In the first follow-up to, Non-Traditional, Very Useful, Financing Options!, I will ask you this question; “Ever been in a situation where you?”
- Fell in love with a property, but were nowhere near ready to sell your home where all your equity is?
- Wanted to keep your existing home as a rental after you moved?
- Or needed the flexibility to be able to remove the “Sale of a home” contingency in an offer?
Well, the Cross-Collateral Loan is meant for you! What it essentially enables you to do is exclude your existing home in your debt-to-income ratio, making it easier to qualify for a loan, and it gives you access to the equity you may have. So, it is like you lose a mortgage but gain a down-payment. In today’s market, having the flexibility to move fast is critical to getting into your next home.
So how does it work? There are two primary lending related issues limiting buyers from buying a new home while keeping their existing property.
First, many buyers cannot qualify for two home payments because their debt-to-income ratio would be too high. To resolve this, their current property is evaluated as a rental property and its estimated rent is counted towards offsetting their mortgage payment. However, in some cases, it is not a debt-to-income issue, but rather the question of “Where is the down payment for the new home coming from?”
Second, most “Move-Up” buyers will be using money from the equity in the home they are selling/vacating towards their down payment. If they do not sell their home, they do not have access to the money for the down payment. Fortunately, the Cross-Collateral Loan resolves this issue as well. It allows you to borrow the equity from your current property for the down payment on your new purchase.
You might think you could gain access to the equity in your existing home, by obtaining a HELOC. This however increases your debt, from a lender’s perspective, which would likely impact qualifying for a new mortgage.
So, this program gives buyers the flexibility to make offers on new homes without selling their existing home, it eases things around the debt-to-income ratio, and it allows buyers to access the equity in the vacating property. Sounds like the perfect loan, and I can only think “Where have you been all my life?”
- Able to submit Non-Contingent Offers
- Excludes the mortgage payment on your Exit Property from the DTI
- Equity from existing home used towards the down payment on the new purchase. (Max of 75% of existing home’s Loan-to-Value)
- Existing property can be converted to rental property. Not required to sell the home after closing.
- Turn time is a little bit longer than standard programs.
- Underwriting is bit more conservative.
- In the event of default, both homes are at risk.
Anyway, thanks for your time. If you’d like to connect or share your thoughts, I can be reached via email at email@example.com.
Disclaimer: I am not a Lender or Mortgage Broker! I cannot qualify you for a loan, I do not know what your cost or rate would be, nor do I know the full requirements for any of the loans. If you need help with financing, please talk with your lender.