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  • Need a strategy for buying house #2

    Hi all,

    Always a pleasure learning from this forum. Got a question of my own on the best strategy to time and pay for a house purchase...

    For a background -

    4 years out of fellowship, in residence #1 for that long. Looking to move to a different part of the same city for better schools and family reasons and a small upgrade (non-emergent). Current house in a desirable location, and unlikely to have major issues in selling. I expect 100k proceeds after all expenses from this sale.

    Have not finalized a new house, but hope to do so in the next 2-4 weeks. Joint annual income 300k, planning on a 500k range house and plan to live in it for 5-10 years. Realtor says the negotiating power would be very low if I put an offer on the house 'contingent on selling my current house'. Suggests looking for other options - physician loan etc.

    Of note: I can put down approx 50k (10% downpayment) from my EF. We do not want to sell the current house without having a robust plan and house.

    So my options and questions:

    1. Save the EF and get a physician loan with 5% down and 15 or 30 yr fixed. It will come with small PMI which may go away with initial payments. I was hoping to put the proceeds from the sale towards the mortgage and I am told that'll renew the mortgage but not refinance.

    Have been in touch with 2 local banks, they recommend 10% downpayment and 7/1 ARM over 15 or 30 yr fixed. I have no experience with ARMs - does it sound reasonable?

    Can you recommend any banks with good physician loan program and I can hopefully avoid the PMI?

    2. Sell the house with a delayed closing date, and hope to find the new one in time. That way we can put 20% down and get a 15 yr fixed mortgage. (Wife reasonably not too happy with the idea)

    What other ideas or experience do you have?

    Thanks in advance!

  • #2
    What do you plan to do in 5-10 years?

    Comment


    • #3




      What do you plan to do in 5-10 years?
      Click to expand...


      May stay in the house for longer, but may also move for wife's professional growth.

      Comment


      • #4


        May stay in the house for longer, but may also move for wife’s professional growth.
        Click to expand...


        That's right there on the line that staying put may be the best option until you figure out for sure.

        Comment


        • #5
          "Realtor says the negotiating power would be very low if I put an offer on the house ‘contingent on selling my current house’. "

          So, you're going to let the salesperson sell you on more expensive option for you, that will ensure they get paid the fastest. Got it.

          You said you're not in a hurry, so put in offers with a contingency.

          If that doesn't work out, save up more $ so you can swing a downpayment sufficient to qualify for a 15yr note.

          Comment


          • #6




            “Realtor says the negotiating power would be very low if I put an offer on the house ‘contingent on selling my current house’. ”

            So, you’re going to let the salesperson sell you on more expensive option for you, that will ensure they get paid the fastest. Got it.

            You said you’re not in a hurry, so put in offers with a contingency.

            If that doesn’t work out, save up more $ so you can swing a downpayment sufficient to qualify for a 15yr note.
            Click to expand...


            Thankfully it doesn't appear to be a sales tactic. He's advising having a clean plan and downpayment rather than a buying offer contingent on selling. But I get your point - esp of placing the offer with a contingency and waiting. Thanks!

            Comment


            • #7
              Make sure you can float both homes and preapproved for that financing- plan for the worst case scenario where you 'fall in love' with that 2nd home.

              Contingency offers are always the lowest considered in multiple bids -- that said, it really depends on whether you have a house that has that issue.

              We secured financing with our University credit union for a straight offer and rider guaranteeing closing of our initial home in 4 months of initial close.   This allowed us to be free of a contingent offer as it was a hot market in San Diego back in 2014.

              Comment


              • #8
                1. Can you revalue/refi your current house and draw out 50k. Then use the EF 50k and 50k for the 20% deposit. Then you avoid PMI hassle.

                2. With EF - if you have parents or other family members who would lend you 50k in an emergency then you might be able to do without an EF for 6 months. Personally, since first year of being an attending, I have never been without a buffer of 200k-400k that I could draw at short notice, in the case of an emergency. It doesn't have to be in cash but just in loan facilities you can draw, but not to have a buffer, even if you can rely on your parents is not a good strategy in my mind.

                3. If I was buying now, I would go with ARM too for a house to live in. Fixed is ok if you have a directional view on rates or if you are in commercial real estate where the higher rates would destroy you. Most physicians would be able to cope with a doubling in rates, although it would be uncomfortable. Unless you fix in a downturn, I think a lot of people are better off with ARM's. However, if your cashflow is such that a significant rise in rates would destroy you, then perhaps you should fix.

                4. "Sell the house with a delayed closing date, and hope to find the new one in time". Could work, but I would avoid it. You may get a worse price with a delayed settlement if the buyer wants a normal settlement period (which most do). You may end up paying more for the house you buy because the seller sense that you have time pressure. The ideal is no time pressure in selling or buying so your negotiating position is optimal. If you have to get bridging finance.

