HELOC for Contingent Purchase Financing in Sonoma County

Sonoma County buyers can use HELOC (Home Equity Line of Credit) to finance a contingent purchase as long as they are well qualified to carry both property mortgages intially.  This will allow the buyer to purchase a home with beneficial financing, while waiting for their current home to sell.

Yes, home equity lines of credit (HELOC) are endangered, but not extinct.  Evolved would be a better term for what these loans are now and how they are used.  For an existing home owner, no-fee  are available through local banks like Bank of the West here in Sonoma County.  They are easy to get, require little paperwork, and are great financial tools for the well heeled homeowner with very little or no current debt on the home.  The rates are fixed to prime rate (currently 3.25%) with a margin attached.  The restrictions are:

•·         Home must be owner occupied

•·         Must have excellent credit/income

•·         These can only go to 80% CLTV

But for home buyers that are relocating or downsizing HELOCS can also be used for purchase of a home while preparing to sell a former residence (contingent purchase). If your client has a home they know they will sell within a year, they may plan to use those future proceeds to pay down the new mortgage on their newly purchased Sonoma County home.  But if the new mortgage is a single fixed loan, paying down the principle with sale proceeds when the old home sells will not lower payments on the new loan.  Instead it will only shorten the pay off time. A HELOC can be the answer.

In this situation, using a smaller first loan plus a HELOC for purchase accomplishes 2 goals.  It can lower the amount of the first loan to fit it into a conforming loan amount resulting in a lower rate.  In addition, this contingent finance style can leave one of the mortgages on the new property in a position to be paid off upon sale of former home, leaving the borrower with one smaller mortgage to be carried into the future.  Here are some characteristics of this financing structure.

•·         25% down payment required

•·         Good credit/income required

•·         No fees or separate application

•·         HELOC rate at prime + 1.5% (4.75%)

For up-to-the-minute Today's Rates, visit my website www.sonomacountyhomeloans.com.