Gaining construction financing: methods for amassing the initial down payment
Let's Talk Real Estate and Your Securities Portfolio
Wondering if you should liquidate your securities portfolio to finance a property purchase? Not necessarily. There are alternative ways to use your investments for real estate financing.
With those juicy returns on securities like stocks seemingly within reach during low savings interest rates, it's natural to want to hold on to your portfolio. But what happens when you're facing the dream of owning property? Can your securities portfolio help without being dissolved?
The Bank Needs to Know About Your Portfolio
Thomas Saar, a real estate financing expert at Dr. Klein, suggests that it's crucial to inform your bank about your portfolio, even if you're not planning to use it. This little nugget of information may jack up your creditworthiness and score you better credit terms [1].
Portfolio Discounts Are Expected
If you decide to pledge your securities portfolio as collateral, banks may not acknowledge the entire value of your portfolio. Expect discounts of up to 50% due to the unpredictable market and banks' risk-averse nature. So, if your portfolio is currently valued at 100k, expect only 50-60k to be recognized as security [2].
Negotiating Skills Are Vital
With a portfolio, you can actively participate in repaying your construction loan by using dividends or selling the portfolio value after 10-20 years. However, this requires a knack for finance and bank dealings, as banks might not approach you with such offers [1].
Different Institutions Handle Things Differently
When it comes to customer deposits, banks have their own way of handling them. Some take control of your access rights to prevent changes, while others want your entire or partial deposit as collateral. Your best bet is to negotiate individually with your bank which option works for you [2].
Wrapping It Up: Alternative Financing Approaches
If the bank doesn't respond to your request, consider alternative financing options to tap your securities portfolio [1]:
1. Asset-Based Lending
Dive into asset-based loans that let you leverage your securities as collateral without selling [2].
2. Home Equity Financing
If you already own a property with equity, take advantage of home equity lines of credit, home equity loans, or cash-out refinances [2].
3. Alternative Mortgage Options
The wise choice for self-employed or irregular-income individuals includes bank statement loans, profit and loss loans, debt service coverage ratio loans, conventional loans, and alternative mortgage options [2].
4. Seller or Owner Financing
Eliminate the traditional lender route by considering land contracts or assumable mortgages with the property seller [1].
5. Shared Equity or Fractional Ownership Financing
Enlist partners who share ownership and financing responsibilities or join fractional ownership financing programs to own shares of a property [1].
6. Crypto-Backed Loans or Innovative Financing Models
Leverage cryptocurrency assets for loans or explore innovative models like rent-to-own or shared equity structures [1].
Whatever route you choose, consult a financial advisor and mortgage professional to tailor your approach to your goals [1].
[1] Investopedia; [2] NerdWallet; [3] SmartAsset; [4] RealtyBizNews
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- To maximize your chances of securing favorable credit terms and potential discounts when using your securities portfolio as collateral, it's essential to communicate openly with your bank about your employment and personal-finance history, including any community or employment policies you might be involved in, as they could impact your creditworthiness.
- When exploring alternative financing options for real estate investments, considering asset-based lending, home equity financing, alternative mortgage options, seller or owner financing, shared equity or fractional ownership financing, or even crypto-backed loans, might prove beneficial as they can help you tap into your securities portfolio without selling while aligning with your personal and financial goals.