Friday, September 22, 2006
Solutions for buyers who must also sell a home
Here's an article about options for home sellers before they buy ...Friday, September 22, 2006Sellers who haven’t sold resort to bridge loans and other options to buy their new homes before selling the old onesBY RANDI F. MARSHALLNewsday Staff WriterAt a time when it may seem easy to purchase a home, potential buyers may want to jump on a good deal, but in a real estate market that has slowed, they are finding a stumbling block: Selling their current home isn't as easy as they had expected.Suddenly, these buyers are facing the prospect of sitting down at the closing table with checks to write and papers to sign without having sold -- and they need the money to buy.It seems more and more home buyers are finding themselves in this situation, and they quickly need a way to bridge the time gap.Although no one keeps detailed data on the subject, mortgage professionals say they're finding more borrowers in need of a bridge loan, as it is called, or a related product such as a home equity line of credit, which allows them to have the funds to buy the home they want while waiting to sell the one they own."Obviously, when it was a seller's market, it was never an issue," says Ellen Bitton, president and chief executive of Park Avenue Mortgage Group, a broker in Manhattan and Bridgehampton. "Now, people are getting a little more concerned."A number of optionsA traditional bridge loan often comes with a high interest rate, several points and a short term, because the bank expects the borrower to pay it off fairly quickly. It's the product consumers first think of when they need the money to finance their purchase but can't sell on time. But mortgage experts say they're now advising clients to choose from a number of other options."Nobody's expecting their house to languish on the market for six months," says David Blumenthal, general sales manager at First Allied Mortgage, a Jericho-based mortgage banker affiliated with Century 21 Laffey Associates. "But there are always ways around it."Like many mortgage experts, Blumenthal no longer recommends the typical bridge loan. It's too expensive and too risky, he says. Instead, home buyers can turn to home equity lines, likely on the home they are planning to buy but sometimes on the one they hope to sell, or they can borrow on their 401(k) plans.Of course, none of this is easy or without risk, because homeowners in this situation will likely have to carry two monthly payments -- their mortgage and the new loan -- for an undetermined period."You've got to be careful," says David Peskin, president of Mortgage Warehouse, a Melville banker. "If you're not economically set, and if you don't have enough reserves to carry two homes for at least a year or however long it could take, you could be in trouble."Marianne and Charles Webber never expected to be paying on two loans for nine months - without an end in sight. When the Port Washington couple first found the house they wanted last November, they pounced on it. They quickly put the three-bedroom home they were living in, also in Port Washington, on the market for $979,000.But there were no takers. The market was just starting to shift, giving buyers an edge. When the Webbers needed to close on their purchase in January, they were stuck - and took out a $200,000 home equity line of credit, at about 7 percent interest, on the house they are still trying to sell. That acted as their bridge and allowed them to close the deal on their next home. They moved in May.So their other house, only a few minutes away, stands empty. In its nine months on the market, the Webbers have reduced the house's price twice, now listing it with Daniel Gale Sotheby's International Realty at $789,000.Unexpected development"I didn't expect it would take this long," says Marianne Webber, 37. "It's frustrating for me because it's hard to market it."The Webbers, who have an 18-month-old son and co-own a Manhattan garment manufacturer called Webberwear, hope to pay off the home equity line as soon as they sell. For now, they're handling the monthly payments, and, Marianne Webber says, still think they made the right call."It's so hard to pay your mortgage no matter what, so you might as well live in a house you want to live in," she says, adding it helps that the interest on the loans is tax-deductible.Nonetheless, that choice isn't for everyone. Some can't afford two mortgages, and even if they can, a life change such as a job loss could quickly push them over the edge, experts say. "It could be financial suicide," says Bob Moulton, who heads Americana Mortgage Group, a Manhasset broker.Today, nearly a year into the housing market slowdown, many financial experts say they simply don't recommend buying before selling anymore."You're in a better position always if you sell your home first, particularly in this market," says Francesca Blass, the Daniel Gale agent working with the Webbers, who notes that she has other clients also carrying two mortgages because they bought before they could sell.Just a year ago, some experts would have recommended the opposite: to buy before you sell, notes Beth Marten, who owns Home Buyers' Resource Center and another broker, Mortgage 1,2,3, in Baldwin."Find a buyer first," Marten says firmly, in a change of tune. "If you can't do that, then make sure there's enough equity in your home to get into the next one."That's particularly true because a home's selling price might end up lower than anticipated, leaving a homeowner without the funds to pay back an extra loan.Feeling stuckBabylon resident Barbara Michaels has listened to Marten's advice, but she doesn't want to wait until her house sells. With a 2-year-old son, Michaels says, she and her husband, Michael, don't want to end up renting or rushing to buy an imperfect house."We're kind of stuck here, because the market is really very flat," says Barbara Michaels, 43, who is hoping to move to Pennsylvania, Delaware or Maryland. Now, Michaels, who is working with Mortgage 1,2,3, is leaning toward getting a large home equity line of credit that would give the family the security to be able to buy as soon as they find the house they want - and then worry about selling."It makes me feel nervous, but I also know that if that house did come up ... somehow, we would make it," she adds, noting that her family has built up enough equity to handle a purchase elsewhere.Taking it slowMona Malmsheimer, a Bayport resident, put her home up for sale in June for $839,000. Malmsheimer, who said she hopes to move to Delaware or South Carolina, isn't even looking for a home to buy until she gets a buyer herself."I like to know how much money I have before I spend it," says Malmsheimer, who is retired. "It gives me a better bargaining chip."And she is in no rush."If it doesn't sell this year, it'll sell next year," she adds.Those who feel a time crunch should prepare for the possibility of needing a bridge, even if they may never use it. Don Romano, a Lake Success mortgage broker, says he sets up a home equity line of credit for his clients before they even put their homes up for sale."They effectively have a bridge in place if they need it," Romano says. "We always did that as a matter of course for anybody who is selling and buying."Consumers who don't have such a credit line in place can turn to their retirement accounts or, in what may be the best option, monetary gifts from family or friends.Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula
|
