Can You Add Remodel Costs to Your Mortgage?

One homebuyer niche I know extremely well is 10% down payment jumbo mortgage financing.  We have a good number of prospective homeowners in California, especially here in the San Francisco Bay Area, who earn strong income, who have an excellent credit profile but who just do not yet have the full 20% down payment saved for home prices that are, compared to the rest of the country, very high.  These buyers have certainly not failed and they are not out of luck either.  Once they understand just how competitive an 80/10/10 or other 10% down solution can be, they are often back out on the market in no time, and with renewed optimism.

It is here that they will sometimes find their next challenge, though it is not one that is limited to just a 10% down payment structure.  Several of these buyers will come across a property that will need immediate renovation, remodeling or repair — assuming they are able to have their offer accepted.  Their next question to me will be “Can you add the cost of remodeling or renovation into the mortgage?”  The answer involves several concepts so let’s address them one by one.

Lenders use the lesser of the appraised value or the purchase price to determine loan-to-value (LTV).

If we take our “cosmetic fixer” and have an appraiser give it the ol’ once over, will the appraised value match or exceed the price the buyer is paying for the home?  If the answer is “yes,” we don’t have any issue, but if the answer is “no,” we, as the lender, are going to use the smaller number to determine the loan-to-value (LTV).  Let’s say the buyer is in contract to buy the home for $1MM.  The buyer is financing 90% of that price, or $900,000. Now let’s say the property appraises for $950K.  Again, we can finance 90% of the lesser amount so in this case that’s $855,000.  Remember that if the buyer was planning to “put down” $100K in the original example, and if the contract price does not change, the buyer can ONLY finance $855K but is still buying at $1MM.  This now implies a down payment of $145K. More on this next…

You cannot finance more than your loan program’s LTV threshold.

In our example just above, we are forced to increase the down payment because we would otherwise have an LTV (or “combined loan-to-value”) of more than 90% and our program guidelines may not allow for that.  I’m not saying that no loan program can exceed that threshold, just that our buyers were presuming their financing would meet a 90% limit.  When the appraised value comes in lower than the purchase price AND an LTV threshold is crossed, like at 20% down or 10% down, the buyer’s financing will need to be adjusted.  Sellers often recognize this and may be concerned about accepting an offer if they feel a low appraisal would tank the buyer’s loan approval.  This is the logic behind a 30% down payment appearing more attractive than a 20% down payment, for example.  If a buyer puts down 30% and the appraisal comes in low, chances are that buyer can still keep the existing terms of his/her loan (maybe the LTV goes to 72% or 73% — but that doesn’t blow anything up).  On the other hand, if a buyer is getting a loan with 20% down and the property doesn’t appraise, now that buyer either needs to bridge the difference in cash, get a small second mortgage (if permissible by the first mortgage guidelines) or take PMI (if available).  You can see why this might tip the seller’s scales in favor of larger down payment offers.

The property must appraise “as is.”

Both of our examples above assume that the property is in sufficient condition to appraise “as is” and not subject to repairs and completion.  The status of the report is indicated via checkbox.  If the property’s condition requires extensive rehabilitation or has obvious health and safety deficiencies, a conventional loan may not be an option at this time.  That brings us to our next point…

 

There are programs that may specifically address remodel and/or construction.

This is the province of the construction loan, the rehab loan, the FHA 203K, etc.  We’re not going to cover those here but know that when you’re dealing with a construction loan, the approach to financing is fundamentally different.  Whereas an “end loan” or a “conventional” loan will work off of the appraised value, a construction-type loan will look to completed, repaired or rebuilt value to set LTV.  But here, understand that you’re not just getting a larger loan and a “get out of jail” card.  The lender needs to know the plans, the scope of work, the schedule of completion, etc.  In other words, you’ve got not only a loan on your hands, but a project too.  For the average buyer just looking to purchase a home, a construction loan comes with an additional, and serious, set of considerations.

So getting back to our original question, “Can you finance the cost of renovation or remodeling into your purchase money mortgage?”, the short answer is “No.”  The better answer is that “it depends,” but we must recognize that what we’re really doing in most cases is preserving the buyer’s cash.  Where a construction loan program is not being used, this is often the best outcome to which we can aspire.  But remember, for any home loan program you select, you cannot finance more than your maximum loan-to-value or combined loan-to-value (LTV or CLTV) and your loan officer can guide you on these.

