As a rule, banks will not give mortgages unless they can verify the value of the home being purchased. This process is called “getting comps.” Banks look for recent sales in the area and compare (comp) them to the one being purchased.
A serious problem has arisen in today’s real estate market in that it is often difficult or even impossible for the bank to find comparable houses because there just aren’t that many, especially high value, houses being sold.
We know of a family trying to buy a $1,000,000 home with a conventional 20% down mortgage. Because there haven’t been any recent sales comparable to this purchase, the banks refuse to make the loan.
One great way to overcome this “comp” problem is to not seek a mortgage at all. Instead, ask your securities brokerage firm for a credit line.
The securities firm will open a line of credit secured by the stocks and bonds in your brokerage account and you receive a check book. This credit line can be used to buy a house,a boat or anything else, except securities. If you buy a house there are no comps required. No prior notification needs to be given to the securities firm before you write a check.
The interest rate on your credit line will usually be even lower than mortgage rates. The interet rate is often keyed to U.S. Treasuries… right now the rate is about 2.5%. When you buy a house you simply write acheck.
This strategy is especially useful when buying a house before you sell the old one. We know two couples that found their “dream house” and did not want to risk losing it to another buyer. So, they used their credit lines to buy the new homes and paid off the loans when they sold their current residence.
There are lots of details but none that are onerous. One disadvantage is that the interest is not tax deductible… but, if that is important to you, you can take your time to finance the house after you own it.
Obviously, this doesn’t work for everyone, for one thing, you need to have a securities account, but for those that fit the profile, this could be terrific way to go.