Moving from one house to another
-
- Posts: 4
- Joined: Fri May 20, 2022 6:09 pm
Moving from one house to another
My wife and I currently own a house valued at ~$900k with a mortgage of ~$480k. We also have savings dedicated to a future house of ~$200k that we might buy in 1-5 years. If we did buy a new house, we would sell the old one.
Does it make sense to keep the downpayment on hand in a mix of cash/bonds/stocks (as we currently do), or would it be better to use it to pay off part of the current mortgage and then use a bridge loan or similar when we are ready to move (and therefore sell the old house and buy a new one)?
Does it make sense to keep the downpayment on hand in a mix of cash/bonds/stocks (as we currently do), or would it be better to use it to pay off part of the current mortgage and then use a bridge loan or similar when we are ready to move (and therefore sell the old house and buy a new one)?
-
- Posts: 2066
- Joined: Sun Aug 23, 2020 2:23 pm
Re: Moving from one house to another
It’s really a matter of personal preference.
Three times in the past 16 years I’ve bought a house while I already owned one. Going into it, each time the plan was always to sell the existing house before closing on the new one. In all 3 instances that couldn’t/didn’t work for different reasons. Each time I was very happy to have the cash on hand to close on the new house giving us flexibility without worrying about timing the closings.
Also, I hear about bridge loans on here, but haven’t ever known someone use one successfully — unless you count a 401k loan which I wouldn’t want to do. Where does someone even get a bridge loan?
Three times in the past 16 years I’ve bought a house while I already owned one. Going into it, each time the plan was always to sell the existing house before closing on the new one. In all 3 instances that couldn’t/didn’t work for different reasons. Each time I was very happy to have the cash on hand to close on the new house giving us flexibility without worrying about timing the closings.
Also, I hear about bridge loans on here, but haven’t ever known someone use one successfully — unless you count a 401k loan which I wouldn’t want to do. Where does someone even get a bridge loan?
Re: Moving from one house to another
Your mortgage rate is probably something low in the 2.5% ish rate . It is likely you can do better then that elsewhere even in these turbulent times. I bonds you only can do a limited amount but over 9%. I would keep as safe but outside investment
-
- Posts: 18503
- Joined: Tue Dec 31, 2013 6:05 am
- Location: 26 miles, 385 yards west of Copley Square
Re: Moving from one house to another
Assuming you'd sell your house, live somewhere temporary then buy another house in under 5 years, the money should stay in an instantly available account. At the most, a high yield savings account that will take a few days to transfer to your checking account.
If possible, find your next house first. Buy with a contingency of selling your present house. Be realistic with the selling price of your present house so it doesn't just sit there. Ideally, close on your house sale in the morning with the rented moving truck in your driveway full of the first load. Then close on the buy in the afternoon. Assuming you've hired an attorney (hint, hire the bank's attorney to save on travel costs), the attorney can be given POA for the transaction and following your house sale, you can join your friends to move the truck to the new house and if needed, go back and load the rest.
You might think this is impossible and nobody would ever do this. This is exactly how we sold our old house and bought our present house. This included trailering a snowmobile and riding lawnmower behind one of our cars. Everything went perfectly. Well, except for the piles of trash bags full left at the new house that I loaded into the moving truck and dropped at the end of the driveway of our old house before the 2nd load.
If possible, find your next house first. Buy with a contingency of selling your present house. Be realistic with the selling price of your present house so it doesn't just sit there. Ideally, close on your house sale in the morning with the rented moving truck in your driveway full of the first load. Then close on the buy in the afternoon. Assuming you've hired an attorney (hint, hire the bank's attorney to save on travel costs), the attorney can be given POA for the transaction and following your house sale, you can join your friends to move the truck to the new house and if needed, go back and load the rest.
You might think this is impossible and nobody would ever do this. This is exactly how we sold our old house and bought our present house. This included trailering a snowmobile and riding lawnmower behind one of our cars. Everything went perfectly. Well, except for the piles of trash bags full left at the new house that I loaded into the moving truck and dropped at the end of the driveway of our old house before the 2nd load.
