Financing options for buying a home, renovating or helping a loved one pursue home ownership

Increased demand, low supply and rising material costs have made for a tight housing market, but low interest rates and carefully considered financing options could help you pursue home renovation and ownership goals.

 

 

Even in a tight market, if you are contemplating buying a second home, there are financing options you can consider. And although the cost of building materials has gone up, your renovation goals could also benefit from the current low-rate environment. You may also find yourself looking for ways to give first-time homebuyers in your life a leg up as they take advantage of low rates and embark on their own home ownership journey. Read on to learn about financing choices to consider.

 

Choices to purchase a second home

You could sell investments or use cash to fund the purchase of a new home, but leaving your investment strategy and cash reserves in place could have some advantages. While borrowing rates are still low, here are some choices to consider:

 

  • A Loan Management Account® (LMA® account).1 Accessing credit without selling securities may help keep your investment strategy intact, leaving your current liquidity in place for other needs. Along with the potential benefits, it is also important to understand the risks of borrowing (see “Risks and Considerations” section).
  • A home equity line of credit (HELOC). If you have significant equity in your primary residence, you can use it to help purchase a new home. And because you can access funds on-demand, a HELOC can also help pay for expenses such as furnishings.

 

Looking to renovate your own home?

Renovating your primary residence or a vacation home can often be a major project with larger expenses. While there are various ways to fund a renovation, here are two alternative options from Bank of America to consider:

Home equity line of credit (HELOC)

If you have considerable equity in a home you own, a HELOC allows you to borrow against the equity to provide you access to funds to finance a renovation project.

A HELOC can also provide you on-demand access to the cash you need, secured by your home. It acts as a revolving credit line during the draw period that can be used to make large purchases as you renovate your home.

Draw as much or as little as you need (up to your available credit limit) as renovation bills come due for permit fees, materials, fixtures and labor.

A HELOC often has a lower interest rate than some other common types of loans and can be a convenient way to access funds online, by phone, at Bank of America financial centers or with no-access-fee checks.

 

Loan Management Account® (LMA® account)

If you have a significant portfolio of eligible investments, an LMA® account allows you to borrow against the value of your pledged investments to provide you with an alternative financing solution.1

Easily access your line of credit through variable or fixed-rate advances with no set term, balance or minimum draws on variable rate advances. There is no application fee and rates are based on your overall relationship size.

An LMA account can give you on-demand access to the cash you need to renovate your home without having to sell your investments to cover the cost. Using an LMA also can help you avoid the tax consequences of selling appreciated investments and help you keep your investments on track towards other goals.

 

Help a loved one pursue their home ownership goals

A competitive market and high home valuations can be daunting — especially for first-time buyers. The Parent Power® program enables you to help an eligible family member by pledging your eligible assets for the financing of up to 100% of a primary residence.2 You don’t need to disrupt your investment strategy to help your children or other qualified family members secure a mortgage.

When combined with an eligible mortgage, Parent Power® allows you to pledge eligible securities instead of liquidating your assets to make a cash down payment on a family member’s home. You remain fully vested with your eligible assets held in a Merrill pledge account. You can continue to buy, sell or trade (with certain restrictions) and earn dividends, interest and capital appreciations on the assets. The Parent Power® program can be used with many Bank of America mortgages.

Keep in mind though that because you’re pledging securities, a default on the mortgage would mean your family member may lose their home and you will lose your securities. And, depending on your financial situation, there may be tax benefits. You should also consult your tax advisor.

 

Next steps

Your Merrill advisor can help assess your goals and choices to determine what might be a good fit for your cash flow needs, time horizon, risk tolerance and other important factors.

 

Risks and Considerations

LMA borrowing

Securities-based financing involves special risks. Clients should review their LMA Loan Agreement and related documents and disclosures carefully and consult with their own independent tax and legal advisors.

