There are plenty of reasons why your clients may be skittish right now. If any of them have checked the headlines lately, the bleak landscape is enough to send potential buyers running for the hills. But where buyers see worrying trends, we see opportunity. The opportunity to strengthen your clients’ offer using some creative financing methods provided exclusively by Knock.
Here are four clever ways you can use the Knock Bridge Loan™ to put your clients in the best possible buying position.
Use existing equity to buy down their interest rate
Across the internet, real estate news headlines warn buyers about rising interest rates. While the rates are trending upwards, you can fix that. Proactively attack the rising interest rates with a buydown. If you’re not already familiar, a buydown is a way to get a lower interest rate by paying discount points at closing.
With the Knock Bridge Loan™, your clients can leverage the equity in the house they plan to see to lower the mortgage rate on their dream home, and keep those monthly payments manageable. Of course, the ability to do so depends entirely on your client’s qualifications. If they’re in a good financial position, your clients could pay up to two points, buy down the rate, and lower their monthly mortgage payment.
Though it depends on their unique situation, to buy down the interest rate requires a borrower to prepay interest in the form of points or a percentage of the loan amount. A point equals 1% of the loan amount. A general rule of thumb: each point will reduce an interest rate by .25%.
Let's put some numbers behind that.
Say your client applies for a $350,000 30-year fixed mortgage, and their Knock Loan Advisor quotes them a rate of 5.5% with a principal and interest payment of $1,987.26/month.
By paying $3,500, or one point, your client could lower their rate to 5.25%, and their monthly payment to $1,932.77/month.
But does paying $3,500 for $54.54 in monthly savings make sense? To answer that, you have to look at the break-even point.
In this case, because your client paid $3,500 to get their lower rate, it would take a little over five years for them to breakeven on that upfront investment based on the $54.54 monthly savings. So If your client is moving into their forever home, or at least plans to stay in the new house for more than five years, then it could work in their favor!
If your clients have any questions on how a buydown might affect their rate, their Loan Advisor would be happy to answer them!
Pay off debt for a better debt-to-income ratio
There are probably a handful of names in your rolodex who shied away from buying a home because they needed to sell their house first to pay off some debts. With the Knock Bridge Loan™, there’s no need to wait.
Whether it’s credit card debt, outstanding student loans or car payments, Knock can help get your clients in a stronger financial position. Leveraging the equity in their current home, your clients can pay down up to $35,000 in debt using funds from their next-generation bridge loan. This way they can get qualified to buy and close on their new home before even listing their old one!
Use Knock for new construction
With inventory near record lows—but trending in the right direction—maybe your client can’t find what they’re looking for. So why not build their dream home? Could be that the timing isn't right, and if they sold their house, they’d have nowhere to go.
But if your clients use the Knock Bridge Loan™ for their new construction, there’s no more uncertainty. No more working around builder’s timelines. No more short term rentals, or double moves. Your clients won’t have to worry about listing and selling their old house until their dream home is move-in ready!
Something to note. If your client chooses to go with a new construction Knock Bridge Loan™, they must purchase the finished home with either a conventional or jumbo loan, not a construction loan. Additionally, clients would be responsible for paying all builder deposits and options out of pocket.
Keep clients informed and ready to go
Above all else, keep your clients in the loop. Chances are they don’t have their finger on the pulse of market news like you do. And if they’re not “in the know,” your clients might be backing away from the market when all they’re hearing is about rising interest rates and sky-high list prices. While it may look like the market is crashing, experts are predicting a softer landing.
Today’s environment calls for regular engagement with your client’s lender, too. Their purchasing power may be at one level in April, but that could be an entirely different story in May! If you see your client’s pre-qualification or pre-approval letter is more than 30 days old, get a new one before submitting your offer—because the listing agent will definitely ask for one!
One element working in your client’s favor is that homes are receiving fewer offers. As the interest rates rise, the number of offers declines. And that means less competition. With the Knock Bridge Loan™ removing the sales contingency from your client’s offer, their offer can beat the rest of the pack. On top of that, inventory is seemingly course correcting, with April showing the lowest year-over-year decline in inventory. Get your clients ready for when that perfect house hits the market, get them started with Knock today!