Relocating an Employee Within the United States

Company Assistance

The company can assist the employee in several ways during the home-buying process. Let’s take a look at three:

• pre-purchase appraisals
• mortgage assistance
• closing cost assistance

Pre-purchase appraisal

As part of a relocation program, the company helps the employee by educating and providing resources for an evaluation or appraisal of the property that the employee is interested in purchasing.

There are a number of ways to go about this:

• The broker can provide a comparison of the prospective property to other properties recently sold in the area.
• A home inspector can inspect the residence and then suggest changes and improvements.
• An appraiser can provide a full appraisal of the prospective property.

If the company provides pre-purchase appraisals, the employee should be informed that any offer made is contingent on the results of the inspection or appraisal.

Mortgage assistance

The changes in mortgage interest rates, housing industry, and labor markets may require companies to help transferees not only in obtaining mortgages, but in making them affordable. You can find up-to-date mortgage rate information by going to bankrate.com/.

We’ll look at six types of mortgage assistance a company may offer:

• high-housing-cost assistance
• buy downs
• corporate second loans
• high-interest-rate assistance
• closing-cost assistance

High-housing-cost assistance. Employees that are transferred to a high-cost area may find that they can't afford to buy a house equivalent to the current one they're selling.

Increasing base salaries, a fixed cost to the company, is generally not the solution. So, companies have developed buy downs to help their employees:

Buy downs. These are done to lower the interest rate by putting down money up front. A buy down can be done on a permanent or temporary basis.

• Permanent buy down. The company pays points at closing to reduce the interest rate.

  For instance…

  The company may pay 5 points (or $5,000) to lower the interest rate from 4.75% to 3.5%.

• Temporary buy down. The interest rate is lowered substantially in the first years, and then rises to the original rate after a specified period of time.

  For instance…

  The interest rate would be 4% for the first year, 5% for the next two years, and 6% for the fourth and fifth years. After that, the rate would be 7%.

Q: Which buy down is better — permanent or temporary?

A: A temporary buy down is superior in most cases.

Using the temporary alternative helps the employee afford more. The gradual increase allows the employee to get used to the increased costs of the area gradually. Finally, if the employee is likely to be transferred again (within five years in this example), it’s better to have the temporary reduction.

Corporate second loans. Although rarely used today, a corporate second loan may be the only alternative in extreme cases.

This loan is typically an interest-free loan for some time period, after which interest is charged, and is followed by a balloon payment of the principal. Another option is a shared appreciation loan, in which the company is repaid upon the sale of the home.

High-interest-rate assistance. Depending on prevailing mortgage interest rates, companies help transferees cope with high interest rates for their new mortgage loans. That’s when Mortgage Interest Differential Assistance (MIDA) can be integrated into the relocation program.

MIDA offers temporary subsidization of the employee's mortgage payment for a limited period of time (3 to 5 years). The company makes up the difference in the payment from the old mortgage payment to the new mortgage.

The company's payments may be made as a:

• lump sum
• constant payment over 3 years
• OR
• graduated payment that starts high and ends low