With inventory low and sellers not wanting to be displaced, our sellers trepidation is adding to an already low inventory problem. I recently shared a client story who owned their home outright but due to declining self-employed income heading into retirement could not afford both homes. Here is the solution I found.. We secured a $500,000 line of credit based on her pension/retirement income. Then put that money in her savings account and let it season for two months. After seasoning, she purchased her dream home using a Reverse Mortgage putting 50% down, listed her first home, sold it and paid off the HELOC.
I love finding a way!!
Let’s go over a few other options…
Bridge Loans. Bridge loans are short term loans against the equity in your current primary. There are a few options for these with smaller portfolio banks. The bank will charge .5 to 2 points up front since they know this is a short term loan and limit you to 80% loan to value on the current home. You will then be able to use that money to put a down payment on a new home and pay off the bridge loan when you sell your existing home. Note that this option has become more limited with COVID.
HELOC. Even better than a bridge loan is a HELOC, or a home equity line of credit. This is also a portfolio bank loan on the equity on your existing primary home, but allows for a higher loan to value (90%) and the fees are almost non-existent. Typically the only fee is an early termination fee of around $350. However, I have seen this as high as $1200.. so ask. BIG difference.. a HELOC is on a home NOT on the market. Once it’s listed, the only option is a Bridge loan, so plan ahead. Another bonus is, my team can gather your documents and secure both the HELOC (or bridge) and your new home’s loan.
Add a Sales Contingency. I am seeing more and more of these. We are all familiar with contingent buyer offers; but what about marketing a listing with a contingency for the seller finding a home, allowing the seller to get out of the contract if they don’t find one within a defined period of time. Many of today’s buyers would be willing to wait just to have a house locked up.
Use 401k/IRAs. The Cares Act allowed us to withdraw retirement funds without penalty, but I will defer to your CPA for the ongoing tax cost of this option. 401Ks allow you to withdraw up to 50% of your vested account balance to a maximum of $50,000. IRAs allow for up to 60 days for a rollover period, letting you use that money for the duration.
Gifts/Co-signers. This one almost goes without saying. One thing that many don’t know is that an employer, close friend, charitable organization or family member can give a gift .. can you say Uncle? Did you also know that after 12 months co-signers can exclude this payment from their DTI allowing them to buy their own home?
Rent Your Current Home. Now this option does not help our inventory issue.. but does get your seller ready to move and capitalize on the rental income to help lower their debt to income. With today’s historically low interest rates, cash flowing on investments is strong. But note.. not all homes make good investments. Are they ready to start building their Investment Empire? We’ve got a class for that 😉 AND.. if they end up selling that home after they move.. well.. life happens!
Longer Closing Periods. Kind of speaks for itself. Every buyer is coming in hot and wanting a quick close to be competitive. But what if you gave your sellers a longer close with a tight loan condition so they could look for that replacement home knowing the loan was locked up.
Rent Backs. Buyers today are willing to give these away for free! Per lending guidelines, we need a homeowner to move into their new home within 60 days. So if the new buyer is buying as a primary or second home, we need the contract to say the period is no more than 60 days. But if buying as a rental or with cash, a longer period of time also works. Having said that.. remember.. life happens. So if the rent back period was extended after closing, who am I to say?
Have a unique case? Let’s brainstorm… It’s the puzzles that keep our minds sharp and our sellers moving!