Need short term loan to avoid PMI

8 Replies

Hello all, we are buying a property and selling our existing home. We have 150k equity in the house we are selling. We are already in contract to buy the new home. We will likely close on the new home before we sell the existing one because we are just getting it on the market. I have enough cash to put down up to 15% on the new home and close the loan before my existing property sells (about 75k) but would need another 25k down to avoid pmi on the new property. I've got 800 fico score, long work history, no credit problems. The new loan will be about 480k total. Don't really want to finance the PMI because I will still be stuck with the bill on it. What ideas do you have?

Originally posted by @Rick Grimsley :

Hello all, we are buying a property and selling our existing home. We have 150k equity in the house we are selling. We are already in contract to buy the new home. We will likely close on the new home before we sell the existing one because we are just getting it on the market. I have enough cash to put down up to 15% on the new home and close the loan before my existing property sells (about 75k) but would need another 25k down to avoid pmi on the new property. I've got 800 fico score, long work history, no credit problems. The new loan will be about 480k total. Don't really want to finance the PMI because I will still be stuck with the bill on it. What ideas do you have?

You can take out an 80% LTV 1st paired with a 5% or 10% 2nd mortgage. On top of that, if you will be able to go significantly below 80% LTV after your home sells, some lenders offer "recasting," which is where you make a large balance paydown after closing, and your minimum P&I payment is recalculated to reflect the newly lowered balance. Your existing lender might offer, and if not then switch to a lender that does.

As mentioned, you will find it difficult to do an equity HELOC on a property listed for sale, however, some lenders do offer "Bridge loans" they can be a little difficult to find these days, but, some Banks and Mortgage companies still offer them, it is a loan against the listed home to finance the down payment on the new home purchase. Otherwise like Chris mentioned look at doing the 1st for just a bit more than what you were planning to finance if you had already sold your existing home (do it for a bit more than expected for any unforeseen shortage when you sell, like seller paid borrower concessions, repairs you didn't expect, ect) then get a 2nd mortgage to finance the difference to avoid the PMI and pay off the 2nd when home sells, might want to consider a HELOC on the new property so that once paid off, you still have access to the funds if ever needed and while not needed you don't pay any interest.

Chris and Ryan, I also discovered that I can take a rollover from some of my IRA's and then return the money back to them, if less than 60 days, without having to pay the 10% withdraw penalty. This could act as a temporary loan, giving me time to sell my existing home and pay the IRA's back with no cost. If my existing home took even longer, I could take the small second from the new home to pay the IRA's back until my old home sold. I have plenty of equity in the old home to cover all money needs for the transactions.

Originally posted by @Rick Grimsley :

Chris and Ryan, I also discovered that I can take a rollover from some of my IRA's and then return the money back to them, if less than 60 days, without having to pay the 10% withdraw penalty. This could act as a temporary loan, giving me time to sell my existing home and pay the IRA's back with no cost. If my existing home took even longer, I could take the small second from the new home to pay the IRA's back until my old home sold. I have plenty of equity in the old home to cover all money needs for the transactions.

 Yup, that could potentially work. One thing to keep in mind is that if something screws up your buyer's financing, that could screw with your retirement account. 1 in 3 purchase transactions involving a mortgage in the state of California does not close, so you may want to be extra judgey about who is doing your buyer's financing, how solid they are, etc.

Thanks again, Chris! Yes, excellent advice. We have a very seasoned listing agent for the home we are selling and have worked with him before, so he will help with that. I think as a precaution, I will open a HELOC immediately on the new property during closing so that if there are any hang-ups with closing the home I'm selling, I will be ready to go with the HELOC from the new home to pay back the IRA without penalty. The idea here is to keep the overall cost as low as possible on the additional money needed to reach 20% down and eliminate that nasty PMI expense!