- - Thursday, July 7, 2011

Q. A year ago, my wife and I signed a contract to purchase a new home. The contract was contingent upon the sale of our current residence. Needless to say, our house never sold.

We are busting out of this house but realize we still cannot sell it at a price that would make us happy. Our plan is to rent our existing home until the market improves and obtain 100 percent financing on a new home.

We are both federal civil servants and have great income but very little liquid savings, with the exception of about $440,000 in our government retirement accounts. We also have about $150,000 in equity in our current residence, which we can’t liquidate because we can’t sell.

Our loan officer told us we should give up because there are no 100 percent financing programs available anymore. We have great credit, income and job stability. Isn’t there a lender that would want our business? We are hoping to buy in the million-dollar range.

A. While your loan officer is correct that 100 percent loans are no longer available, it appears to me you still might be able to accomplish your objective. It just takes a little bit of planning. Here’s a suggestion.

To purchase a million-dollar home, the only competitive products available that I know of are portfolio ARMs. These adjustable-rate mortgages typically carry a low fixed rate for the first five or seven years. Most require a minimum of a 20 percent down payment, which would mean you would have to come up with $200,000, plus closing costs, if you buy a million-dollar home.

First, check around for a home-equity loan to be secured against your current residence. Because you have $150,000 in equity, you might be able to obtain a $100,000 second trust. That would raise half of the necessary down payment.

Second, check with your employers and accountant regarding the possibility of liquidating some of your retirement funds. You may or may not want to do that, but it probably will be necessary if you want to proceed with buying a new home without selling your existing one.

Also check into the idea of borrowing against your retirement account, another common way for folks to raise money for a down payment. You should be able to obtain a loan in the amount of up to 50 percent of the retirement value, which would raise an additional $220,000.

Depending upon the details and terms of those loans, you can make a decision as to how much money you would like to borrow against those sources as a down payment.

Remember, the ultimate decision as to whether such a plan is truly affordable is up to you. Lenders allow borrowed funds as a down payment on a home as long as the funds are secured against other assets, such as a house or retirement account. A lender will count all monthly obligations to repay those loans against you when calculating the qualifying ratios.

I certainly don’t like to endorse overborrowing, but your loan officer shouldn’t have told you to give up. As long as your income and credit history support your monthly obligations under a scenario such as this one, you should pursue the details and then make a decision as to what is best.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.

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