Financing Options For Purchasing A Larger Home

MOVE-UP BUYERS: FINANCING OPTIONS FOR PURCHASING A LARGER HOME

 

As of 2018, household net worth was at an all-time high of $100.3 trillion, nearly double the level in 2008 when wealth was devastated by the recession.

“Affluent households have greatly benefited from strong growth in the stock market in recent years, and the steady rise in home prices has likely given them reassurance that real estate remains an attractive long-term investment,” says Lawrence Yun, Chief Economist for the National Association of Realtors. 

Commenting on the growing trend of second home purchases, Yun says it “reflects long-term growth in the numbers of baby boomers moving closer to retirement and buying second homes to convert into their primary home in a few years.”

The impressive gains in household net worth and investment portfolios are allowing young families and near-retirees alike the opportunity to move up into larger homes. Since purchasing a second home before selling an existing, primary residence offers many advantages (Homesellers, Owner-Occupied VS. Vacant Homes), move-up buyers are using a variety of financing options.

Partially Liquidating Investment Portfolios

Some people are selling part of their investment portfolios (stocks, bonds, etc.) to lock-in the significant gains in the stock market while freeing-up cash for the down payment or outright (cash) purchase of a second home. Liquidating part, or all of your portfolio, however, has tax implications you should review with your investment broker and tax advisor before proceeding.

Using An Investment Portfolio As Collateral

You can borrow against your stock portfolio by taking out a securities-based line of credit or SBLOC. A typical SBLOC agreement permits you to borrow from 50 to 95% of the value of the assets in your investment account depending on the value of your overall holdings and the types of assets in the account. SBLOCs generally allow you to borrow as little as $100,000 and up to $5 million. Click here for more information.

401(K) Loans

Technically, 401(k) loans are not true loans because they do not involve either a lender or an evaluation of your credit history. They are more accurately described as the ability to access a portion of your own retirement plan money—usually up to $50,000 or 50% of the assets, whichever is less—on a tax-free basis.

Conventional wisdom advises against withdrawing funds from your 401(k) early; however, borrowing from yourself is different from withdrawing funds permanently and does not incur the same tax penalties as withdrawing funds. If you fail to repay your loan within the allotted timeframe, it will be treated as a taxable withdrawal.

Using Existing Homes As Collateral

By means of a home equity line of credit, or HELOC, you can borrow up to 85% of your primary home’s value, minus the amount you owe on your existing mortgage loan. To get a home equity line of credit, you’ll typically need a debt-to-income ratio in the lower 40s or less, a credit score of 620 or higher, and home value that’s at least 15% more than you owe.

This type of loan is different from your primary mortgage in that you don’t get a lump sum. Instead, the loan acts as an on-call line of credit from which you can take out sums at any time during the withdrawal period and only required to pay interest until the end of the term. Note, however, that the interest rate is almost always variable. Click here for more information.

Cash-Out Refinancing

A cash-out refinance replaces your existing mortgage with a new home loan for more than you owe on your house. The difference goes to you in cash, and you can spend it on home improvements, debt consolidation, or other financial needs. You must have equity built up in your house to use a cash-out refinance. Click here to learn the differences between a cash-out refinance and a home equity line of credit (HELOC).

Can We Help?

When considering the different financing options at your disposal, make sure you contact your investment and tax advisors to choose the right one. Julie and her team are ready with excellent tax professionals we can recommend to you if needed.

For more information on how we can help with your move-up needs, please contact Julie at 650.799.8888 or Julie@JulieTsaiLaw.com to schedule a free consultation.

 

Buy Before Sell? Or Sell Before Buy

The answer to this chicken-or-egg dilemma can be summarized in three words: “It all depends.”

The determining factors are these two things:

  1. Your finances, and
  2. Prevailing market conditions.

 

Buying Before You Sell

In a competitive environment, with continued home-value appreciation like the one prevailing in the Bay Area, it makes sense to buy before you sell.

You won’t have to move twice, won’t be pressured to quickly pick a house that may not exactly be what you want, and you’ll be able to vacate your home and properly stage it (“Sellers: Owner-Occupied Vs. Vacant Homes”) to appeal to a greater number of buyers.

If you don’t have the cash reserves to make the down payment on your new home and temporarily cover two mortgages, you can use the built-up equity on your existing home to take out a line of credit, or HELOC, in which a lender promises to advance you a particular amount which you can draw upon as needed.

