childcare costs.

[Anonymous]

Anonymous wrote:Is an addition out of the question?

+1

We are adding a good 700 sq ft to our house, bringing it to about 3,500. Cost is about $300k, but we are doing mostly high end.

[Anonymous]

You can get a bridge loan to cover the period between buying the new house and selling your old one.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Is an addition out of the question?

+1

We are adding a good 700 sq ft to our house, bringing it to about 3,500. Cost is about $300k, but we are doing mostly high end.

300k for 700sf? Wow that's expensive.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is an addition out of the question?

+1

We are adding a good 700 sq ft to our house, bringing it to about 3,500. Cost is about $300k, but we are doing mostly high end.

300k for 700sf? Wow that's expensive.

I should add we are gutting the existing space. The new space is about $175k, the extra comes from a new kitchen (never cheap) and the "down to the studs" stuff.

[Anonymous]

Sounds eerily similar to my family!

We had to sell first because we needed to free up the cash from our current home to put into the next one. We bought at $1M with 30% down which kept the payments down enough so that we aren't struggling to pay the mortgage.

[Anonymous]

Anonymous wrote:Why would you want to buy and then sell? Wouldn't it be best to do it simultaneously?

I think there are two ways to approach:

1. If you know your current house will sell quickly, spend some time looking for a new house, then put in an offer with a home sale contingency. List your house and plan to close right around the same time. (This is of course a risk, but people do this all the time.)

2. If you know you will be able to find what you are looking for quickly, then list your house. Once you have an offer on your house (with a long closing period), put an offer on a house to buy. Plan to close on your house sale before your house buy. This seems MUCH riskier to me because too many factors are out of your control, but obviously people do it this way all the time, too.

Do #1. This is standard practice. Granted, the sellers of the home you put an offer on have to agree to the contingency but unless you're in a bidding war it shouldn't be a big deal.

[Anonymous]

Anonymous wrote:You can get a bridge loan to cover the period between buying the new house and selling your old one.

DO NOT DO THIS!!

We did it, still paying for that mistake. No house is worth the chance that you'll be stuck with owning two houses because one of them hasn't sold.

Also don't borrow from you 401K. Again, no house is worth risking retirement money for.

[Anonymous]

Depends on if you're looking in a hot area or otherwise anticipate competition for houses. If so, sell first. It's really not worth the aggravation and stress of making offers based on assumptions of when and for how much you'll be able to sell. Plus, you'd have to offer a lot more than other bidders to win out in a multi-bid situation with a home sale contingency. I went though all this over the past couple years. Like you OP, we tried to buy first but watched in frustration as our offers kept losing out in multi-bid scenarios, even when we offered the same or a bit more. Finally wised up and sold my place (it was super fast and we got way more than we thought we would). With that in hand, we won out the next house we bid on. Inventory has been really anemic for a while now - if you want to get the one good house that pops up every few months, have all your ducks in a row. Of course, if you're looking in a slow market, then go ahead and just use the contingency.