Some risks to consider include:

  • A decline in the value of collateral assets may require the client to provide additional funds or securities to avoid a collateral maintenance call. Clients can lose more funds than are held in the collateral account. The LMA account is a full recourse loan and the account holder will be liable for any deficiency.
  • Bank of America ("The Bank") can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting the account holder.Bank of America ("The Bank") can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting the account holder.
  • The account holder is not entitled to choose which securities in the collateral account are liquidated or sold.
  • The Bank can change its collateral maintenance requirement at any time without notice to clients.
  • Clients are not entitled to an extension of time to satisfy the Bank’s collateral maintenance requirement.
  • There may be adverse tax or other consequences to clients if securities are sold or otherwise liquidated by the Bank.
  • The LMA account is an uncommitted facility, although loans to individuals and trusts may be committed in an amount not to exceed$100,000. The Bank may demand full or partial repayment at any time, and any commitment may be immediately terminated.
  • Some restrictions on the use of an LMA account proceeds may apply under the terms of loan documents and applicable laws and regulations. The LMA account cannot be used to purchase marketable securities unless specifically agreed by the Bank.

 

HELOC

  • Interest rate risk — As a variable-rate loan, interest rates and payments can change. Clients should carefully consider these risks before borrowing.
  • HELOC funds may not be used to purchase, carry or trade securities or repay debt incurred to purchase, carry or trade securities.
  • To obtain a HELOC from Bank of America, a security interest will be taken on the borrower’s primary residence.

 

1 The Loan Management Account (LMA account) is a demand line of credit provided by Bank of America, N.A., Member FDIC. Equal Opportunity Lender. The LMA account requires a brokerage account at Merrill Lynch, Pierce, Fenner & Smith Incorporated and sufficient eligible collateral to support a minimum credit facility size of $100,000. All securities are subject to credit approval and Bank of America, N.A. may change its collateral maintenance requirements at any time. Securities-based financing involves special risks and is not for everyone. When considering a securities-based loan, consideration should be given to individual requirements, portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. The securities or other assets in any collateral account may be sold to meet a collateral call without notice to the client, the client is not entitled to an extension of time on the collateral call and the client is not entitled to choose which securities or other assets will be sold. The client can lose more funds than deposited in such collateral account. The LMA account is uncommitted and Bank of America, N.A. may demand full repayment at any time. A complete description of the loan terms can be found within the LMA account agreement. Clients should consult their own independent tax and legal advisors. Some restrictions may apply to purpose loans and not all managed accounts are eligible as collateral. All applications for LMA accounts are subject to approval by Bank of America, N.A.

 

2 Mortgage 100® and Parent Power® programs require the pledge of eligible diverse securities owned by an individual and maintained in a Merrill Lynch, Pierce, Fenner & Smith Incorporated (Member, Securities Investor Protection Corporation [SIPC]) brokerage account. These programs may not be suitable for everyone, and a default on your mortgage could result in the loss of both your home and the securities pledged. Should the value of the securities pledged as collateral decrease below a certain level (as specified within the loan documents), the deposit of additional assets and/or liquidation of assets may be required. Merrill may liquidate some or all of the securities in the account without contacting you. You are not entitled to an extension of time to meet a collateral call or choose which securities in your account are sold to meet the collateral call. Liquidation may result in adverse tax consequences. Mortgage interest may not be deductible if tax-exempt obligations are pledged as additional collateral, consult your tax advisor. Trading within the brokerage account for the 100% financing programs is subject to restrictions.

 

Credit facilities are provided by Bank of America, N.A., Member FDIC, its subsidiaries or other bank subsidiaries of BofA Corp., each an Equal Opportunity Lender. All loans and collateral are subject to credit approval and may require the filing of financing statements or other lien notices in public records. Asset-based financing involves special risks and is not for everyone. When considering an asset-based loan, consideration should be given to individual requirements, asset portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. A complete description of the loan terms will be found in the individual credit facility documentation and agreements. Clients should consult with their own independent tax and legal advisors. Securities-based financing involves certain risks. We can help you take into account your individual requirements, portfolio composition and risk tolerance, as well as capital gains taxes, portfolio performance expectations and investment time horizon.

 

Securities-based financing may not be suitable for all clients. The loan is secured by assets in your Merrill account(s). Market fluctuations may result in a collateral call, and you may need to deposit additional cash and/or securities to meet the call or risk liquidation of your securities at an unfavorable price. In some cases, the securities pledged as collateral may be liquidated. Among other things, this may have negative tax implications for you, especially if the liquidation price of the securities liquidated exceeds your basis. The firm can sell your assets to meet a collateral call without notifying you, and you are not entitled to choose which securities in the account will be sold. You are not entitled to an extension of time to meet a collateral call.

 

Banking, mortgage and home equity products offered by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Equal Housing Lender. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.

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Investing involves risk. There is always the potential of losing money when you invest in securities.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary.  

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