This type of loan is different from your primary mortgage in that you don’t get a lump sum. Instead, the loan acts as an on-call line of credit from which you can take out sums at any time during the withdrawal period. You are only required to pay interest until the end of the term.

However, note that the interest rate is almost always variable.

 

Selling Before You Buy

What if you have neither the cash nor the equity? 

  • Sell with contingencies.

 

Homeowners can sell their properties with contingencies built into their contracts, stating that they must be able to buy a replacement house, or the deal is off. The time limit is usually between 30 and 60 days.

However, a contingent agreement may include a kick-out clause allowing the seller to continue showing the house and “kick out” the buyer if the seller receives an offer from another buyer without a home sale contingency. Sellers are likely to view contingent offers as less attractive than those with no strings attached.

All things being equal in terms of the amount of the offer and credit qualifications, a would-be buyer making a contingent offer is likely to lose out if the seller also has an offer on the table from someone who is ready to fully commit. 

  1. Implement a rent-back agreement.

A rent-back agreement essentially lets you become the new buyer’s temporary tenant, giving you extra time to live in your home after closing. It doesn’t last for long, but it will give you a chance to close on your new home and pack up for the big move.

Of course, just like the previous contingency option, a rent-back requirement will likely get fewer offers. 

  1. Sell and hope for the best.

Since contingencies and rent-back agreements may place you at a disadvantage compared to other buyers, the alternative is to sell without conditional clauses. If you don’t have family or friends you can move in with in the meantime, then you can temporarily rent elsewhere.

This option can buy you plenty of time to focus on searching for your next home. Julie and her team can help with this too, as we’ve helped many of our satisfied clients find temporary housing while in between homes.

 

Can We Help?

Whatever your circumstances, Julie and her team will help you navigate through every option to choose the one that best meets your needs.

For more information on how we can help with your buying and selling needs, please contact Julie at 650.799.8888 or Julie@JulieTsaiLaw.com to schedule a free consultation.

A Targeted Remodel Before Moving Up

MOVE-UP BUYERS: A TARGETED REMODEL BEFORE MOVING UP

 

Savvy Bay Area homeowners looking to purchase and move to a larger house are increasingly utilizing a new, targeted approach: remodeling their existing home to extract maximum value upon sale.

Rather than basing their choices on what they would like, they are considering renovations from the perspective of future buyers. At 83 million strong, those buyers are millennials, who, in 2019, made up the largest share of homebuyers according the National Association of Realtors.

The next generation of homeowners wants smart, stylish homes that enable them to connect with friends and family. 

– Jill Waage, Editorial Director at Better Homes & Gardens

With nearly three-quarters of this demographic preferring experiences over things, millennials—now representing one-third of the national population—are often referred to as the “Experiences Generation.” Thus, how a home “lives” and “feels” is becoming the blueprint for design and the vital criterion for home features. 

New Trends To Consider

  • Open-Concept Living

 

Millennials’ strong desire to connect and engage with people is breaking down the walls in interior home design, resulting in flexible, open-concept floorplans. For example, being raised on cooking shows and the “foodie” movement explains their strong desire for an open kitchen that faces a family room so they can engage with others during meal preparation. Front-row seats for family and friends to marvel at their culinary skills is another hot trend in kitchen design. Function over size is now the main driver.

  • Outdoor Entertaining

 

Outdoor spaces for entertaining are also now a “must-have” feature in multi-family and single-family homes. Three out of four millennials say outdoor space is important for entertaining ,and consider an outdoor living space an extension of the home and a relaxing retreat for family and friends to spend time together.

  • Working From Home

 

Savvy developers and designers are also responding to the growing trend in remote work. This conceptis revising workplace needs and enhancing a desired work/life balance by the upcoming generation. Future housing may contain design features that allow millennials the flexibility to work or play depending on the time of day. Living spaces may now double as workspaces with plenty of built-in storage to help maximize space and furniture that can serve more than one purpose. Smart, flexible, efficient, and minimalistic are now the guideposts for interior design.

  • Home Sustainability

 

Known also as the “Green Generation,” millennials continue to be most willing to pay extra for sustainable offerings. Consequently, they’re more interested than ever in sustainable and regenerative features such as solar panels and dual-pane windows, as well as eco-friendly materials, including paint and floor coverings that don’t contain volatile organic compounds (VOCs), Energy Star appliances, LEED-compliant lighting, and organic materials such as wood and stone. Heating and cooling cost efficiencies are also top of mind with 33% of millennials saying they are a very important consideration.

