Real estate agents are witnessing an interesting trend among millennial clients as a growing number are using their parents’ home equity lines to buy homes of their own homes.
According to a CNBC report, parents refinance their home to fund the full cost of their son or daughter’s desired home. According to Kas Divband, a Redfin sales agent, this move enables the millennial child to compete in the market as a desirable all-cash buyer in an area where bidding wars are common. Then, when the purchase closes, the child refinances the new home and pays the parents back.
“These parents have refinanced, cashed out their homes for their millennial children who can then make a cash offer. They can stand out and make a cash offer in a competitive market.”
Since sellers tend to prefer cash transactions which are not contingent on financing, this strategy can give millennials a leg up in the housing market. Divband had a client selling a condo who had a cash offer that asked for a 30-day settlement. They planned to get a loan, but if it didn’t work they were going to pay cash with proceeds from their parents’ equity.
From an economic and investment standpoint, it may make sense for all parties, according to Divband.
“Some of these parents are looking to the future and considering downsizing. When the children are ready to look for something bigger, they will have a smaller home ready to move into.”
In a highly competitive real estate market, agents know that it is important in a situation where there are multiple bids for a house that a client be able to stand out. Divband says that since sellers tend to prefer cash transactions which are not contingent on financing, this strategy can give millennials a leg up in the housing market.
“Millennials are driving the market. This is a different way to make your offer stand out by reducing the number of contingencies. It helps make the offer stand out.”
This move may not be tailored to everyone. Ultimately, the parents and children must have enough equity on their homes to make refinancing worthwhile.