This is a simple concept that is often confusing and difficult to grasp in the real world, so don’t be embarrassed to ask questions and drill down (no pun intended) on the math.  Just because you may not be able to finance future improvements now does not mean that the home is not a great fit for your family, your future needs and your budget.  And like always, a sound understanding of concepts will go a long way towards helping you make the best decision.

Sleeves rolled up, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

#OKBoomer, You Don’t Need 20% Down

Bound to happen from time to time in the digital age, a saying goes viral — in this case, “OK, boomer,” — which is meant to expose a close-minded or out-of-touch opinion, thought or mindset of one generation by another (I’ll let you figure out the age demographics here). Hopefully, the topic of this blog will transcend generational differences and address the assumptions about the down payment one needs to make when purchasing a home, versus the reality of what we see every day with those who are actually buying homes. I think you’ll be surprised at the expanse between fact and fiction.

Let’s start by saying that in the US, it’s been widely assumed that a homebuyer must make a 20% down payment of the purchase price. This concept has been propagated from one generation to the next and since Americans have been buying homes instead of carving them out of frontier land. In fact, not a week goes by where we don’t get a call from a prospective buyer that starts with an iteration of, “We’d like to buy our first home but we haven’t saved 20% yet…” Yet, over at least the last 20 years, the average down payment across the US has hovered closer to 6 or 7% of the purchase price. A far cry from the gold-standard 20% many buyers struggle to save. Let’s look at the number of ways that contribute to a buyer’s access to lower down payments:

0% Down Payment

Veterans and those in rural areas may have access to 100% financing. The VA loan program is a huge benefit and great way for our industry to show appreciation for those who have served our nation. The USDA loan program has geographic restrictions, but for some may also allow access to the financing without a down payment.  VA loans also have access to 0% or reduced down payments at loan levels that exceed the nationwide, $484,350 1-unit max.

3% Down Payment

Conforming loans still permit a 3% down payment up to a loan amount of $484,350 (thus permitting a purchase price of approximately $510K at max leverage). Yes, these loans have PMI, but they can be a great entry program for the first-time buyer, and they are not restricted to veterans, rural areas, income limitations or property types. Conforming loans are accessible by all who qualify and programs like the Home Ready mortgage have PMI that is less expensive as well.

3.5% Down Payment

FHA loans come in at 3.5% down, and in many areas, FHA loans are the bread and butter of the market. Borrowers with lower FICO scores, higher debt-to-income ratios and other challenges that could trip up a conforming loan, may find the FHA program to be the best fit. And, FHA will permit 3.5% down even in high-cost areas where the conforming loan limit exceeds $484,350. Remember that on conforming loans, even in high cost areas, once above a loan amount of $484,350, the down payment requirement steps up to 5%.

5% Down Payment

Conventional, high-balance (or super-conforming) and even jumbo will come into play with a 5% down payment. Again, the higher loan amounts and purchase prices may not touch every state, but across the country stats have proven that this level of initial investment is closer to the norm when it comes to buying into the real estate market.

10% Down Payment

Even in super jumbo land (loan amounts that exceed the high-balance conforming limits) and up to price points that much of the country would consider absurd ($3MM+), believe it or not, a 10% down payment mortgage is an option. And we do them with frequency here in CA. For a while, the toughest aspect of getting a 10% down loan had nothing to do with the borrower, but instead we observed that sellers in competitive markets overlooked these offers in favor of buyers who structured their financing with a larger down payment. Now that we’ve seen some softening in the higher price points, motivated sellers are again considering qualified buyers with 10% down payments.

If you examine the statistics for down payment patterns, you’ll see that some states, like California, tend to trend toward the higher end of percentage down payments (approaching 20%). This is due to higher purchase prices in many cases and the fact that those prices push out some of the programs that permit lower down payments. But in other states (GA, for example), home prices in concert with percentage of veterans, rural areas, and so on, can push the down payment average percent below 3%. As always, all real estate is local and you should consult with local professionals on your options. But make no mistake, boomer or otherwise, you don’t need 20% to get into most markets. And if you have questions, send me a letter or give me a call or page me or e-mail or text or Skype or message me when you’re ready to set aside your preconceived ideas and focus on the way it really is today.

Stop, hey, what’s that sound? 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

I’m SUArta Back! The FHA Spot Condo Approval

Mortgage lenders that see a fair amount of FHA loans have, for the last few years, lamented the loss of the condominium “spot” approval. This erstwhile shortcut would allow a single unit of a condo project to be eligible for an FHA loan even where the entire project might otherwise not pass muster. And for FHA, it’s been widely recognized since the sunsetting of the spot approval that buyers whose search requires an FHA loan and a price range that might only include condos, had real challenges ahead. Specifically, their target inventory would need to be confined only to existing FHA-approved projects, which can be found on the FHA approved condo list.

