Can one get a house mortgage without buying a house?

Question

As of this writing, mortgage rates are low, but are expected to rise. I am not ready to commit to a house that ties me down to a location but would prefer to take advantage of the low mortgage rates. I'm financially secure and was wondering if I could take out a mortgage with a low rate, pay monthly, and just do all the normal stuff with out actually getting a house. Then, when I'm ready, I would have a mortgage ready and waiting to purchase a house.

I see how this would be attractive to a bank. They could hold the money until I was ready (which makes it really easy to "foreclose" on me if I go astray).

If this is possible, is it a good idea? I think I might be better off just saving and doing a bigger down payment but am not sure how the math would work out (it likely is a function of how fast rates rise).

Is taking out a mortgage without purchasing a house a) possible and b) a good idea?

Ben Miller - Remember Monica · Accepted Answer

I've never heard of a loan product like that. Yes, if they keep the funds in an account, it is no risk to the bank, but they would essentially need to go through the loan process twice for the same loan: when you pick a house, they need to reevaluate everything, along with appraising and approving the house.

Even if you did find a bank that would do this for you, there are a few problems with this scheme. You would be paying interest before you have a need for this money, negating the savings you might achieve if the interest rates go up. In addition, your "balance" will go down as "payments" are deducted from your loan, and when you finally find a home to buy, you might not have enough for the house you want. You'll need to borrow more than you need, which will further negate any possible savings.

It is impossible to know how fast rates will climb. If I were you, I would stick to saving for your down payment, and just get the best rate you can when you are ready to buy.

Another potential idea for you is to lock an interest rate. When you apply for a mortgage, the interest rate is often locked for as much as 60 days, to protect the borrower in the event that the rates go up. You could ask the bank if you can pay a fee to lock the rate even longer. I don't know if that is possible or not. And, of course, the fee would eat into your potential savings.

user41790 · Answer

As a legal contract, a mortgage is a form of secured debt.

In the case of a mortgage, the debt is secured using the property asset as collateral.

So "no", there is no such thing as a mortgage contract without a property to act as collateral.

Is it a good idea?  In the current low interest rate environment, people with good income and credit can obtain a creditline from their bank at a rate comparable to current mortgage rates.  However, if you wish to setup a credit line for an amount comparable to a mortgage, then you will need to secure it with some form of collateral.

JTP - Apologise to Monica · Answer

First, many banks do not keep the loan. Even if they send you a payment notice and process the monthly payment, there's still a good chance the loan itself was packed up and sold to investors. Collateralizing mortgages, in and of itself, is not inherently dangerous. But the loan definitely needs a house behind it.

If you found a bank that keeps its loans, it would be a tough sell. You'd be asking them to trust that you've chosen the right number to match up with the house you intend to buy. And then they'd need to have another round of processing to turn this into a loan with normal collateral (i.e. put a lien on the house and tie them together.)

KeithS · Answer

Not unless you have something else to put up as collateral. The bank wants a basic assurance that you're not going to immediately move the money to the Caymans and disappear. 999 times out of 1000, the collateral for a home mortgage is the home itself (which you wouldn't be able to take with you if you decided to disappear), so signing up for a 30 year mortgage on a nonexistent house is probably going to get you laughed out of the bank.

It's sometimes possible to negotiate something else as collateral; you may, for instance, have a portfolio of securities worth the loan principal, that you can put in escrow for the term of the loan (the securities will stay in your name and make you money, but if you default on the loan the bank goes to the escrow company and takes the portfolio for their own). The bank will consider the risk of value loss on the securities in the portfolio, and may ask for a higher collateral value or only allow a lower loan amount.

In all cases, it's usually a bad idea to go into long-term personal debt just to get "cheap money" that you can use to beat the interest rate with some business plan or investment. If you have a business plan, take that to the bank with an LLC and ask for a business loan. The business itself, if the plan is sound, should become valuable, and the terms of business loans take that into account, allowing for a "shrinking collateral" transferring the initial personal risk of the loan to the business.

Can one get a house mortgage without buying a house?

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