A Q&A with Better Mortgage
So, you’re in the market for a new home. And you’re at the stage where you’re weighing your options between traditional real estate and using a technology-driven real estate company like Knock. At Knock, we’re revolutionizing the buying and selling process with our Home Trade-In. Instead of waiting impatiently for your old home to sell so you can buy a new one – or waiting to get started entirely – we’ve flipped the switch; you move into your new home first (that we buy on your behalf) so you can skip the hassle of home preparations and showings, and months of uncertainty. Then, we list your old house on the open market to get you the most offers and the best price. It’s truly the easier way to buy and sell, and the best way to get you into your dream home faster.
But, how does financing work at each step in the process? Throughout your journey, we partner with lenders who help get you to the finish line as far as financing goes. Mortgage financing on its own is a pretty complex concept to wrap your head around. Plus, the Home Trade-In model is most likely new to you, and there are multiple financing pieces to understand, which is why we’ve teamed up again with our friends at Better Mortgage to break down the Knock process, the finances behind it, and how mortgage providers are involved at each phase.
Read on for a step-by-step guide on what you need to know about how finances come to play in the Knock Home Trade-In process.
The first step in the Knock Home Trade-In program is, of course, getting in touch with us! Once you’re confident you want to make a move, you can fill out our form at knock.com. From there, a Knock team member will reach out to you to further discuss your unique situation and explain how we can help. Let’s talk financing. Below, you’ll find some common questions (and their answers from Better) about how finance comes into play at this stage.
K: What should people consider when it comes to financing with the Home Trade-In?
B: It makes sense to do the Trade-In based off the equity in your current home. Since Better will look at 80% of the estimated sales price when underwriting the VPAL (verified preapproval letter), it’s important to have wiggle room.
You also typically need a credit score of at least 620, debt to income ratio of less than 50% (but preferably 45%), and enough assets to cover the down payment and closing costs.
K: When does the lender get involved?
B: As soon as you (the borrower) signs the contract with Knock, Better gets involved to get you the VPAL for the next step of the transaction.
K: What is the initial interaction/conversation with the lender after the hand-off?
B: The mortgage lender will look over your file with you and make sure everything is correct. We’ll discuss how we fit into Knock’s Trade-In process.
In order to get the ball rolling to make your dream home a reality, you’ll need to get pre-approved and fully underwritten with a lender. This step allows you to find out how much new home you can afford so you can get to the fun part, shopping for your new place! Although Knock partners with lenders, like Better, to help expedite the process, you can choose to work with any lender you prefer.
K: What should be considered when choosing a lender to work with?
B: Some key points to consider include the loan estimate, closing costs, and rates. You also can’t forget the value of transparency and a great customer experience.
K: What kind of rates and incentives do mortgage providers offer?
B: It varies from lender to lender.
K: What happens during the pre-approval process?
B: You’re in luck; we already have a blog for that! In our previous collaboration, we discussed everything about the pre-approval process. Check it out here.
You’ve been pre-approved, you know what your budget is, and now you can find your new house! Knock will help you search for and purchase your new home so you can move in as soon as possible.
K: What is the lender’s role in the new home purchase?
B: The lender will provide consistent communication throughout the buying process with everyone including the borrower, the Knock licensed agent, and your Transaction Manager.
The lender will also perform a third party appraisal of your new home. And they’ll do what they do best, lending! This means they’ll be working on underwriting for your mortgage approval.
K: What will the closing costs and fees associated with the new home look like?
B: The Knock fees and closing costs vary lender to lender and are unique to each situation. You can speak to your Knock representative to discuss your costs.
You’re already comfortable in your new place, and now it’s time to sell the old one. Knock will advance you up to $10,000 for you to pay for necessary home preparations to get the house list-ready (which we’ll then settle at closing). We also make recommendations on what changes will give you the most ROI on your home sale, and can manage the entire process for you.
Once the house looks its best, we’ll list it on the open market to get you as many offers as possible from excited buyers. The lender’s role is minimal at this stage, but they’ll still be there to provide communication when necessary.
K: What is the lender’s role in the sale of the old home?
B: The lender is not as involved on the sale of the old home, but will still provide communication throughout the process. All they’ll need is a closing disclosure once the house sells so they can close on the new property.
After your old house is sold, you buy the new home from Knock. At this point, you begin to pay the mortgage on your new home.
K: What documentation/process is involved when the customer buys the new home back from Knock?
B: Check out our blog on documentation. This is the most extensive answer you’ll get!
K: What is the final step with the lender?
B: Closing is the final step, which is the signing of documents with the title company or lawyer, depending on your local rules and regulations.
K: What does the customer owe to Knock at this time?
B: We’ll actually take this one ourselves! At final closing, the Knock customer pays a 6% commission on the sale of their old home, half of which goes to the agent representing the buyer of your home, which is typical to a traditional transaction. Knock also settles with with the customer for any costs that Knock covered on their behalf during the process. These can include the up-to-$10,000 Knock advances for repairs mentioned earlier, and costs Knock incurred on the new home during the time it took the old one to sell.
The Knock Home Trade-In program is a great solution for anyone looking to buy a new home at the same time they’re selling an existing one without the hassle that typically comes along with traditional real estate. The model provides the convenience and certainty that the traditional route simply doesn’t. Plus, for borrowers with a lack of liquid assets but a lot of equity in their home, it’s a good option to explore when upsizing or downsizing. Throughout the process, you’ll be working with a lender, like Better, to get your finances aligned with the Trade-In. To get started, go to www.knock.com and see how we can help you achieve the home of your dreams!