Much of the mortgage advice out there is geared toward first-time homebuyers, but more experienced borrowers face their own obstacles – and often need advice from a savvy loan officer to help them achieve their goals.
When you think of a move-up buyer, you may picture a confident borrower who will net enough from the sale of their existing home to put down 20% or more on the house of their choice – simple! But the truth is, despite going through the process one or more times in the past, these borrowers may not understand all their options, and may have competing goals or challenges that you can help them solve. (And if you do, you can bet they’ll talk you up to anyone who’s looking for a loan officer referral.)
That’s why it’s in your best interest to have a few creative strategies for move-up buyers in your toolkit to share with borrowers and real estate agents. As a private mortgage insurer, we here at MGIC have seen how MI can fill in gaps, open new doors, and save deals. Here are some strategies we’ve heard from lenders who use MI with their move-up buyers.
The “more house” strategy (the classic!)
Although many move-up buyers have enough equity in their existing homes to put 20% down on the next one, it’s by no means a given. Depending on the size of their first mortgage and how long they spent in the home, they just may not have the equity they need to put down 20%. Or they may be looking to size up and/or move to a more expensive area for their next house. Just like it does for first-time buyers, MI can help these move-up buyers enter the market or expand their options.
"Just like it does for first-time buyers, MI can help move-up buyers enter the market or expand their options."
The “fix it up right now” strategy
Borrowers who do have enough for a 20% down payment may still run into circumstances where putting less down may be a better option for them. Your move-up buyers may find a house with a great footprint in a neighborhood they like – but the outdoor space is dismal, or the bathroom is hopelessly dated, or the flooring is gouged and scuffed. By putting down 10 or 15% and using MI, your borrowers could retain some funds to make immediate improvements.
While borrowers considering a fixer-upper could certainly go with a GSE renovation loan program (also eligible for MI!) and navigate those program requirements and guidelines, they may find it easier to simply put less down. This is especially true for borrowers who are contemplating improvements beyond a new coat of paint, but that don’t rise to the level of major renovations.
The “timing is everything” strategy
Buying a new home and selling the old one at the same time is a delicate dance. Most buyers would prefer not to be stuck paying 2 mortgages for a few months or more – but including a home sale contingency in their offer to purchase the new home may be a competitive disadvantage. They may find the perfect home early in their search for a new home and don’t want to miss out, despite not having any nibbles on their current home.
In these cases, the equity they’ve built is moot – but as long as they have enough saved for a modest down payment on the move-up home and can afford both monthly mortgage payments, MI can help them buy that new house without it being dependent on a concurrent sale of the old one.
One couple I know employed this strategy because they wanted to spruce up their old house before listing it and found it easier to do that while living in their new house. It was a very frugal 6 months before they sold their first home (it was a slow market for starter homes in their area at that time) – but with the proceeds of that sale, they were able to meet some other financial goals, including beefing up their retirement accounts. Which brings me to this next strategy!
The “retirement boost” strategy
Many of us got the same “invest in your retirement early” advice in our 20s – and I’m sure some of us took it, right? But 26% of GenXers aren’t even saving for retirement, and only a third of GenXers rate their retirement savings as “on track.”
Move-up buyers in their 40s or 50s may be looking for ways to catch up to retirement saving milestones. By putting down less and using MI, your borrowers could retain some funds to make investments in an IRA or other retirement account – giving them peace of mind that they’re better prepared for the future.
Since every borrower is unique, there are many variations on these themes. For example, your buyers may want to retain some funds not for retirement, but to finance college or to furnish the new place. If you ask open questions to get a sense of your buyers’ goals, priorities and worries, you may find that one of these strategies may be just what they need to get to the closing table.