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

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:

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.