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My wife and I have had our house on the market for about 3 months. We owe 44k on it and it is listed for 79k. We have lived here 9 years. Our current mortgage is FHA. We recently viewed a home that we both love. I know the risk would be a personal decision to make, but I would like to know if this is possible or advisable:
A lender gave me the option to use a no closing cost home equity loan at a variable 3.5% to payoff our mortgage. This would free-up the possibility of getting an FHA loan for the dream home. I have researched that if we would plan to keep our current home for long, a variable rate would not be the best idea, but since we "hope" to sell soon, is it possible?
It's a tough situation because we hate to pass on a really nice home, but the risk of not selling our current home quick enough, may not be worth the risk. Like I said, I would like to know if this option is possible, common, or advisable?
Thanks in advance!
If you can qualify for a home equity loan on a non-owner occupied property (since you are planning on moving out, I don't think it could be done as a primary residence), then is there a reason you cannot qualify for a conventional loan to purchase the new home you are looking at?
If you feel that you'll be able to pay off your existing loan within the next 6-12 months, and you need to use FHA financing on your new purchase, I feel that getting a home equity loan/line of credit probably will be OK, worst case if the paymen starts getting out of hand is you can reduce the sales price for a quicker sale/pay off the mortgage.
If you are buying the home in the same area, and your current home is too small for the amount of legal dependents you have, then you can actually get a 2nd FHA loan as long as you can document 25% equity in your current home with the FHA mortgage on it (from the mortgage balance vs. list price it appears you'd have that amount of equity).
Thanks for the reply Shane.
I don't think there would be any reason why I would not qualify for a conventional loan. Most of our down payment for our new purchase was going to come from the profit after our home sells. I do not have enough currently in savings for the 20% down payment. We have 7k in savings now, which would be enough for an FHA loan down payment.
I am also in the process of approval with another lender who recommended a 95% conventional loan for the purchase of our new home. I was told it was approved in automatic underwriting, but the agent sent it to a manual underwriter for another opinion. It has been three weeks and I haven't heard a decision yet.
Ideally, we would like to sell our current home and purchase the new one using our profit as a down payment with a conventional loan. At the same time, I hate to miss out on the house we have in mind now.
Thanks for the information!
There are conventional loan programs where just a 5%, or even a 3% down payment is required, and in more complicated situations it's good to have an underwriter review your file before you make plans based on getting the mortgage - 3 weeks is a bit long though, so you should follow up every 2 days until you hear back.