<p>Does anyone have any knowledge about home equity loans used for purchasing a house? Here’s the situation: Our house has been on the market for a little over a month. Last weekend we had a couple see it with their Realtor/brother in law. They loved the house and in a private conversation with the Realtor/BIL, he said that he was suggesting to them that they use the equity in their vacation home on the shore to get a home equity loan to buy our house. Then, when they sell their current regular house, they can use the proceeds to pay off the home equity loan. He claimed that loans of this type are very cheap (prime rate). In my limited research of this, I’m not sure how correct he is on this issues. First, it seems that the rates are not that cheap for home equity loans and, most importantly, I’m not sure how easy it would be to get a loan of this type that would probably have to be on the order of $500K.</p>
<p>My question to the experts in real estate and financing is: should I treat this buyer as a serious buyer or should I assume that they probably won’t be able to arrange for financing until they actually sell their current house? This impacts a possible price reduction issue that we are facing. If they are viewed as real, potential buyers, I am inclined to hold off on a price reduction. Otherwise, I am inclined to lower the price to stimulate some action.</p>
<p>BTW, they have informed us through their realtor that they want to be kept informed should we receive another offer while they try to arrange for financing. Does it make sense to lower the price to stimulate a possible other bid and hence force them to get off the pot? Or, would we risk leaving money on the table by doing this?</p>
<p>I used a home equity loan on a property to buy another house. The number was much smaller–about $75,000–with the rest cash we had. So there is no loan on house B. We had to provide proof of financing within 10 days of the contract and we did by depositing a home equity loan check in our account and closed one week later with all cash. So it can be done and is probably common for investors as the rates for investor homes are higher than home equity loans by about 2%. I’d given them a short fuse to prove financing capability and get a substantial payment to hold the house–say $10,000 which they stand to lose after the financing contingency expires.</p>
<p>They are using the home equity loan instead of a bridge loan and for you the seller there is no difference. Must be some fantastic shore home to get a $500,000 home equity loan. I recently renewed our home equity line and the whole process only took 3 weeks so if you can afford to wait, I would do so. As for letting them know about other contracts you may receive, let them submit a contract of their own and negotiate that term.</p>
<p>It’s certainly doable. We once used a home equity line of credit on our home to pay off the first mortgage. There weren’t any closing costs associated with the HELOC, and the rate was substantially lower than that of the original mortgage.</p>
<p>Times have changed as far as home equity loans go and lenders’ willingness to finance them in what they term “declining markets”. You might want to look up the zillow value of the vacation house to get a ballpark figure of its value.</p>
<p>This was certainly a viable method <em>previously.</em> I don’t now if it is less viable post financial market meltdown. But absolutely nothing wrong with the approach theoretically. They (previously) should have been able to borrow up to ~80% of the value of their home. Previously, HELOCs were often very good rates and could be at a more attractive rate than a new first mortgage.</p>
<p>Do you have a realtor? If so, a call from your or your realtor to one of his/her most trusted lenders should answer your question as to current viability of this approach. If not, and you dealt with a quality loan officer, a call to him or her should yield the same information.</p>
<p>As to your BTW question, this is something to which you can never really know the answer. Were it me, I’d give them a few days to check on their financing. If it is taking longer than that, I wouldn’t wait them out on any assumption that they would make a full price or close-to-full price offer, anyway. So I would make whatever price reduction move you have been considering. Might attract another offer; might spur them to act more quickly. That’s just an opinion.</p>
<p>An HELOC could offer a very low (prime + small number) loan, though it is probably an adjustable rate- if they have a $1,000,000 waterfront home that is paid for it, could certainly happen and fairly quickly usually without a bunch of fees</p>
<p>First, I think the BIL is giving them bad advice, in an economy like this they need to sell their home first and then buy.</p>
<p>To answer your question, you need to have more info. Where is the shore house and how much is it worth? This would have to be a multi million dollar house for them to get out $500K at this point at a decent rate.</p>
<p>In this market I would not treat them as serious buyers until they sign a contract. Have they offered to sign one with a contingency for getting the equity loan? </p>
<p>I don’t know any markets where homes are selling well, so unless yours is different you need to keep moving forward.</p>
<p>Thanks for the input. Since they have not made an offer, we are in no position of asking them to provide any additional details about their financial situation or worth of their vacation home. I do know the town that it is in and that it is on the ocean, so it would be worth a fair amount, but have no clue as to how much of it is equity. However, I’m sure that the BIL does know this and if he is recommending that they pursue a HELOC for this purpose, it must mean that they have sufficient equity to do so. The thing that surprises me is the size of a HELOC that is possible. I thought that they were more in the sub-100K range as Barron used. </p>
<p>While the market in this area (central NJ) is slow, it is not non-existent. Since we have been on the market, two competitor houses that went on the market a few weeks before ours have gone into contract, albeit with at least one price-reduction each. In a little over a month, we have had 20-30 potential buyers come through, with some expressing serious interest. Of course, we went to market right when the perfect realty storm hit: an already depressed market plus a credit freeze-up plus a Wall St. meltdown all within the first week on the market.</p>
<p>And I never would take it off the market or even let them know about other interest until you have a signed contract. Talk in real estate ia always cheap. Show me the $$$$.</p>
<p>In a market like this I believe in working the interested parties, you never know when another will come along. Why not have your realtor call the BIL, suggest a small price reduction and suggest that you would accept a contingency offer. You know your market better than I do, but if I were selling anything in a town where folks commute to NYC, I’d get aggressive because I think it’s about to get worse.</p>
<p>Maybe I’m a bit dense on this, but it seems to me that it is to our best interest to let them know that there is other interest. Seems like that is what it might take to get them to make a move and sign a contract. That’s why I am hoping to get an offer, even a low-ball one, so we can go back to them and tell them they better come up with an offer of their own or risk losing the place.