However, as of 10/15/2019, the Federal Housing Administration has reinstated a version of the spot approval. As one would expect with such news, there are misconceptions about how it will be implemented. The main ones stem from announcements suggesting a tremendous anticipated increase in FHA condo approvals as a result of the new FHA spot approval process.  While there will undoubtedly be an increase in FHA condo lending, it will mainly be because the new process allows lenders that were not previously authorized or willing to assume the risk of full project approvals to do SINGLE UNIT APPROVALS (SUA) in projects that are not currently FHA approved.

However, this new SUA/SPOT program is not a streamlined review process and it is not similar to Fannie Mae’s “Limited Review” or Freddie Mac’s “Streamlined Review” on the conventional side. SUA documentation requirements are similar to FHA full project approval criteria, and obtaining documentation for full FHA project approval can take anywhere from 30 to 90 days. Guaranteed Rate will be providing SUA (Spot) Approval within 24 HOURS from receipt of ALL of the required documents, but the time and effort needed to collect the required documentation remains the same. Another misconception is that it will somehow be easier for projects to qualify for SUA (SPOT). In actuality, it is the opposite, as there are items that are more stringent for SUA/SPOT approval than full project approval.

That said, we here at Guaranteed Rate still see this as a great thing for our buyers and our industry. For instance, there will undoubtedly be condo loans originated on projects that do NOT qualify for SUA (examples: FHA concentration within the project or single entity ownership exceeds SUA thresholds). In these cases, we’re capable and staffed to handle full FHA (HRAP or DELRAP) approvals, adding additional value to condo agents, buyers, owners, and sellers. Get in touch any time if you feel these are services that can help you today.

I’ll be back, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

How Can I Make My Home Appraise Higher?

Whether buying or refinancing a home, when obtaining a mortgage it can be expected that an appraisal will be required. I talked in a previous post about how we are able to use appraisal waivers in certain instances, but still, most residential real estate transactions that involve a mortgage also involve an appraisal. An appraisal is a professional opinion of value, completed on a standardized report by a licensed appraiser. Are there steps the buyer or homeowner can take to assure that this value comes in as favorable as possible? Here are a few tips from the experts:

  • Choose a lender that uses an appraisal management company (AMC) with access to local appraisers. At Guaranteed Rate we place a high degree of importance on contracting with appraisers that know any area first-hand. This has the obvious advantage of bringing “boots on the ground” perspective to the property being appraised. But let’s not forget too that local appraisers are also often well-known appraisers to local real estate agents and these relationships are valuable.
  • Clean the house and yard. The cleaner the home the better it shows, and the higher value you will get.
  • Prepare a list, including cost estimates, of improvements completed to the property in the last year. If any updates have been done to the kitchen and/or bath within the past 15 years, include them on this list as well.
  • If you, or your Realtor, know of a good sale (or two) in the area within the last six months, you can give the address and sales price to the appraiser.
  • If refinancing, tell the appraiser the predominant feature of your home — the reason you bought it and the characteristic a future buyer may find most important and desirable. This may seem everyday obvious to you, but could easily be lost on even the best appraiser — who doesn’t live in the home each day.
  • Be mindful of “health and safety” issues, regardless of how minor. An opening in a wall, water stains on the ceiling, a disconnected faucet, peeling paint or a missing handrail on a staircase may all seem trivial, but they could require further notation in the report, potentially stalling your transaction. Make the small repairs in advance (or have the seller do so), even if it means hiring a handyman.
  • Install smoke and carbon monoxide detectors because in many areas (if not all!) it’s the law. Also, here in California, if you have a water heater, it must be double-strapped for earthquake safety.

Stacking the deck in your favor using the tips above, and working together with us before and after the appraisal is complete, you can maximize your potential to attain the highest value. This can then open up financing options and opportunities, and even factor into the interest rate you’re able to obtain. When you are refinancing a home, the home’s value relative to your existing loan balance determines your eligibility. When you are buying a home, you and your Realtor will want to know the appraised value supports the contract price. In both instances, if you have questions about the appraisal process, and especially if you have concerns about the subject property’s value, we are here to help.

I spy, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Qualifying for a Mortgage? Don’t Step in a Large Deposit Mess

By far, one of the most confounding experiences when one goes to obtain a mortgage is the sourcing of “large deposits” on a bank statement.  This is our industry’s gift that keeps giving.  However, there are some ways to avoid inadvertently stepping into trouble and like with most things in life, an ounce of prevention is worth a pound of cure.

