Discovering Relocation Home Loans

Workforce, April, 2001 by Sarah Fister Gale

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.