Bogle: Smart Beta is stupid
-
- Posts: 4
- Joined: Fri May 20, 2022 6:09 pm
Re: Moving from one house to another
As CaptainT guesses we have a low interest rate--roughly 2.9%. Maybe instead it would be wise to invest in something like Fidelity's FIPDX? Other ideas?
-
- Posts: 11423
- Joined: Thu Dec 27, 2018 2:06 pm
Re: Moving from one house to another
Check the rates for US Treasury Bills/Notes which you can buy through a brokerage account at Fidelity, Vanguard or Schwab.
One option is to buy at auction a 52-week T-Bill with a yield of ~2% which you can rollover into a new T-Bill if you aren’t ready to buy in 1 year.
Another option Is to buy a longer-term T-Note with a higher yield if your timeframe to buy is > 1 year. I think the 2-year T-Note yield is ~2.5%.
You can sell the treasuries in the secondary market if you need the funds earlier than expected but you open yourself up to interest rate risk.
One option is to buy at auction a 52-week T-Bill with a yield of ~2% which you can rollover into a new T-Bill if you aren’t ready to buy in 1 year.
Another option Is to buy a longer-term T-Note with a higher yield if your timeframe to buy is > 1 year. I think the 2-year T-Note yield is ~2.5%.
You can sell the treasuries in the secondary market if you need the funds earlier than expected but you open yourself up to interest rate risk.
-
- Posts: 4
- Joined: Fri May 20, 2022 6:09 pm
Re: Moving from one house to another
HomeStretch--thanks for your advice. However, aren't all these rates you mention lower than the 2.8% interest I would save if I just put any additional money into my current mortgage?
-
- Posts: 11423
- Joined: Thu Dec 27, 2018 2:06 pm
Re: Moving from one house to another
You have to decide whether you want to pay down the mortgage for a bit of extra after-tax yield or have the cash available for a down payment for added flexibility. If you decide on the latter, Treasuries are an option.swedish_finance_noob wrote: ↑Sat May 21, 2022 2:07 pm HomeStretch--thanks for your advice. However, aren't all these rates you mention lower than the 2.8% interest I would save if I just put any additional money into my current mortgage?
Assuming you intend to sell/buy in 1-5 years, my personal opinion is that the added flexibility/convenience of holding the cash outweighs the bit of extra yield in the situation of simultaneously selling a house and buying a house.
Welcome to the forum!
-
- Posts: 4
- Joined: Fri May 20, 2022 6:09 pm
Re: Moving from one house to another
Thanks HomeStretch--that is very helpful!
Re: Moving from one house to another
We had to do this a few years ago and chose to keep the money invested rather than pay down the mortgage. Buying and selling a home is complicated enough without involving a bridge loan, 401k loan, etc
Following tax efficient fund placement,
https://www.bogleheads.org/wiki/Tax-eff ... _placement
Our down payment was invested in VTSAX in our taxable account as part of our AA. Our bond allocation was adjusted as necessary in our 401k.
We successfully made the transition last year. We sold our old home. We then sold enough VTSAX to cover the down payment on the new one. Because the funds were in taxable, no bridge loan was necessary. No contingency to sell the old home was necessary on the new home contract.
It may seem that our downpayment is in high risk stock but our AA was adjusted in our 401k to reflect this so risk is same as if we put the downpayment in a mix of cash/bonds/stock. Had our taxable account fallen instead, them we would've had to get a 401k or bridge loan. Which is what you are proposing to do, anyway.
Following tax efficient fund placement,
https://www.bogleheads.org/wiki/Tax-eff ... _placement
Our down payment was invested in VTSAX in our taxable account as part of our AA. Our bond allocation was adjusted as necessary in our 401k.
We successfully made the transition last year. We sold our old home. We then sold enough VTSAX to cover the down payment on the new one. Because the funds were in taxable, no bridge loan was necessary. No contingency to sell the old home was necessary on the new home contract.
It may seem that our downpayment is in high risk stock but our AA was adjusted in our 401k to reflect this so risk is same as if we put the downpayment in a mix of cash/bonds/stock. Had our taxable account fallen instead, them we would've had to get a 401k or bridge loan. Which is what you are proposing to do, anyway.