What Is a Large Deposit?

Most of the time a mortgage lender will define a large deposit as a non-payroll deposit that exceeds 50% of your gross monthly income.  So, let’s say you provide a bank statement to us.  We see an ATM or teller deposit for $6175 and your gross monthly income is $10K.  You can expect we will ask to know what the deposit is and where it came from.  Different lenders and different programs may have different thresholds, and there is subjectivity to this as well.  With a borrower who makes $10K a month, it’s not unreasonable to think an underwriter might ask to know about a non-payroll deposit of $4750.  It’s happened before…

What’s the Big Deal with Large Deposits?

Remember, at the end of the day, your lender is assessing your creditworthiness and your ability to repay the loan.  If the money you plan to use as a down payment is not derived from savings with a documentable history, your lender will want to know if the money coming into your accounts is from a legitimate source.  Or, is it a loan?  If the latter, does it now require a monthly payment we must factor into the debt-to-income (DTI) ratio?  The large deposit test creates a firewall for the lender where a buyer who otherwise could not afford to buy gets “propped up” by family, friends or undisclosed creditors just prior to purchasing the home.  And it’s precisely these question marks that create the additional risk for the lender.

Reality Sets In

Let’s face it, if you’re planning to buy a home, you should be planning.  If you’re going to be moving money to your accounts from other sources that you know will invite questions, it is best to allow these funds to “season” in your account for a period of time that exceeds the lender’s documentation requirements (usually two months).  After all, I’m not going to assume all large, non-payroll deposits are illicit drug deals.  There can be a lot of honest bank activity that is almost impossible to source.  If you know that you’re going to be relying on this kind of funds to close escrow, get it into your accounts long before you plan to make a mortgage application.

What About Gifts?

Gift funds are allowed in most transactions and within guidelines, but practically every mortgage lender will ONLY recognize gift funds from a family member.  Where large deposits that are “gifts” get into difficulty is not necessarily the sourcing, but the source.  Sometimes, the family relationship is not there.  How do we know who is the donor?  Simple, we require a gift letter that will outline the relationship.

In the mortgage industry, two, clean months of bank statements with no large deposits are our equivalent of Eureka.  I’m convinced that if every potential buyer or borrower knew this in advance, we’d drastically cut down on the number of bad customer experiences.  The worst outcome for our clients is, of course, that when we source a large deposit from another bank account, that origin account also has large deposits, and so on.  You can see how this would get less and less fun…quickly.  So, understand this basic concept and call with any questions.  If we can help you plan for a smoother transaction, we’re happy to be of service.

Where’s the beef, 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960
Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

The Haunted Loan Process

As we wind our way closer to Halloween, I wanted to cover a few of the graveyard variety hobgoblins of the mortgage process.  You know, the things our clients don’t tell us at the start and that later come back to haunt their home loan transaction like so many nightmares on Friday the 13th.  The goal here is not to scare the prospective borrower, but instead to provide fair warning about the actions you can take or avoid at the start of your application that will help you close your loan on time and without undue stress.  Let’s peek-a-boo at some of the most common loan zombies that come out when the moon is full:

