Q: I have a problem that I think others in my age group at least, might share. I am retired and over 70 years old. I want to move away from where I live and move to California.
My wife and I have a mortgage on our home. The home is worth around $450,000. Our primary source of income is social security and some dividend income. We also have some savings and use some of that money to make up for the gap between our needs and our monthly income.
Are there lenders around that would give us a bridge loan for a few months so that we can look around and find a house in California without charging me a high interest rate and exorbitant fees? I think I can sell my house quickly as other similar houses have recently sold within a week. Our credit scores are in the 800s.
A: What you want to do isn’t as difficult to accomplish as you imagine. If you have not sat down with a mortgage lender or broker, we’d suggest you take some time to discuss your situation with them. You might find that you have enough income to allow you to get an ordinary mortgage on your home. While you’d pay fees and closing costs for that mortgage, your interest rate would be rather low.
Another option available to you might be an equity line of credit. A local bank in your area or even a national lender may have the ability to give you an equity line of credit. You have no mortgage and the lender may be willing to give you a $50,000 or more loan just on the basis of your credit score and the ample equity you have in your home. That may be enough for a down payment on your new home.
With an equity line of credit, your interest rate will be higher than a conventional mortgage, but the closing costs might be nominal. We’ve seen lenders offering equity lines of credit that float according to the Prime Rate (around 3.25 percent these days) plus an additional 1 to 2 percentage points above that. You might pay around 5 percent for the loan with a few fees.
You asked about a bridge loan. A residential bridge loan is a short-term loan given by a lender to a borrower that allows him to use the equity he or she has in his current home to buy a second home. When the first home sells, the homeowner can pay off the bridge loan. Few people apply for bridge loans, as the underwriting of these loans will differ from standard underwriting procedures, and these days, anything that’s outside the standard mortgage lending box is going to be very difficult to get approved.
Here’s something else to consider: When a home is listed for sale – or has been listed for sale at any time during the prior 6 to 12 months, a conventional lender may be unable to provide that homeowner with a conventional mortgage. So if you wanted to refinance your home or take out a new first mortgage loan and your home is or has been listed recently, you might be out of luck.
In your case, your home hasn’t been listed for sale and you’re waiting until you find a new home to move forward with the sale of your current home. What about flipping that process around?
Consider selling your home now, and moving to a rental in California. While you’re in the rental, you’ll have plenty of time to decide where you want to buy, and you’ll have a lot of cash in the bank so when you find the right property, you’ll be ready to make a fast offer.
Given that your only income is Social Security, plus a little bit of dividend income, you may find that mortgage lenders are unwilling to give you as big a loan as you might need for a house in California. The way to test that out ahead of time is to visit with a national lender in your home town and run through some scenarios so you understand exactly how much house the lender thinks you can afford.