No Cash Down? No Problem for Investors
Homeownership has become increasingly challenging for many buyers as prices continue to climb. Some affluent investors are finding creative ways to bypass the hefty upfront costs by using their appreciated investments as collateral for mortgages.
A pledged-asset mortgage allows securities in a taxable account, like stocks, bonds, and mutual funds, to serve as additional collateral for a property loan. This approach lets investors keep their money invested while still qualifying for a mortgage without selling assets and triggering capital gains taxes.
Unlike a line of credit, a pledged-asset mortgage is still a loan against the property itself, with investments acting as extra security. Borrowers can use this to completely eliminate a cash down payment or combine it with a partial down payment depending on their strategy.
This setup can be especially useful for investors whose liquidity is tied up in other ventures, such as selling a business or waiting for restricted stock to vest. It can also help parents support children in purchasing a home without gifting large sums of money directly.
There are risks to consider. If the market drops and the value of pledged securities falls below a required threshold, a lender may require additional collateral. Failing to meet that requirement could result in the lender claiming some of the pledged assets, though mortgage payments would still need to be maintained to avoid default. Lenders usually build in a buffer to prevent immediate margin calls.
Not all assets qualify. Only taxable accounts are eligible, so retirement funds like 401(k)s cannot be pledged. Highly concentrated positions or certain private investments may also reduce the lending value.
If you are considering buying a home and want to explore creative ways to make it happen, reach out! I can guide you through the options, evaluate what works best for your situation, and help you make smart moves in today’s market.