  1. Amending a tax return.  It can be such an innocent mistake.  You file a tax return and later amend it for some reason.  When we ask you for your tax records, you provide us with your Forms 1040, but forget there is a 1040X out there as well.  We order an IRS transcript (Form 4506T) and our numbers on the tax return don’t match the numbers on the 4506T.  Now, you’re not in trouble with us or the IRS, but we do have to underwrite to the amended return.
  2. Beginning or not disclosing ongoing work on the property.  Open walls, torn up flooring, room additions underway, no fixtures in a bathroom, an empty swimming pool, etc.  This is not a complete list, of course, but always tell your lender if your home is in any way undergoing work (or will be) when an appraiser comes out.  In general, you will not be able to fund your loan until all work is complete and a reinspection by the appraiser confirms such.
  3. Changing or leaving jobs, or giving notice.  Expect that every lender will complete a prior-to-funding (PTF) verification of employment.  If you are no longer on the job just before close, or if you’ve signaled your intent to leave the job, we may have a major issue.  In short, the employment by which you qualify for the loan is the one that needs to be in place when you close.
  4. Co-signing on a debt for someone else.  Most often, co-signed debts will show up on the credit report, but if they are new or unreported to the credit repositories, we often have to factor them into the debt ratio (DTI) at that time.  The conventional wisdom is to never co-sign for anything.  In reality, life is more complicated than that and it happens.  Where it does, tell us up front.
  5. Disputing a credit item.  It may seem like the right thing to do and it may make you feel better about sticking it to a creditor who’s done you wrong, but disputing a credit item while in the loan process can take on a ghoulish character.  The advice here is don’t do it until we’re funded, but at the bare minimum, let us know when you’re thinking about it.
  6. Failing to disclose a property you own.  Our borrowers often believe that if they own a property free and clear, there’s no way we’d know about it (and more importantly, why would it matter?).  But remember that real property ownership means there’s county records and we can find those.  And about the fact that it’s free and clear?  Good for you but it still doesn’t address property taxes and insurance?  Those go in your DTI too.
  7. Moving unsourced money into your bank accounts.  This one has stopped more purchases of brick and mortar than Amazon.  When you go to buy a home, know that we will look back at least two months (via bank statements) to confirm that all of the money for your down payment, closing costs and reserves is accounted for and meets guidelines.  If you try to move money into your account, we will often question the deposit.  So it’s essential we identify, reveal and document how you plan to close the transaction when it comes to your money.
  8. Not making a mortgage payment when refinancing.  “But I thought we would close by then…”  Famous last words.  Remember, when you are in the loan process, you are not done until you have keys in your hand or, in the case of a refinance, your new loan is funded and recorded and the old loan has been officially released.  During that time, it’s imperative you continue to make your regular mortgage payments.  “If there is any doubt, there is no doubt,” goes the old mountaineer’s saying.  Keep your existing mortgage current at all times.
  9. Recurring payments for a loan or other obligation.  If you have undisclosed debts or payments and we see a recurring withdrawal from your bank accounts, expect that we will ask.  If the item is discretionary, it’s likely no issue, but if it is an obligation we will want to consider it in your debt ratio.  The sooner we find out about it, the better.  So let us know at the outset.
  10. Taking on new debt before closing escrow on your purchase.  Early in my career I had a young, homebuying couple sign their loan documents on a Friday afternoon.  Jubilant with their new purchase, they spent the weekend shopping for furniture and outfitting their new home, including opening a store credit card where they proceeded to take advantage of the new customer discount on their large purchases.  On Monday, when confronted with the question of whether they took on any new obligations over the weekend, they said yes.  Their rationale?  “Oh, we closed when we signed on Friday.”  The lesson here is that it’s not entirely their fault.  Our industry can do a better job of explaining the closing process and when borrowers are “all clear.”  I learned a lot from that experience and have used the lessons ever since.  On a purchase transaction, you are not closed until you are signed, funded and the deed is recorded with the county.

Look, some of the above may seem funny or obvious.  But the reason I’ve listed them is because they happen.  Over and over and over.  We’ve dealt with each and if you find yourself in a bind as a result of any of them, don’t hesitate to get in touch.  We don’t stand in judgment of how things happened and instead we focus on solutions.  Let me know if I can be of service today.

Trick or treat, 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960
Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

When Are Marin County Property Tax Bills Due?

As I write this in October of 2019, my very own Marin County property tax bills just arrived. Well, allow me to reframe that. It is widely understood that our real estate tax bills are issued “sometime in October,” but when you actually receive them in the mail on October 1, it says all you need to know about our Assessor’s intent to get the point across. So with the same procrastination exhibited by most fellow Marin County property owners who will join me in actually paying the bill a few days before a penalty is assessed, I thought it was a ripe opportunity to share some basics on how, when and where to pay our real estate taxes and at the same time avoid the consequences of late payments.

Property Tax Bill Information and Due Dates

Secured property tax bills are mailed in October and payable in two installments:

  • First installment due date: November 1
  • Second installment due date: February 1

“Now hold on a minute!” you say. “I was told I could pay in December and April!” Well, technically, you can.  The late dates for the installments are December 10 and April 10, respectively. And what I’ve noticed after a long career in home finance is that most county residents pay just before these late dates. In fact, if you really want to people watch at the post office and you can’t make it on any given April 15, your next best viewing opportunity is very likely December 10. Late penalties are 10% of the installment amount, so it’s not just a slap on the wrist. State law extends the deadlines above to the following Monday if December 10 or April 10 fall on a weekend, but postmark determines the payment date. If you’re late and don’t include the penalty, the county will send back your original payment.

What About an Impound Account?

