Michigan bad credit home loan

Puffing these programs in place before employees need them saves time, money, and misery.

EMPLOYEE RELOCATION CAN BE A painful and overwhelming process for everyone, especially when there are mortgages involved. Securing a home loan, selling a house, and finding another one--in a new community within a short time and on a limited budget--can make even the most ambitious employee wonder why he or she ever agreed to move in the first place.

To ease the process and the financial burden, most companies will agree to pay closing costs. But the turnaround on getting the money to employees before the closing takes place can leave frantic home buyers scrambling at the last minute to secure a check or back it up from their own accounts. Clever HR administrators, however, can circumvent the chaos. They can channel the employees' home loans through a national bank offering relocation loan programs.

Benefits of Special Loans

Relocation loan programs were designed specifically for companies that move many employees and need a quick and painless process for getting them settled in their new homes. Like typical home loans, the programs provide money to buy houses based on employees' incomes. They also include additional perks that make closing on a house easier and, in some cases, will help the employee secure more money for a bigger house.

Most national banks offer the same benefits in their programs, says Bob Levenstien, executive vice president of Forward Mobility, a Bernardsville, New Jersey-based relocation firm for small and mid-sized companies. When shopping around, you can expect to find the following:

1. Direct billing. The gem of the relocation loan is direct billing. This means that the bank will advance all the money for the closing costs on a house that the company is willing to cover. This usually includes title search costs, title insurance, inspection, appraisal, and loan application fees, which typically come to 2 or 3 percent of the purchase price of the home. The bank then bills the company for that cost. "This is the single most important feature of a relocation loan, because it means the buyer only has to bring the down payment to the closing table," says Steve Stein, executive vice president of national sales at CitiMortgage in St. Louis. It also eliminates the last-minute scrambling by the employee for a check from the corporation to cover these costs.

2. Credit for trailing spouses. Even if the employee's spouse has not yet gotten a new job, the lender will include the spouse's full income from the old job as part of the approved home loan.

3. Waiver of the application fee. "This is a marketing tool for banks to lure clients," Levenstien says. It cuts the closing fees by about $200.

4. Quick pre-approval. When home shopping in the new area, employees can call the bank and within hours have an idea of the loan amount they will qualify for. In some cases, they can get quick pre-approval before they start shopping.

5. Preferred rates. Most banks advertise that they will give a percentage rate that is lower than the industry standard through their relocation loan programs, Levenstien says. It's typically 1/8 to 1/2 percentage points, he says, but notes that those rates often can be secured through other loan programs.

6. Fast paperwork. "The buyer doesn't have to spend as much time talking to the lender, documents are transferred more quickly, and there is less red tape," says Leo Foley, president of Horizon Relocation, a firm in Naperville, Illinois.

7. Consulting service on choosing the right kind of mortgage. Many lenders will help the employee select the best mortgage based on the anticipated length of the stay in the new city and on the person's targeted career path, Stein says.

Relocators Rarely Default

Why would banks bother to provide better interest rates and quicker approval to relocating employees? They're a better risk than the average home buyer, Foley says. "The relocating customer is seen in a better light than the typical buyer who wants to upgrade, so the loan package has more hells and whistles." Employees who relocate are typically getting a raise, their employers obviously see them as a good risk, and they've got job security and a high salary. "The employers are willing to invest in the employee, so banks are willing to invest in them as well' he says.

Statistics show that the default rate among relocating customers is virtually zero, Stein adds. A percentage of the interest rate on every loan is a credit expense for defaults, and in the case of people who are relocating, that percentage is zero.

Picking the Right Program

Since most major lending institutions offer relocation loan programs, choosing from among them isn't difficult. The place to start is at your own bank if it's national, Levenstien says. You have a relationship with the bank and can easily add the relocation package to your existing services. Larger companies will often sign on with several large loan institutions but give employees the option of choosing among them, he adds. Stein warns people not to spread themselves too thin. If you use four or five or more lenders, no one institution has an advantage with your employee population. This can be a disincentive for the lenders to give the best deal to transferees.

Foley advises HR managers to choose a relocation loan program on the basis of customer service. "It's a very competitive industry," he says. "If you are only relocating one or two employees a year, they might not get very excited about your business." He encourages his clients to go to the bank that returns phone calls, that is willing to streamline the process, and that will give them a specific account rep who will handle every part of the relocation process for employees from start to finish.

"Some banks have great programs but no single rep for all national moves," he says. This means you have to deal with a different person in every city and there is less consistency in the service provided.

Stein suggests exploring the additional products that lenders are willing to provide to those who are relocating and to other employees as a result of the relationship, including home-owner insurance, credit cards, and low-interest-rate mortgage programs for non-relocating employees.

Regardless of which provider you use, secure the relationship and the loan program before you start relocating people. "When people are ready to relocate, they are in hurry-up mode," Foley says. "It takes time to build a relationship with a lender."

Make the program optional for relocators. "A mortgage is personal," Levenstien says. "Some people don't want to share that with their employers."

Cheryl Sawicki-Ritchie, HR associate for Ford Motor Company in Dearborn, Michigan, says, "we offer our employees relocation loan services, but we don't promote them or insist they use them." If Ford employees opt not to use the program, they get reimbursed for closing costs after they purchase their homes. But Sawicki-Ritchie thinks the loan program is a great idea. "People don't realize how expensive closing costs are."

A Costly Loophole

When a company relocates an employee, not only does it typically pick up closing costs on the purchase of the new home, but it also will pay realtor fees and extra closing costs on the sale of the old home. That comes to about 7 percent of the home sale price. So, if an employee sells a $200,000 home, the company will pay $14,000, most of which. goes to the real estate agent.

The IRS considers that $14,000 to be additional income and will tax the employee for it at the end of the year, Levenstien says. To eliminate this tax burden to the employee, most companies will make additional payments to the IRS out of their own pockets through withholdings in the employee's name.

"It's an unnecessary cost," Levenstien says. "Companies waste a tremendous amount of money on relocation." The solution, he says, is to sell the house to a relocation firm. Most relocation companies provide home-sale programs to people who are relocating so that the employee doesn't realize any additional income, and the company isn't stuck with the tax costs.

In this case, instead of selling the home directly to a buyer, the employee sells it to the relocation firm. This allows the seller to avoid the realtor fee and extra closing costs. The firm then sells the house to the buyer and pays the real estate agent and additional costs, which it bills back to the employee 's company. Because the employee officially realizes no income from the sale of the house through funds provided by the company for these fees, the employee can't be taxed for it.

Relocation firms typically charge corporations $1,000 to $2,500 for this service, Levenstien says. "Compare that to the average tax cost to companies of $7,500 to $15,000, depending on the cost of the house, and it's not a bad deal."

Sarah Fister Gale is freelance writer based in Minneapolis.