What am I missing?</p>
<p>
I’m not sure that price is the issue with this. I think it’s more an issue of them figuring out how to wrangle with the financing issues. I doubt that a small price reduction would change the overall finance issue. The Realtor/BIL referred to them as “good buyers”. I’m not sure if that is Realtor code-speak for being able to get the money or if he was just commenting that they were decent people.</p>
<p>Work with your realtor on getting in the offer(s). I think that a good broker (hopefully you have one) will screen the potential buyers coming either through his or her firm and through other brokers. One tip that we got earlier this year, when we sold our house was that a 6% commission rather than 5 will motivate the brokers to bring more clients to look at the property. A nice open house with a good brochure with good photos will help as well. If you go for too long without an offer then it is probably time to lower the asking price.</p>
<p>Don’t negotiate against yourself. I would not suggest to other guy’s broker a price reduction. Counter offer if you get too low an offer but otherwise don’t offer to take less yet.</p>
<p>We considered this, but when looking at what the comparables were giving in terms of commissions, most were at 5%. I figured that if you are an agent in these times, you are hungry for a sale and for the 0.25% piece of the commission that you would end up with, you are not going to not show any house just because of the relatively small difference in commision. Besides, our agent tells us that most buyers these days tend to do their own research on the internet to determine which houses that they want to see - and then tell their agent to take them to see it.</p>
<p>I do agree with the “don’t negotiate against yourself” concept.</p>
<p>Buyers are fully aware it’s a buyers market and want to feel like that got a steal. Again, look at your market and try to find out what the recent comps are to see if your price is aggressive enough. Also look at inventory, how many homes are for sale in the price range in your area?</p>
<p>Hopefully you have a good realtor. A good buyer in current lingo means one who has they money. But frankly, unless they have cash in hand they are not good buyers! If your realtor feels they were not just blowing smoke he can follow up and suggest ways to get a contract signed. Offering the contingency may be a way to reel them in because many sellers will not do this. Though again, I think the BIL gave them bad advice. They could be stuck with their home for a long time in this market and if they seek financial advice elsewhere they will likely be discouraged from taking a loan on their beach home which is declining in value too.</p>
<p>When you say “offering a contingency”, do you mean a contingency clause allowing them to get out of the deal if they can not obtain financing? If so, I thought that that was a fairly routine part of any real estate contract.</p>
<p>Gosh no, when things were hot people came in pre qualified or with cash (Manhattan!) and closed in a week. In this market contingencies are more common but sellers in strong positions don’t accept them. I’m thinking this might not be a bad bet if you believe they have equity to tap. More conventional is a regular mortgage contingency which are really risky now as many, many are being turned down for mortgages.</p>
<p>funding, it doesn’t sound like your agent has fully prepared you for all the possibilities. Do you have a good one? So important in these challenging times! Are you staying in the same market or leaving? What the buying situation where you’re going?</p>
<p>Actually, our agent is one of the best in the county - at least based on volume. However, I have been at somewhat of a disadvantage this week since all of this happened after he went on vacation last Saturday. When he gets back later this weekend I’ll have a better chance to pump him for information. However, we need to make a pricing decision soon since we plan on another open house next weekend and need to get the price info into the advertising department. However, unless they can get a HELOC approved in a matter of days, it sounds like these buyers will not be in a position to make an offer with committed money until after that time.</p>