If you have an escrow or impound account through which your mortgage lender pays your taxes, your property tax bill will state, “a copy of this bill was sent to a paying agent at their request.” If you are unsure of whether or not your lender has paid your tax installment, you should clarify this with your servicer. They are the folks who send you your monthly mortgage statement. I always advise my clients to let me know if they need help with this — I just feel it’s a service any good mortgage professional should provide, and we handle the “straightening out” of countless, anxiety-inducing property tax questions throughout the course of any year. Note that if you pay your mortgage in full or refinance during the course of any year, you may become responsible for your tax payments even if you’ve impounded all along. Again, call us if we can assist.

How to Pay

Payments may be made via any of the methods below and partial payments are NOT accepted by the Marin County’s Assessor’s office.

  • Online:  www.marincounty.org/Taxbillonline. You will need the parcel number (APN) from your bill.
  • Phone: 1-800-985-7277 using your bill number.
  • Mail: Marin County Tax Collector, PO Box 4220, San Rafael, CA 94913-4220
  • Office: 3501 Civic Center Drive, Room 202, San Rafael, CA 94903 (Mon/Fri, 9am to 4:30pm)

Remember that if you’re in the loan process and you need to document payment of any installment (which can occasionally be a requirement), you’ll probably need to obtain a receipt by paying at the window.

What About Supplemental Tax Bills?

Great question! The County issues a supplemental assessment when a change in ownership occurs. This bill reflects the difference between the seller’s basis and your new and ongoing basis and you’ll only receive it in that first year of the purchase. Afterwards, the correct tax amount is entirely reflected on your regular bill. The Assessor’s office provides owners with new, previous and supplemental values and you can always call them directly at 415-473-7215.

Every day I work to help people buy and refinance real estate in Marin. Often it’s a challenge for them, mostly due to lack of inventory and high home prices. As the rest of us grouse and grumble about writing our checks to the county, let’s remember that it’s also a privilege to do so.

Read my lips, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

What Happens When My Appraisal Comes in Low (or High!)?

You’re in the process of buying a home, and so far things have been going pretty smoothly.  Your lender has pre-approved you, your Realtor has found you the perfect home, and with a bit of luck, the seller accepted your offer and now you’re in contract.  It’s very likely that early on in your loan process — usually within the first few days of having your offer accepted — your lender ordered an appraisal.  From there, a licensed appraiser went out to the property and then turned in a completed appraisal report (which, at its core, is a professional opinion of value).  Of course, you know the dollar amount you’re paying for the home because that figure is on your contract.  But what happens if the appraisal doesn’t support that price?  What happens if the appraisal comes in low, or for that matter, high?  Let’s take a look.

My Appraisal Came in Low

I’m in California and I like to use round numbers, so let’s say you’re buying a home for a cool $1,000,000.  You are putting 20% down ($200,000), and you are getting a loan for $800,000.  We would say your loan-to-value (LTV) is 80%.  When your lender pre-approved your loan, he probably structured most of the important aspects of your financing, such as program selection, approval guidelines, interest rate, etc., on the assumption you would have an LTV of 80% or less.  Let’s say the appraiser goes out to the home, does the best job she can and after all comparable properties (“comps”) are analyzed, can only support a value for the home of $975K. How does the lender react to this information?  For conventional mortgages, the lender will use the lesser of the purchase price or appraised value to determine the LTV.  This is the key concept and we’ll come back to it in a minute and in a different scenario, but for now, let’s go to the chalkboard and do the math:

Before appraisal:

  • $1,000,000             Contract price
  • ($1,000,000)          Assumption of value
  • $800,000                Loan amount
  • 80%                        Loan-to-Value

After appraisal:

  • $1,000,000             Contract price
  • $975,000                Appraised value
  • $800,000                Loan amount
  • 82%                        Loan-to-Value

Houston, we have a problem.  If your loan approval has rested on the assumption that you have an LTV of 80% of less, we can see that this is no longer the case.  This buyer might pursue these options to remedy the matter:

  1. Use a different loan program that might accommodate the higher loan-to-value.  This might mean taking PMI (private mortgage insurance), or using a piggyback loan, for example.
  2. “Making up the difference in cash.”  To produce an 80% LTV against a value of $975K, the loan amount would be $780K.  Assuming the purchase price stays at $1MM, this buyer, who would have previously made a down payment of $200K, will now need to make a down payment of $220K.
  3. Renegotiate the contract.  Often, we’ll see the buyer go back to the seller and ask for some concession on the price.  Maybe the seller will be willing to reduce the price slightly to keep the transaction moving forward, instead of falling out of contract and starting over with a new buyer.
  4. Rebut the appraisal.  Perhaps factual error or oversight of a strong comp caused the appraised value to be lower than it might be otherwise.  Buyers can opt to have their lender pursue a reconsideration of value.  Word to the wise, many rebuttals come back with no change.  In other words, they uphold the original appraisal.  But most also chew up a lot of contractual time.  Pursuing a reconsideration can be a gamble with a low probability of success.
  5. Try a new appraisal?  Hold on a second — this is not a valid option, but I bring it up because we do get the question.  So long as you stay with the lender who performed the original appraisal, ordering a new appraisal to “value fish” is not permitted.

