Hi Charlotte,

If you are only expecting to carry the loan for a while, and since you are downsizing.... you might be best advised to take an 80% cashout Home Equity Line Of Credit on your current place (now, long before you list it for sale,) and use that, along with your additional down payment funds, to buy the new home outright in cash.

Many banks will give you the HELOC at virtually no closing costs at all. The rate could be expected to be around "Prime only" (which dropped to 7.75% today... thanks Ben!)

In doing so, you will be considered a "cash buyer" on your next home, and will be in a position of negotiation strength... since there are far fewer buyers on the streets anymore, and those that are tend to be struggling with the chaos in the mortgage markets to get sufficiently qualified.

IT WOULD NOT BE PRUDENT for me to say I actually ADVISE this method. Entrapping your safety equity and retirement funds into real estate is not wise except for those already far beyond any retirement finance & income concerns. I hope that this (complete financial independence) is indeed indicative of your household... but if not, I would recommend looking at more effective methods of safely employing your hard-earned savings than in the cash purchase of your home.

Much more would need to be known to provide structured suggestions.

All the best!
Dave Donhoff
Strategic Equity & Mortgage Planner

What many people do in your situation is to take out a home equity loan on their current home in order to buy the new home. When you sell your current home you will pay off the equity loan. You will need to obtain the equity loan before you list your current home, as lenders will not usually loan on a property that is currently on the market.

Glad I asked the question - I wouldn't have thought of that. Sounds like a viable option as the current house will sell for quite a bit more than what the new one will cost. How long is the process for getting a HELOC and any suggestions on who to go to or what fees to try to avoid? Would they need to run an appraisal or anything if I am only taking out 70% of the value of a house purchased new from the builder less than 2 years ago?

I guess the only downside would be if it took a while to sell the new house. I'd be paying a higher interest rate. I'll have to run the numbers.

BTW, Dave, I emailed you twice in the last couple of weeks, including yesterday, at your email address on your web page. Wasn't sure if you weren't interested or if you weren't getting the messages. (Subject line was "pre-approval"). I don't guess you do HELOCs.

You can get a HELOC pretty quickly and it shouldn't cost you anything to close on it. Check out bankrate.com for current rates. You can do the closing by email and fax, so you don't have to stick to local lenders.

The one thing you should watch for is that many HELOCs carry an early payoff fee. We just took out a HELOC at 0.5% below prime and it has a fee of $300 if we close it out before two years. That doesn't bother us because we can pay it down to zero any time we want, and then get it discharged after two years if we don't want to carry it anymore.

But you couldn't do that if you're selling in the near future. So you should balance the interest rate angainst the payoff fee, if any, and figure out what makes the best financial sense.

Hi Charlotte,

BTW, Dave, I emailed you twice in the last couple of weeks, including yesterday, at your email address on your web page. Wasn't sure if you weren't interested or if you weren't getting the messages. (Subject line was "pre-approval").

... am I to assume from the implication that you've attempted to email me and received NOTHING in return???

PLEASE believe me when I say that this could *ONLY* happen if your email got somehow swept into a SPAM fileter, *AND* I didn't catch it when I periodically check the spam sewers... (I average over 1,000 crap spam a day, and typically 150-250 meaningful correspondence emails a day... inevitably something slips through the cracks... sorry.)

Please try once again...
You can use my hotmail address (above in my profile,)
You can put the same dwdonhoff@ in front of my web address,
Or "Dave@" or "David@"... NoBullFinancial.com

In the subject line, say something like "its Charlotte from GardenWeb" or anything EXCEPT any reference to the notorious spam filter words (free, approved, pre-approval, mortgage, insurance, special deal, etc.)

I'll watch carefully for you.

I don't guess you do HELOCs.

Sure we do. But more importantly, I'm particularly loyal to my community friends... whether I directly have a solution to offer or not, I'll always give my sincere suggestions.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

Hmmm...I wonder how living in Texas is going to change the recommendations? In Texas there are no early payoff fees, but it looks like there may be closing costs, which would reduce the value of the HELOC over a conventional mortgage. From the Discover HELOC page(suggested by bankrate.com):

"Special rules apply for Texas Home Equity Lines of Credit:
Closing costs range from $200 to $2,000 depending on the loan amount. The no closing cost program is not available in Texas."

