Does this sound confusing? Then we have your attention. This discussion is worth the time. In our industry, we work with all types of buyers; and even though you are not a buyer today, believe it or not, you might be tomorrow, depending on life’s circumstances.
We see this often. Potentially, an out of the blue call from a past client who has just seen their ideal home and is beyond confident that they have the financial capacity to buy another property before selling their existing property. While they may have the capacity, it is not necessarily without assembling some complex temporary financing or selling a part of their portfolio. Consulting with their financial advisor/lender/Realtor and CPA all take time. By then, the property has several other suitors who are all cash or have fully approved loans in place.
You have worked hard, saved, and invested smartly. You have the purchasing capacity, but do you have immediate access to cash? Our clients are often overly confident they can buy what they want when they want until they realize that accessing their wealth is a process and can have repercussions that then make them step back and hesitate.
The strategy for such an event was to take out a “Bridge Loan” in the past. A Bridge Loan is funding that allows you access to immediate cash until such time that you can liquidate your stocks or sell your primary home. It is a second loan on top of your primary mortgage and is typically difficult to qualify for, and comes with higher loan fees. The fees and sometimes rates are higher because the loan is a higher risk since it is on top of a primary first home mortgage. Additionally, it is a short-term loan, so the lender will only be collecting interest for a brief period.
Consider the Home Equity Loan, or known in the lending industry, the HELOC (Home Equity Line of Credit). For most of us, this is a loan we use after buying a home to combine credit card debt, pay off a car loan, or make some home improvements. It has been a program for Americans to consolidate debt and clean house, financially speaking, while hopefully writing off the interest expense. When lenders sell the product to you, they also suggest that it is a line of credit that you can keep open even if you aren’t using it. It is there for you in case of a family emergency or a financial crisis.
Today, if you have an existing HELOC, it is also ideal for a spontaneous bridge loan, and everything about it is better than getting a Bridge Loan. First, you don’t have to use it; it is just sitting there waiting for you to access the money. Second, the interest rate is low. The only question is – have you updated your line, and does it truly reflect all the equity you would like access to?
We recommend you put a HELOC on your home because, for immediate access to cash, you write a check from the HELOC account without a phone call or diving into your IRA or 401K.
You may not be in the market to buy a home today, but we meet with spontaneous clients every day who tell us, “This morning I was running to Home Depot, and I saw this Open House, and so here I am writing up an offer! This is crazy”. In 2015, that wasn’t a problem, but in 2021, we see multiple offers, and often up to 25% of the 8 to 16 offers are cash. Homes sell quickly. If you have a HELOC in place, you can transfer the cash to your checking account the day you write the offer and show proof of funds. While you may never need it, the fact is that most of our clients cannot believe they don’t have instant access to their money, nor do they believe that there will be multiple cash offers. However, this is what we are seeing. Those clients then look to get a HELOC in place on their home to learn that it will take 30 to 60 days to get the financing. They also must sign documents stipulating that they cannot list their house for sale. Lenders see a HELOC as a long-term security on your home and base their lending decisions on intent for a homeowner to occupy the property. It is not a Bridge Loan. The next step is to get the Bridge loan, but that takes time and costs more money. In most cases, buyers today don’t have that time because before they know it, the home is gone. That is why having a HELOC in place now can be the differentiating fact in submitting a winning offer in the future.
Due to the uniqueness of lending requirements for each situation, it is best to discuss with your lender and trusted financial advisor before making any decisions. If you would like to learn from an expert, your ELEETE agent can connect you to various preferred lenders who can guide and educate you about the process. You can also call your financial advisor, banker, mortgage lender, or ELEETE’s trusted colleague Brian Page at Guild Mortgage (503-452-0001). Brian has been ELEETE’s #1 resource since we opened our doors. Brian is an educator. His focus is on guiding and consulting. He is an excellent resource if you want to set a program in place for the future.