Preferred Features

  • Eco-Friendly

 

Millennials’ concerns about the environment and desire for a closer connection to the natural world are driving their preferences for more organic materials that give the feeling of bringing the outdoors in. Tile in all its forms—from ceramic to stone—along with hardwood floors, river-rock shower flooring, rainfall showers, and quartz kitchen countertops, are among features being used by developers and designers to respond to the growing environmental awareness and concerns of their clients.

  • Minimalist

 

Perceptive developers are incorporating sleek, simple design lines, light/muted color palettes, and abundant natural light to respond to millennials’ desire for natural, harmonious, and uncluttered living spaces.

  • Technologically Advanced

 

More connected and tech-savvy than any previous generation, millennials also prefer homes to be pre-wired with plenty of electrical outlets that offer USB ports for charging their devices, ethernet ports for connecting wireless routers, and HDMI jacks for flat-panel televisions and home theater systems. Smart home technology is fast becoming an essential component in home design, offering this new generation what they want and need: greater automation, connectivity, and control.

Can We Help?

Whether you are ready to move-up to a larger home or just considering a remodel for the time being, Julie and her team of experts are ready to help. Our vast experience and high-quality network of contractors and providers will ensure you maximize your investment return while preparing your home for maximum buyer appeal when ready to sell. 

For more information on how we can help with your buying and selling needs, please contact Julie at 650.799.8888 or Julie@JulieTsaiLaw.com to schedule a free consultation.

 

Moving Up To Strengthen The Family

MOVE-UP BUYERS: MOVING UP TO STRENGTHEN THE FAMILY

 

Family is at the core of many cultures around the world.

In many Asian and Latin American cultures, for instance, most young adults stay home until they marry. When their parents age, they move in with their children who consider it an honor to care for them in their later years. 

Keeping Family Close

Family has long been a key component within Chinese society, and many aspects of Chinese life are tied to honoring one’s parents or ancestors. In fact, the majority of the “Five Relationships” espoused by Confucius were directly centered on the family. Due to this focus, it has historically been common for the Chinese—even when fully grown with children of their own—to not only remain in or close to their hometown, but also to have many living generations of a family living under the same roof.

While in the United States, the small nuclear family—father, mother, and one or two children—still predominates, things appear to be changing. According to the Pew Research Center, in 2014 a record 60.6 million people (19% of the US population) lived with multiple generations under one roof. More than one-fifth of Americans older than 55 now live in a multigenerational household.

Reasons For Staying Together

Fueling this shift are rising home prices, staggering childcare expenses, college debt, longer life expectancies, high costs of elderly care, and the growth of ethnic communities in which extended families traditionally live together.

Economics might be forcing the issue, but people now are rediscovering the advantages of this way of life, according to Donna Butts, executive director of Generations United, a family research nonprofit and advocacy group. The Great Recession of 2008 drove a lot of young adult “boomerang children” back to their parents’ homes when they couldn’t find a job.

“People came together by necessity, and they stayed together by choice,” says Butts. “In many other countries, it’s just a way of life. It helps strengthen the family.”

With home prices in the Bay Area out of reach for most young adults, families are increasingly purchasing larger homes to keep everyone close while helping their children save money for an eventual down payment on their own home. Even those who don’t have relatives living with them fulltime are looking at larger homes to accommodate international relatives during their long visits from abroad.

Enhanced Benefits

New housing bills (“New ADU Housing Bills Could Add Value To Your Home) passed by the California legislature are making things easier by giving existing homeowners greater flexibility and options to add auxiliary dwelling units, or ADUs, to their properties. Also known as ‘granny flats,’ ‘in-law units,’ and ‘guest apartments,’ these additional units can be added around the main house in a larger property, creating a sort of family compound.

Closeness to family is not the only benefit of moving up. Larger homes are usually located in higher-priced neighborhoods which generate higher property-tax income—a significant funding source for public schools. More resources mean state-of-the-art facilities and equipment and better paid and trained teachers. Realizing how critical a top-notch education is becoming in the 21st century, savvy parents in the Bay Area are actively seeking better schools to give their younger children a competitive edge.

A better neighborhood also means less congestion, noise, and closer proximity to open spaces with proven benefits to physical and mental wellbeing. 

Of course, moving up will usually cost you more—but considering the benefits, the trade-off is more than worth it. 

Can We Help?

For more information on how we can help with your move-up needs, please contact Julie at 650.799.8888 or Julie@JulieTsaiLaw.com to schedule a free consultation.