Cross-Collateral Financing

By Steve Millender

For clients who are considering purchasing a new home, either as a “trade up” from their existing residence, or to “down size” to be closer to family or to reduce expenses, there is financing available where no down payment may be required. Due to our close relationship with several financial institutions, DeLeon Realty can refer our clients to lenders who can help buyers and sellers meet their financial and personal goals. Some lenders offer programs of which you may not be aware and that conventional banks won’t tell you about.

Due to the high cost of real estate, clients may find the majority of their equity tied up in their current home. As a result, with a listing agreement on the departing residence, a client may purchase a new property, and use both property values to qualify for their financing. If, for example, clients are planning to sell a current property where they raised a family, and are looking to purchase a smaller property closer to their children, they may do so before selling their departing residence. To accomplish this goal, they would be asked to provide a listing agreement (for the departing residence), and the lender would qualify the client based upon their income and debt ratios, for the purchase of the new property, which would include payments for principle & interest, taxes and insurance. This potentially could allow clients to purchase the new property without putting any money down. The request from the lender would be that the clients agree to sell their departing residence within one year of their new purchase and that they pay down their loan amount a minimum of 30% depending upon loan to value requirements.

The advantage of cross-collateral financing is that borrowers can leverage the value of their existing home to qualify for up to 100% financing on their new home. Of course, income and assets would need to be sufficient to meet “guideline” requirements, and this would not require clients to liquidate investments, which could result in a capital gain and tax consequence. A similar scenario is possible for a “trade-up” buyer, who may have significant equity tied up in a current home, and would like to utilize that equity to qualify for the purchase of a new home. Following the sale of the departing residence, the client would be required to pay down a percentage of their existing debt to meet lender guidelines and qualification requirements.

For more information, please contact the DeLeon Team, who would welcome the opportunity to assist and discuss these opportunities in more detail.