Q&A

Selling in a hot market

Question:

The local real estate market in our area is very strong. We would like to sell our current home and buy a larger one but can’t buy until our current property sells. We don’t want to have our stuff in storage for several months and live in a motel if we sell first and do not have a new home. What can we do?

Answer:

If you live in a community with a solid real estate market -- and if your property is competitive in terms of condition, location, price, etc. -- then you are likely to benefit from strong demand and rising home prices.

However, as a buyer, your situation is reversed. Now you’re competing for homes in a market that favors suppliers – home sellers.

Several strategies might be helpful to you.

First, look into a bridge loan for your current home. This cash advance allows you to take equity from your current property and use it as a down payment for a replacement home.

A bridge loan is typically a short-term note, generally a year or less. It’s paid off at closing when your current home sells. This means the proceeds from settlement will be reduced by any outstanding loan balances, closing costs, as well as the bridge loan’s value.

Second, if you plan, you might be able to get a home equity line of credit (HELOC). A HELOC is attractive because there are typically few closing costs; however, lenders might expect you to stay in the property for a year after origination. You can’t get a HELOC if the property is listed, and – in fact – you may not be able to get a HELOC at all.

The problem is that lenders have cut back on HELOC originations. For instance, Equifax reports that for the January 3rd reporting period, there were 2,900 HELOCs versus 8,170 a year ago.

Why so few HELOCs? My sense is that lenders have become cautious because we’re in the midst of a pandemic, the economy was derailed in 2020, and the government deficit soared last year. Lenders are unsure what will happen given steep levels of unemployment and, as a result, are staying away from HELOCs until the economy is more settled.

Third, you might look into a second loan to take cash out of the property. While a HELOC is a line of credit where you might not use all the money available to you, with a second loan, you get the entire balance at closing. Again, because of the current economic situation, expect lenders to be very cautious with any form of cash-out financing.

For details and specifics, speak with local lenders and, if possible, plan well in advance of selling.

Email your real estate questions for Mr. Miller to peter@ctwfeatures.com.

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By Peter G. Miller