                Comment


                • #9
                  Since this doesn't sound urgent and possibly due to me being older but I would only buy something new when I can afford it. My strategy would be to save the $100k down payment and then start looking at houses. At that point you would be a strong contender offer-wise and be in a position to consider renting out your current home if that might make sense as a side hustle.

                  Comment


                  • #10
                    I see bridge loans from this company listed regularly on PeerStreet as “cash offer loans”. I don’t know whether they’d be a useful source of bridge funds. It looks like they want to replace your real estate agent and mortgage broker, but I don’t know whether you can just get the 80% LTV bridge loan from them without the rest of the package. Also, they’re only in a few markets. https://www.knock.com/

                    Comment


                    • #11




                      Hi all,

                      Always a pleasure learning from this forum. Got a question of my own on the best strategy to time and pay for a house purchase…

                      For a background –

                      4 years out of fellowship, in residence #1 for that long. Looking to move to a different part of the same city for better schools and family reasons and a small upgrade (non-emergent). Current house in a desirable location, and unlikely to have major issues in selling. I expect 100k proceeds after all expenses from this sale.

                      Have not finalized a new house, but hope to do so in the next 2-4 weeks. Joint annual income 300k, planning on a 500k range house and plan to live in it for 5-10 years. Realtor says the negotiating power would be very low if I put an offer on the house ‘contingent on selling my current house’. Suggests looking for other options – physician loan etc.

                      Of note: I can put down approx 50k (10% downpayment) from my EF. We do not want to sell the current house without having a robust plan and house.

                      So my options and questions:

                      1. Save the EF and get a physician loan with 5% down and 15 or 30 yr fixed. It will come with small PMI which may go away with initial payments. I was hoping to put the proceeds from the sale towards the mortgage and I am told that’ll renew the mortgage but not refinance.

                      Have been in touch with 2 local banks, they recommend 10% downpayment and 7/1 ARM over 15 or 30 yr fixed. I have no experience with ARMs – does it sound reasonable?

                      Can you recommend any banks with good physician loan program and I can hopefully avoid the PMI?

                      2. Sell the house with a delayed closing date, and hope to find the new one in time. That way we can put 20% down and get a 15 yr fixed mortgage. (Wife reasonably not too happy with the idea)

                      What other ideas or experience do you have?

                      Thanks in advance!
                      Click to expand...


                      you are cash strapped.

                      you are draining all of your EFund for the down payment? i wouldnt.

                      i think the contingency is fine. your realtor is only looking out for so much. worse case scenario you have to change plans.

                      ARM is fine. its all a numbers game.

                      if you are using a physician loan, the whole point is there is no PMI in exchange for a higher rate. any of the large banks will do it.

                      Comment


                      • #12
                        I'm always curious how I would handle a move as well.  I would want to use funds from the sale of my current home for a large downpayment on a new home.  I wouldn't want to start shopping for a house until I knew my current house would sell though. SO, I don't know what I'd do.  Maybe sell my home and look for a rental while we shop for the new place.  I do not want to have 2 mortgages.  I've seen many docs get stuck with 2 mortgages because they have trouble selling their old house.  Doesn't seem smart.  But, I also don't feel like moving twice, so I'm just not sure what I'd do.

                        Comment


                        • #13


                          Current house in a desirable location, and unlikely to have major issues in selling. I expect 100k proceeds after all expenses from this sale.
                          Click to expand...


                          If this is true then you will have no issue selling if a contingency basis clause is put in. Unfortunately things don't work out that way and sometimes buyers don't get the loan, they find things on inspection that they want corrected or have a huge markdown or simply find a better home. You may be under pressure to sell the current home at a lower price since you already bought the other one.

                          I would not do that. Either wait and save and buy when you have the money or put in the contingency clause. Also, if you decide to own two homes simultaneously make sure you have the money for mortgage and upkeep of two homes till the 2nd one is sold.

                           

                           

                          Comment


                          • #14
                            I was in this position last year when I went to go buy a big doctor house 2X salary.  A Doctor loan was going to work but the local bank offered to let me put down 10% and take a mortgage on 80% and a HELOC on the last 10% which was at a higher rate but I would pay off when I got my equity out of my old house.  Luckily before pulling the trigger we came to our senses and bought a 1X salary house and avoided all this nonsense.

                            Comment


                            • #15
                              Moving “twice” sure the heck beats the pain of getting into a really bad situation. Actually, buying and selling costs money. Sounds like you have a “want to” not a “need to” that the finances aren’t quite there. Put yours on the market, look for your own. You might get lucky.
                              Contingency on closing is a lot different that not having an offer. Good luck.

                              Comment

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