The last important point about a low appraisal value is that it may only matter to the buyer whose loan is near an important loan threshold or guideline.  In our example above, the reason the low appraisal triggered significant changes is because the 80% LTV threshold is important in conventional lending.  And there are others like it you may not recognize, but that your lender can explain.  However, let’s say our buyer above was putting $500K down on a purchase of $1MM (50% LTV) and the appraisal comes back at $975K.  Now the LTV is 51%.  Big deal.  No key lending thresholds are crossed and this borrower very likely sees zero change to his terms.

What Happens If My Appraisal Comes in High?

Well, this paragraph is going to be a lot shorter.  In conventional lending, and for a purchase transaction, you cannot “monetize” an appraisal value that comes in above the purchase price.  Again, we use the lesser of the purchase price or appraised value to determine LTV.  Still, it’s great news.  You are getting a deal on the home, but in terms of making a smaller down payment or otherwise leveraging the higher value, there are “no dice” here.  Yes, down the road that higher value might allow you to refinance with greater ease and/or better interest rates, but practically speaking an appraisal that comes in higher than contract price is really just a vote of confidence.

If you’re reading this post and find yourself in a bind because your appraisal just came in low, don’t hesitate to get in touch.  We have a large selection of mortgage programs that grant more flexibility with LTV, and we have a lot of experience navigating the loan process together with the intricacies of fulfilling requirements of your contract.  We’re here to help with your mortgage needs whether your appraised value comes in high, low or right on the money.

Thing of value, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960
Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Your Debt-to-Income Ratio Is High and It Will Be Alright

You might have been lured into reading this blog post under the false assumption that I’d be discussing the controversial subject of financing cannabis-related businesses and property.  Well, you can let that notion go up in smoke.  Instead, we’re going to talk about the ways you can get a great jumbo mortgage in California if your debt-to-income ratio (also known as “DTI”) is higher than Jeff Spicoli at 4:20pm.  OK, dude, not really, but we are going to address the ways you can get a decent home loan with a very competitive rate if your DTI exceeds 43% — the maximum amount specified for a qualified mortgage, or “QM.”  Let’s get together and review a little background first.

Your debt-to-income ratio is determined by dividing your gross monthly income into your housing debt(we use the total monthly housing payment or “PITI”) to determine the “front end” or “housing” ratio, and then we use gross income divided into your total obligations for your “back end” or “total” DTI.  Remember to let us do the calculations to precision, but certainly feel free to use these examples as a guide.  Let’s say our borrower earns $10,000 gross per month and will have a housing payment of $3000.  This would produce a 30% housing ratio.  Now let’s also say that this borrower has $1000 per month in other expenses (auto payments, student loans, credit card minimum payments, etc.).  Our $4000 in total monthly debts, once combined with the housing payment, produces a total DTI of 40% ($4000 / $10,000 = .40).

Conforming, FHA and VA loans have a temporary exemption in the eyes of our regulators.  These types of mortgages can have a debt to income ratio that exceeds 43% and STILL be considered a qualified mortgage.  But once the loan amount exceeds conforming loan limits (and sometimes even where it doesn’t), we now have a “jumbo” loan and we are held to the letter of the law.  This means that the DTI ratio cannot exceed 43%.  If it does, we have a “non-QM” loan.  With the non-QM status, the lender incurs additional risk.  Where the lender incurs additional risk, the borrower typically pays in interest rate.  In short, more risk, more rate.  But not all lenders address the risk piece identically and quite frankly, many of the largest jumbo lenders won’t go above 43% at all.  We’re different in two ways:

  1. We have competitively-priced mortgage options — on the jumbo side — that allow a DTI of 49.99%.  Another of our options will permit a 47% debt-to-income.  How about interest-only loans?  We have them too, and they allow a 45% DTI (using their formula for qualifying payment, which is not the interest-only payment).  Sometimes our strategy will involve using a home equity line of credit (HELOC) to bring the debt ratio in line.  There too, 45%.  Indeed, sometimes our wide credit box allows us to solve the issue just by way of a niche loan program.
  2. We often view the income and debt calculation more favorably than Lender B, or we bring in income from other sources, such as asset utilization.  In these cases, we keep the debt ratio under 43%, but we do so in a manner that again thinks outside of the QM box, though it often prices equivalent to a QM mortgage.

