Cross Collateral Financing
The biggest challenge from move up buyers right now is they want to maybe buy a bigger home, but they need it to be contingent on selling their existing home and the sellers never going to allow it.
So how do we solve for that? Well, there’s a loan option that can solve for that. Had a client recently where we were able to structure a loan. It’s called a cross collateral. It’s a little bit clunky. Stick with me on it and let me try and walk you through it.
My client’s home is worth $1.2 million and they owe $500,000 and they want to buy a home for $1.6 million. How are you going to do that?
There’s a lender that would give them one loan, so they’ll combine the value of these two homes. $2.8 million. They’ll loan them 75% of the combined value, but 2.8 million. So one loan for 2.1 million.
The first thing the lender’s going to do is going to pay off the 500,000 on a mortgage on their existing home. It left the client with 1.6 million and they virtually went and paid cash for the home.
As soon as they sell this home and they’re going to have $700,000 in equity, they can immediately take that $700,000 towards that and now get a real mortgage after.
It’s a little bit confusing. A lot of fancy colors. If you have a friend or a client that wants to move up but can’t sell their home first, reach out to me any time. I’d love to help them walk through the process. Have a great time. Thanks.
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