Home buyers who want to keep their investment plans in place may want to consider nontraditional mortgage options. To ensure you do not unnecessarily compromise your long-term investment goals when buying a home, make sure you have considered all lending alternatives before you commit to a financing plan.
Is there a better mortgage solution out there for you?
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Many home buyers do not realize they do not necessarily have to sell stocks and bonds to raise funds for a down payment. They feel they must choose between staying invested and purchasing a home. Robin Dykes, a real estate agent with Compass San Diego*, and Mike Hoyt, Senior Vice President of Lending at Origin Point** explain three mortgage strategies that can mitigate the impact buying a home can have on someone s investment portfolio.
When buying a home, most people assume their mortgage options are limited to traditional lending programs, Mike says; however, If you have strong assets, own a business, or plan to buy a new home before selling your current one, there are specialized programs that can make the process easier and help you stay aligned with your long-term financial plan.
Robin and Mike explained three lesser-known alternatives to the traditional approach to a mortgage, which is making a significant cash down payment and then financing the rest of the home purchase at current interest rates:
1. Buy Your Next Home Without Waiting to Sell Your Current One
They believe this is a smarter alternative to bridge loans. If you want to purchase a new home before selling your existing one, this option allows you to make a strong purchase offer without a sale contingency a more compelling offer for a seller.
Instead of relying on a bridge loan (which typically comes with 8.5% 10% rates and 2 2.5 points), this option lets you qualify for a loan as if your current home were already sold.
This approach helps in several ways by enabling you to
- Make competitive offers without rushing your home sale
- Avoid expensive bridge loan rates and fees
- Access standard mortgage pricing (mid-6% range, zero points)
- Move on your timeline, not the market's
This strategy can be especially helpful if you are upgrading, downsizing, or relocating homes.
2. Use Your Assets to Boost Your Borrowing Power Without Selling Investments
This solution is Ideal for retirees or anyone with significant assets but modest income. If much of your financial strength is tied up in investments, retirement accounts, or cash reserves, you may not need to sell anything to qualify for the home you want.
Scott explains: With our asset depletion program, for example, we calculate additional qualifying income based on your assets at a rate of just under $12,000/month for every $1 million in eligible assets.
Home buyers are then happy for several reasons.
- They avoid triggering capital gains taxes
- There is no need to sell stock or tap retirement accounts
- They qualify for a larger or more strategically structured mortgage
- The home buyer's broader financial plan is less impacted than with other mortgage solutions
3. Use Business Bank Statements instead of Tax returns for a More Realistic Way for Self-Employed Borrowers to Qualify
Many business owners write off legitimate expenses to reduce taxable income, but that can make qualifying for a mortgage challenging. Instead of relying on tax returns, this mortgage option looks at 12 months of business bank statements to determine income.
Mike says his lending company will add up the deposits, average them, and apply a standard expense factor (typically 50%). If a borrower s CPA verifies that the borrower s business runs especially efficiently, the lending company can use a lower expense ratio for example, enabling a borrower to qualify for a loan based on 75% of income if expenses are only 25%.
This way of designing a mortgages offers several benefits to self-employed home buyers:
- They may qualify for a loan based on real cash flow, not minimized tax-return income
- Rates are typically only ~0.125% higher than standard programs
- This option can be combines with asset depletion and the no-sale contingency option
This mortgage strategy opens more doors figuratively and literally--for entrepreneurs, consultants, and other self-employed clients.
Work with your real estate agent, mortgage specialist, CPA, and financial advisor to design the mortgage that makes sense for your long-term financial plan and your personal circumstances.
As Robin says, You simply have to seek out the home buying scenario that suits you best it s out there. Work with an innovative and experienced agent who thinks outside the box . That kind of agent will have a relationship with a lending company who can present you with more potential mortgage solutions than you may have known existed.
Robin and Mike urge home buyers to involve their financial advisors in the home buying endeavor. These mortgage strategies are designed to support the financial strategy you've already built with your advisor, Mike says, enabling you to maintain your investments, mitigate tax consequences, strengthen your home buying power, and move confidently in a competitive market.
Your financial advisor can help determine which option aligns best with your long-term goals, while a good agent and lending specialist will walk you through different scenarios and help you explore what is possible in today s market Robin says.
When you coordinate a home purchase with other components of your financial life, then you have a greater chance for making the home purchase part of what makes your financial plan successful. Consult us for feedback regarding how your next home purchase or home sale can enhance your financial security.
*Robin Dykes | Realtor | The Beal Group at Compass | DRE# 02226091
**Mike Hoyt | Senior Vice President of Lending, Origin Point | NMLS# 653785
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