Out-of-work but still want to buy? Here's some answers
Q: I lost my job last month. To cut expenses and avoid foreclosure, I want to sell my house, extract the equity and move down to a lower-priced short sale or bank-owned house. But because I don’t have a steady income anymore, no bank seems to want to let me buy either type of home, even though when I sell my current place, I’ll have enough equity to cover the entire cost of the new home. Is there anyway I can buy a short sale or bank-owned home contingent on the sale of my current home?
A: Unfortunately, you are caught in a bind that’s common these days. Though you can make an offer contingent on the sale of your home, practically speaking, no lender will accept a bid from a person who doesn’t have a job or other regular income stream.
Matt McCabe, chief executive officer of the National Short Sale Center in Scottsdale, Ariz., says that’s because “such a contingency isn’t time-specific.” In this market, it could take you months or even years to sell your current home. In the meantime, any lender that accepts your offer would have to pay for the taxes and upkeep of the home, and perhaps watch it drop further in value in a declining market. That’s too much of a risk for most lenders to take.
But you do have some options. Mr. McCabe suggests concentrating on short sales rather than foreclosures, since they usually take longer to sell—usually a month or two. If you’re able to sell your own house during that time, you’ll be able to submit a non-contingent offer. Keep in mind that lenders often only respond to the bidder who’s made the highest offer on the property, and that desirable properties may even be the subject of bidding wars, despite the weak economy–so don’t set your heart on any particular house. Another consideration: If you sell your old house before the lender accepts your offer, you may have to arrange to rent it back, or perhaps rent another house in the interim.
Another possibility is to take out a home equity line of credit (HELOC) against your existing house, and use that, perhaps supplemented by savings, to buy a new one. Of course, that may be tricky, since lenders have been reducing or freezing HELOCs. Bear in mind that if your house doesn’t sell right away, you’ll need funds to pay off that line of credit.
Finally, there’s private money. Armed with an appraisal of your existing home, you may be able to convince a hard-money lender to make you a short-term loan, also known as a bridge loan, that will cover the cost of the new house–though you’ll almost certainly have to pay above-market interest rates. (Usury laws in some states prohibit hard-money loans). A more economical approach: See if family or friends can front the funds.
Article taken from http://online.wsj.com/article/SB123636616440255701.html