So if you’re looking for a jumbo mortgage in California and the usual banking suspects are telling you that you don’t qualify because your DTI is high, then I’m telling you to get up, stand up and connect with me today.  Let’s review your scenario free of cost and obligation and get you back into approval status for the home you love and the loan you need.

I shot the sheriff, 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

How Long Do I Have to Wait After a Foreclosure to Get a Mortgage?

When economic war ravaged the real estate market a decade ago, statistics show that peak foreclosure activity in the US occurred somewhere in 2010.  We continued to experience an elevated level through at least 2013, which means that as I write this post in late 2019, almost the entire rat is through the seven-year snake.   That waiting period — 7 years —  is the gold standard after a foreclosure.  So what do those looking to reenter the housing market need to know?  What about if they need something other than an FHA mortgage?  Let’s look.

What is a Foreclosure?

When it comes to “letting a house go” we could say that a foreclosure is the equivalent of the homeowner’s “nuclear option.”  Basically, an atom bomb is dropped on the owner’s credit and when the dust settles, which could take months if not years, there’s not a trace of the home he once owned.  Though the legal foreclosure proceedings vary from state to state, a foreclosure is ultimately what happens when the owner of a mortgaged property stops paying and takes no other legal or financial steps.  Ultimately, a notice of default will be filed on the property and absent drastic measures to restore payment on any lien attached to the title, the lender will end up selling the property via a foreclosure sale.

What Happens After a Foreclosure?

With a history of foreclosure (or “deed in lieu”) on one’s credit report, conforming loan guidelines state that a buyer re-entering the market must wait seven years before obtaining a new mortgage. If using an FHA loan program, that waiting period is cut to three years. In the case of jumbo mortgages, however, the waiting period will be established by the actual investor — the entity that provides the loan. Because of this, the institution/investor can set its own rules about the seasoning required. They can also set rules about how a foreclosure is qualified. Was it due to financial mismanagement? Strategically done to avoid consequences of the market falling further? Or, was it done due to a legitimate hardship on the part of the borrower? Each of these might be viewed differently by any investor and the waiting period might change accordingly.  The best advice I can give is that if you experienced extenuating circumstances (death, loss of job, etc.), ask how this could impact your options because several of our best-priced investors will reduce the typical 7-year wait in these cases.

Sorting Out Second Chances

At Guaranteed Rate, one of our strongest suits is that we have multiple jumbo investors available for most scenarios. We will see our strongest-priced jumbo investors re-enter the market for the buyer with a foreclosure also at the 7-year mark — identical to conforming. But below you’ll find some of the other tiers of available as the loan-to-value (LTV) increases or decreases, the loan amount goes up in size, and the FICO score factors into the picture:

5% Down Payment

We require a three-year seasoning period and will go to a loan amount of $1.5MM (purchase price of $1.58MM). For this program, we’ll need a 720 FICO and 9 months of reserves.

10% Down Payment

We require a three-year seasoning period and will go to a loan amount of $2MM (purchase price of $2.23MM).  Like with the 5% down program above, we’ll need a 720 FICO and 9 months of reserves.  If both your FICO score is lower (to 680) and your loan size is smaller (to $1MM), we’ll then permit a 4-year seasoning on the foreclosure but require 6 months of reserves.

20% Down Payment

All of the investors above are in, plus several others with varying FICO and reserve requirements, even down to a 661 credit score with a maximum loan amount of $1.5MM (purchase price of $1.875MM).

The jumbo mortgage market is inherently more complex than conforming or FHA and because of this, your jumbo lender needs to have the options and expertise that will accommodate the demands of getting a new home loan post-foreclosure.  But purchasing a home with a history of a foreclosure is indeed possible. We understand the requirements, restrictions and tips of the trade that facilitate many of the best second chance options in existence. Maybe more importantly, my experience as a loan advisor covers a time period before, during and after the real estate recession.  I reserve no judgment for what happened in that very different market. Instead of looking back and telling buyers what they can’t do, I see it as my responsibility to look forward and help them do what they can to realize the benefits of ownership again.

Bombs away,

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960
Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709
*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283