Discovering Relocation Home Loans

Workforce, April, 2001 by Sarah Fister Gale

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.