Here are a few ways that your buyers may be able to use the equity in their current home to buy a new home:
Eliminating PMI
A buyer, for example, is making a 10 percent down payment-not quite the 20 percent needed to avoid private mortgage insurance. As an alternative, they could take out a home equity line of credit and close the line at the same time as their first mortgage. At closing, the line is used immediately to bring the down payment to the level needed to avoid PMI.
Jumbo Loan Without a Jumbo Rate
Much like the previous example, a credit line could be opened at the same time as the first mortgage. Some borrowers will be able to add part of the credit line to the down payment at closing to bring the loan below the conforming loan limit, which could mean a savings in rate.
A Deposit on the Buyer's Next Home
For those who are house rich and cash poor, home equity credit may be a good source of funds for the down payment deposit on the next home purchase. Pending the sale of their current home, the buyer may want to take out a bridge loan secured by their current home. Again, the home equity loan or credit line would be paid along with the first mortgage from the sales proceeds. This option is often used for a new primary residence and as a down payment for an investment or vacation home, where the extra home equity payments are affordable but the full down payment isn't readily available from savings.
Helping Out the Kids
With down payments becoming increasingly difficult to save, many parents are willing to extend their own money to help the kids, or other relatives, purchase a new home. Home equity credit can be an effective source for borrowing the money while enjoying potential tax deductibility.
A Versatile Tool
Using home equity to assist with a home purchase can make it a versatile tool in helping buyers achieve their homeownership dream. It's just one more option that real estate professionals can present as their buyers are figuring out the financing for their new home, and something the buyers can discuss with their mortgage lender. Home equity loans and lines of credit are available in most states, and the interest may be tax deductible. Borrowers should consult with their tax advisor regarding the deductibility of home equity interest. For more information on the variety of mortgage programs GMAC Mortgage has to offer your home buyers, please give me a call.
GMAC Mortgage is one of the nation's leading mortgage lenders, offering your buyers comprehensive mortgage financing as well as services that start before your buyers find a home and continue long after they've made settlement.