And Citibank:

"In Texas, the maximum loan-to-appraised-value cannot exceed the lesser of 80% combined loan-to-value or 50% of the propertyÂs fair market value. No third lien positions."

Which would rule that one out as I would need maybe 60-70% of fair market value. Sounds like it's going to more complicated than I thought.

"... am I to assume from the implication that you've attempted to email me and received NOTHING in return???"

Yup. :)

I just emailed you at the hotmail address with your suggested subject line. Glad to work with you!

I was in the same position last year in Dallas. I just got another conventional 30yr mortgage without prepayment penalty and the lowest fees I could find on the new house, put the old house on the market, bought the new house, eventually sold the old house, paid off both mortgages.

Total cost was the usual fees (the biggie being title insurance) plus total of 60 days interest (until my old house sold).

PLEASE believe me when I say that this could *ONLY* happen if your email got somehow swept into a SPAM fileter, *AND* I didn't catch it when I periodically check the spam sewers... (I average over 1,000 crap spam a day, and typically 150-250 meaningful correspondence emails a day... inevitably something slips through the cracks... sorry.)

Dave, maybe you want to think about switching from hotmail to gmail? Gmails been great, much better on spam then hotmail when I last had it. If you'd like a gmail invite, I'd be glad to send you one if you email me. Even if you used it exclusively for GW, which was what I did with one of my computer forums, then switched to gmail totally. You can configure outlook express & Thunderbird to pull gmail to make it easier.

What is it about Texas, anyway?

Hi roselvr,

Dave, maybe you want to think about switching from hotmail to gmail? Gmails been great, much better on spam then hotmail when I last had it. If you'd like a gmail invite, I'd be glad to send you one if you email me.

I *DO* have Gmail, and I otherwise love it... however, I'm not a web-mail guy... my geek team calls me a 'Super Uber-Geek' because I keystroke EVERYTHING... hotkey shortcuts if able... and I operate virtually all my email through accounts I've plugged into either Outlook Express or Outlook standard (why both? Don't get me started on Microsoft, grrrrr.... Can't live with 'em... can't live without their neverending hamstringing upgrades... grrrrrr......)

MSFT has been trying to wean people away from running their Hotmail accounts straight into Outlook Express... they don't even allow it at all for new accounts, only old premium accounts have been "grandfathered" into allowance. MSFT is trying to channel people into either running their Hotmail accounts into Outlook standard, or their new web-based crap system...

If you pull your Hotmail email account into Outlook standard, it eliminates the ability to keystroke everything and avoid slowing down to go to the mouse... you are FORCED to go the rodent constantly (grrrrrrrr.)

Even if you used it exclusively for GW, which was what I did with one of my computer forums, then switched to gmail totally. You can configure outlook express & Thunderbird to pull gmail to make it easier.

How???? PLEASE do tell... either here, or to my direct email address. I would *LOVE* to pull my GMail account straight into my Outlook Express account.

Thanks!
Dave

Hi FF,

What is it about Texas, anyway?

Somehow, at some point, the Texas legislature (in their parental wisdom) decided that the citizens of the great, proud state of Texas are NOT capable of managing the equity value of the homes they own and live in.

Why? "What is it about Texas, anyway"??? I have no idea...

I can understand politicians declaring citizens of OTHER jurisdictions incompentent and to be restricted from control of local assets... but to cinch up a straightjacket on themselves? I've never quite fully grokked it.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

Given the current credit mess, I am surprised you are sarcastically mocking the TX legislators for regulating HELOCs.

You honestly think it is a good idea to promote extracting all equity??? So that we can have even more foreclosures?

Dave, so as not to hijack the thread, email me from my member page.

Hi jrldh,

Given the current credit mess, I am surprised you are sarcastically mocking the TX legislators for regulating HELOCs.

Do you seriously think people ought to restricted from the access of their own personal and private property by others "for their own good?"

You honestly think it is a good idea to promote extracting all equity??? So that we can have even more foreclosures?

If a bank makes the mistake (or calculated risk) of lending 100% (or even more) of the equity a person owns, and that person fails to pay, that's up to the bank to deal with.

There are virtually *ALWAYS* buyers for the property at some price level.

