Options for selling old house to build new

[StartingOver10]

---

@Anonymous wrote:

Downpayment.

---

Then a HELOC is a viable alternative. Yes, the payment for the HELOC is counted in your back end ratio along with your homeowners insurance and real estate taxes (+ cc's and installment loans).

One caution: you want to work the numbers so that you don't impact your front end ratio (new housing payment PITI) for the new purchase.

One more thing: most lenders will not give you a HELOC on a home that is on the market for sale. That could be the reason your LO didn't mention it earlier.

[Anonymous]

---

@StartingOver10 wrote:

---

@Anonymous wrote:

Downpayment.

---

Then a HELOC is a viable alternative. Yes, the payment for the HELOC is counted in your back end ratio along with your homeowners insurance and real estate taxes (+ cc's and installment loans).

One caution: you want to work the numbers so that you don't impact your front end ratio (new housing payment PITI) for the new purchase.

One more thing: most lenders will not give you a HELOC on a home that is on the market for sale. That could be the reason your LO didn't mention it earlier.

---

Did I calculate the back end correctly?  The formula I used for monthly income ok?  I took it straight off my 1040 and divided by 12.

I didn't know about the house on market caveat, I'd take it off the market if I need to go this route.

Hopefully my house sells and all this is moot.  But I feel better if I have a viable plan B.  We'd be dissappointed if something happened and they put "my" new house up for grabs.  

[StartingOver10]

You calculated the gross income correctly

There are two ratios the lender uses: 1) the front end and it is the new house payment which is principal, interest, real estate taxes, homeowners insurance, mortgage insurance (if applicable) and condo or HOA fees (if applicable).  The back end ratio includes all the items in the new house payment plus your cc and installment debt and for you, your taxes and insurance and maintenance fees (if applicable) on your current home. If you get a HELOC, it will include that payment too in the back end ratio.

[Anonymous]

Thanks for the reply.  Much help in navigating all this stuff.  I believe it prudent to educate yourself in the mortgage process, because nobody looks after you like YOU.

So the back end does NOT include medical insurance, utilities, cell phone etc?  I'm surprised the Blue Cross payment would NOT be in the mix while the property insurance is. My mortgage on the new home will be about 220k.  Now we all know surgery and few days in the hospital gonna rack up 200k in just a few days, the price of the new house and then some.  The next thing ya know the uninsured guy is gettin on the phone looking for BK attorney to get out of a garnishment.

So why would the mortgage guys insist on property insurance but not on the guy paying the bills?  I'm thinkin they'd want to cover that base to protect their investment.  If the hospital garnishes a guys check, (and they will) that certainly could put his ability to pay the house note in jeopardy.  Are not many BK the result of obscene medical bills?  So if I'm the guy sponsoring a 300k mortgage I'm gonna make him bring prove his medical insurance, but thats just me.

[frugalQ]

Yes, educating yourself on the mortgage process is important. I always tease my LO about how I should make her commission....because I'm doing all of the research and making her job easy.

If you haven't found it yet, I recommend searching fannie mae's website and reading up on all of their mortgage qualification requirements. There's this very detailed document that lays out everything. It makes for very interesting reading. It's my go-to document for any and all questions I have.

I do have a question: will the mortgage company frown upon you getting a last minute heloc for the purpose of the downpayment? You are basically getting a loan which I thought was a no-no.

Again, I could be wrong though.

[Anonymous]

Frugal- I dunno.  Not really talked about it with the LO.  I have the contract on the new build, and they have broke ground, but it will be 5-6 months before completed maybe longer.  I can understand my file on the bottom of the stack because she's working with folks who need to close like NEXT week.

I'd feel better with the DP in the bank waiting.  If I sell the house in the meantime, all is good.  Pay off the equity loan and put money in the back.  If not I get in the new and just wait it out to the house sells.  The equity payment would not be something I would feel.  The more I think about it, the more I like the Heloc option, it removes the pressure, but like you ask, I dunno if that will fly with the lender.  And from what I see here, it might not fly with this lender, but it could with another.  

All my numbers are good, I just don't have cash for a 25-40k downpayment just sitting around thus the need to be creative.  An early post stated he went that option, and I think its a good plan b.