For Pamela and Dave Jones, owners of Extraordinary Transitions, a Realtor with Long & Foster, most transitions involve both buying AND selling a home. In these situations, the most common concern has to do with financing the customer’s next home before the other home sells. In today’s housing market, homes turn over so quickly that those who plan ahead want to ensure they’ve secured their new dream house before letting go of their current abode.
Pam calls the financial instrument that makes all this possible the “trade-in” mortgage, which is provided by Calque. She explains, “in the past, we’d just call it a bridge loan. It involves taking some of the equity you have in your current home and allocating it towards your next purchase. You then get approved for financing by the lender for your next property. Then you can search at your leisure to find your next home knowing exactly what you can afford and what it will cost without being under huge pressure. You don’t have to worry, ‘Now that my house is sold, where do I go?’”
The home shopper now has the freedom to make a great selection, get a home inspection, and decide to move forward without worrying that they’ll qualify for the offer they need to place. Ideally, of course, there’s plenty of equity in the previous house to be able to market it, pay the relevant commissions, transfer taxes, settlement fees and any related closing costs as well as their new home down payment. What makes this determination easier is that the same lender does both loans – taking on the trade-in loan financing as well as the mortgage to come.
An added benefit of the arrangement is that the seller now has time to close on the new house, move in, and turn around and polish up the old property for maximum resale value. When that house sells, they pay off the Calque “trade-in” mortgage and have just one loan at the end of the day.
Because she and David have used this approach before, they know exactly how to calculate how much the homeowner will need to pay off their current loan, plus the trade-in mortgage and finally what to budget for their new house. “In most cases, people will only have to borrow a small amount of equity to be able to accomplish the purchase on their next property,” Pam says.
It is typically national mortgage lenders who are approved to offer such loans, and rarely the lender who currently owns the mortgage on the house, Pam explains. “The current lender has no incentive to jump through a lot of hoops for you,” she says. On the other hand, the lender she has worked with since 2004 as their exclusive local agent is delighted to participate in hot real estate markets like that of Loudoun County and wherever those homeowners want to relocate.
Less desirable alternatives like “e-buyer” companies typically pay on the order of only 85% of what your home may be worth, she advises, whereas, “We're marketing [that home] to the general public, generating as many prospects and buyers for the home as possible. We’re very clear with the owner about the value of their property. My expertise is being able to tell them the truth about what the market will bear for their home. So far in the new year, we have managed anywhere from 2 to 25 offers for a given property to generate the best-selling scenario for the homeowner.”
She hastens to note that this arrangement isn’t only for homeowners who are downsizing; it can work if you’re expanding as well – you just need to leverage a certain amount of equity in your home to facilitate the transfer.
If all this makes you more likely to consider either up- or down-sizing to your dream location, don’t hesitate to call Pamela with questions at 703-587-7440 or check out PamSellsFineHomes.com, and let her tell you what the market indicates your home is worth today!