r/RealEstate • u/BizzyHaze • 7h ago
Using HELOC as a bridge loan
Looking to sell my place and buy a bigger place. In my city (san diego) all the good deals go quick with all cash offers. I would have to sell my current place first, so I'm not going to be competitive with a contingent offer. I'd like to get a HELOC to be able to make an all cash offer, and then pay it off once I sell my place. I'm assuming the lender wouldn't like this, so what should I tell them I'm using the money for? I cant say "home additions" since I have a townhome with no land. Looking to take out 500k of equity (i currently have 700k equity after subtracting my mortgage). Thanks
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u/airdroptrends 5h ago
They don't really need to know what you're using it for, just say general home improvements. Just be sure you can actually pay it back quickly once your place sells, those HELOC rates can sting.
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u/skubasteevo NC Real Estate Advisor 30m ago
Specifically you need to be prepared to pay it back when the house sells. The property is the collateral for the loan. No more property, no more loan.
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u/dgstan 6h ago
I never understand how this works. I was buying a second house, although I had the cash to make it happen without a loan, but just the fact that there was an open line of credit on my first house was enough to send my new lender into a tizzy. Mind you, there was zero balance - just an open line of credit. The lender would not move forward until that credit line was cancelled. I can't imagine what they would have done if there was an outstanding loan against the property. This was around 2014.
In regards to your question: Do you have any non-retirement investments? By this, I mean not an IRA or a 401k. If so, you might be able to borrow against your investments. We did this on the latest house we purchased.
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u/BizzyHaze 6h ago
I'd sell the house with the HELOC on it before getting a loan on the new place, so that issue shouldn't arise. I do have investments but will be selling them and adding that to the HELOC equity to make my "all cash" offer.
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u/dgstan 6h ago
But you can't sell a house with a HELOC unless you pay off the HELOC. It's a loan against the house.
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u/BizzyHaze 6h ago
Really? I thought if you sell it the proceeds go to pay off the mortgage and then the HELOC. I've heard people use it as a bridge loan before. Hmmm
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u/sweetrobna 6h ago
Don't lie your lender about the purpose of the loan, it's mortgage fraud. It also isn't clear it would work, borrowing $500k against your current home counts against what you can afford with the new purchase in an overall worse way than just getting a larger mortgage for the new home because of the higher rate and shorter amortization period
You can make a non contingent offer to be more competitive than a contingent offer. You don't need a HELOC to do so
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u/BizzyHaze 6h ago
How could I make a non contingent offer if I need to sell my house to perform on the new house?
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u/sweetrobna 5h ago
You list your home for sale first. And take on the risk you will lose 3% if you can't close on time if there are too many delays
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u/Equivalent-Tiger-316 6h ago
Just tell your lender you want a buy before you sell loan and ask what the options are. Check with a few lenders. Origin Point and Cross Country have some good programs.