Some of the Kenai Peninsula’s wealthiest buyers may be getting a mortgage without putting a single dollar down. And we aren’t talking about single-bedroom fixer-uppers, either!
It’s called 100% financing, and, at first blush, it looks suspiciously like a version of the strategy that sent the economy reeling in 2008. But lenders feel that well-heeled Kenai Peninsula residents who are getting a mortgage through these programs are totally different. How so? you may ask.
For openers, these loans are offered only to the super-qualified: those with serious investment portfolios they can use as collateral. That means getting a mortgage with zero cash for the down payment. That can carry an additional tax benefit, since the borrower won’t have to pay a capital gains tax on investments liquidated to fund a down payment.
Since current mortgage rates can be as low as 2.5%, since even middling investment accounts often return a higher rate, the difference make this strategy what the Wall Street calls an ‘arbitrage play’.
So what would a homebuyer getting a mortgage in the Kenai area need to do to qualify for one of these mind-bending loans? In addition to the willingness to put up two forms of collateral (the property and a portion of your investment portfolio), the Wall Street Journal offers some relevant details:
• The amount that can be borrowed against any investment account depends on what’s in the portfolio. Usually up to 95% of account cash; up to about 80% for bonds; between 50% and 75% for most stocks. Withdrawing pledged funds is usually restricted.
• To get the lowest rates, clients who already have significant assets at a particular bank should consider applying for 100% financing there.
• Borrowers still need to pass regular underwriting requirements. They’ll need — high credit scores, a low level of overall debt, and documentation of substantial income or assets.
Of course, getting a mortgage doesn’t require a seven-figure portfolio. If you are seriously thinking about buying a Kenai Peninsula home, call me — we’ll get started by getting you pre-qualified.