 
In our last article we spoke about getting into that waterfront estate quickly and with modest costs by utilizing a Piggy-Back Home Equity Line of Credit in conjunction with a first mortgage. But what if this dream home is intended for a second or vacation home? As such, you will not have proceeds coming from the sale of another residence. The challenge is to make this dream home a reality with limited liquid funds. Let’s look at your current asset portfolio. Under prevailing market conditions you may not want to sell stock or bond positions; however you can still utilize these assets in order to get into your new home. There is a wonderful mortgage program, pledged assets, which suits this scenario perfectly. It is offered through a portfolio lender and allows for a client to borrow up to 100% of the purchase price, with a maximum loan amount of 2,000,000. The lender will accept pledged assets from your securities portfolio as collateral for your purchase. The key here is there is no requirement to sell these positions, thus enabling you to continue to earn interest or provide capital appreciation by staying invested in the market. You also avoid having to pay any capital gains taxes that are triggered by liquidation. Please take note that the securities in your portfolio, as well as the custodian, such as a bank or brokerage firm, will be evaluated by the lender. The lender will allow you to keep assets at your brokerage firm or bank providing that it will agree to serve as a custodian and sign a pledge agreement, a formal document assigning rights of your assets to the lender. You may be wondering how the lender determines the value of the assets. It is not dollar for dollar. Typically, the market value of large capitalized stocks (e.g. S & P 500) are discounted by an additional 50% to provide protection against possible future adverse market situations such as a steep decline in stock prices. However, Treasury securities, municipal bonds and other government agency bonds that have less risk associated with them are discounted less, usually only 10-20%. The lender will also accept passbooks, Certificates of Deposit and money market accounts as long as the bank or broker agrees to an assignment. Assets that cannot be accepted for the pledged feature include: IRA’s, Keogh, annuities, 401K/pension plan, options, margined and foreign securities. The only funds you need to have liquid would be for your closing costs. Request a good faith estimate from your mortgage counselor in order to determine these fees. This type of mortgage strategy has gained a tremendous amount of popularity over the past year due to the market environment. The pledged asset program enables you to acquire real estate while preserving your securities positions. Back |