The Texas consitution is prohibiting Texans from their own property, and if you believe that is artificially dodging foreclosures then they are also preventing a healthy market adjustment making properties affordable at more normal prices to buyers ready & willing to buy & live in them.

There's always two sides to every coin... and when you artificially stack the deck to one side you will always be screwing at least the other side (or more, since it is rarely merely a two-sided issue.)

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

roselvr... clicking over to you now....

It came, give me a few days. I might be able to have it back tonight, not sure.

I can see that Texas is definitely a pain when it comes to these loans. Wells Fargo advertised no fees so I applied for a HELOC with them. Looks like you can't do a HELOC for more than 50% of the value of the house, and I need maybe 60%. So they are working on a home equity loan. Of course, when I applied, they told me I'd have approval in 48 hours and the latest email I received from them (after 4 days) tells me that they are sending me stuff in the mail to read and I should have it within 3 days. Plus I faxed them 4 documents, and they only show receiving 3. Online applications are convenient, but not necessarily ready for prime time.

They told me in one of their statements that I can apply for as many loans as I like within 15 days without any additional FICO hit, so I'm applying with another company as a back-up. And I still have no idea what fees I will run into with a loan as opposed to a HELOC.

Honestly, although I suspected this was all going to be a pain, I secretly hoped that it would be easy. After all, I am only wanting a little over half of the value of the home, have great credit, etc. I have to wonder how hard the current market is for those less fortunate.

I think the most disturbing thing about the way Texas prohibits HELOCs with an LTV of more than 80% is that they have no problem with allowing the primary loan to be 100% financing.

In other words, you can do a cash-out refinancing all the way up to 100%, but you cannot just get a HELOC. Its kind of dumb.

Somewhere, some state senator is making money from the closing fees from a cash-out refinancing, and laughing all the way the bank...

Hi mfbenson,

I think the most disturbing thing about the way Texas prohibits HELOCs with an LTV of more than 80% is that they have no problem with allowing the primary loan to be 100% financing. In other words, you can do a cash-out refinancing all the way up to 100%, but you cannot just get a HELOC. Its kind of dumb. Somewhere, some state senator is making money from the closing fees from a cash-out refinancing, and laughing all the way the bank...

No... this isn't true.

In Texas you can BUY with 100% financing... but even then you cannot use a HELOC for the last 20%, it must be a closed-end amortized loan, so that once you let go of your own money you cannot retrieve it.

On cashout refinances, you can only go to 80% LTV of the current value, and not a penny (literally not a penny) above it.

If your purchase loans are higher than 80% of the current value, and you want to refinance, you can ONLY refinance the dollar value (to the penny) of the existing princial, and cannot include any of your closing costs, nor prepaid tax or insurance impound premiums into the funding.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

"No... this isn't true."

Well, I looked it up, and you're right. I had heard about a change in the laws regarding first liens but it turns out that it doesn't apply to owner-occupied homes and that its only for second homes or investment properties. Furthermore they changed it to 95%, not 100%, on the second homes only, so I'm still wrong.

Anyhow, I think we are all in agreement that it still seems screwy that you can make an initial purchase with 100% financing but you can't refinance anything over 80%. I don't get how this "protects" me from anything. It seems to protect the banks from getting stuck with a property that it worth less than the mortgage, but it also prevents the banks from selling helocs. Banks financing mortgages in the other 49 states seem perfectly happy taking that chance.

"What is it about Texas, anyway?"

I ran across some interesting information while looking things up for my response to dave. Apparently there were a large number of foreclosures and bank failures in texas during the Panic of 1837, and that timed well with the 10 year period of 1836 to 1845 that the Republic of Texas was an independent country. Texas wrote into their constution some restrictions on lending practices in an attempt to make the banking system more conservative and to reduce the number of property foreclosures, and those constutional provisions made it into the state constution when Texas joined the United States.

So apparently its all tradtion.

Thanks for researching this, mfbenson. I kind of suspected this unusual restriction might date from the period when Texas existed separate from the United States.

I remember learning back in law school that both Texas and Louisiana have many unusual laws. Louisiana laws are still based on the Code Napoleon, rather than on English Common Law, as is the case for the other 49 states. In the case of Texas, its unique laws spring from that 11-year period when Texas governed itself.