Funding options for move up house

We currently own a house worth about $350k based on recent sales in the area. We are looking at a "move up" house that is short sale listed for $380 and will likely sell for $400k - $420k We have $18k left on our existing mortgage and no other debt. What would be the best way to finance this purchase if we make an offer? Options we are considering are: 1) Open a HELOC against the equity on the existing home limited by a 70% CLTV. Pay cash for the remainder. This makes us a "cash" buyer which is more appealing to the lender / investor for the short sale property and makes it more likely our offer will be accepted. We would pay off the HELOC once our existing house sells. We want to have some sort of modest mortgage on the new house when all is done to maintain a decent cash reserve. Is it possible to convert a HELOC into a traditional mortgage? 2) Apply for a traditional mortgage, obtaining pre-approval before making an offer. We would put down 30% - 40% on the new house. We would sell the existing house and apply a large portion of the proceeds against the new mortgage to recalc the payments. I've heard this is not as attractive for the short sale lender but I'm not sure why as our loan would be pre-approved. again, looking for suggestions, recommendations, and options Thanks! by tempescott2596 from Tempe, Arizona. Jan 10th 2011 Reply