I don't understand how I can use a line of credit to purchase a home.?

Question

Our banker told my husband and me that we can use our line of credit on our current home to purchase the home we want to move to. He said we can close on the new home before we sell the old home. I don't understand how we can do that, as the line of credit is not big enough to cover the entire purchase price of the new home.

Answer 1

I'm guessing you'll be using your equity for the down payment and closing costs on the new place while your old place is on the market for sale.

Yes, you may have two mortgages for a while as you wait for the old house to sell.

You have to look at the RE market in your neighborhood. How long is it taking for houses to sell? Two weeks, two months, or 12 months? Ask yourself what you will do if it doesn't sell after 6 months? Will you rent it out?

If you're prepared for all this nerve racking then you could try to do what he says. However, if the thought of double mortgages makes you cringe, find a buyer for your place FIRST, then as soon as escrow opens for your buyer, find a new home. If you have a 60 day escrow that should give you enough time to coordinate two closes within a day or two of each other.

You move out, the buyers move in the next day. That's the best way to go if you don't want double payments.

Answer 2

The "line of credit" to which he refers is the equity in your house. If you take all the equity out of your current house that means you will owe the entire loan amount as if you hadn't made any payments on it. You would not be using your line of credit/equity to completely pay off the new home. You'd be using it as a down payment. I hope you turned this deal down, because it sounds to me like you could easily end up paying monthly mortgages on TWO homes.

The housing market is very slow right now. Lenders are very careful who they're lending money to for home purchases. Consequently, everyone who has a financial stake in the housing market ... realtors, mortgage lenders, bankers, etc. ... are hurting for cash. And guess what? Christmas is coming! For these reasons (and others), they're coming up with many creative ways as possible to get money coming in TO THEM. They do not --- I repeat ... they DO NOT --- care about you. They do not care if the deal they are offering you would ultimately put you in the poor house or have you stuck with two houses you can't sell for another 18 months. All they care about is that they can pay their own personal Visa bills and have a nice Christmas for the kids.

I'm sorry to sound so pessimistic, but whenever someone offers you something -- ANYTHING -- you have to look at what's in it for them and if what's in it for them is going to end up hurting you, it's a bad deal.

Answer 3

The line of credit covers the down payment .
You'll have 2 mortgages .
And , since you'll be financing the down too,
Figure on a Steep % rate for the HELOC .

Has your banker heard about the state of housing sales ?
Or do you already have a buyer for your current place . . .

>