Investment Property Jumbo Mortgage with Low Down Payment

Since I’m in California, and property values where I live and work tend to be on the, shall we say, higher side, residential real estate investors — those looking to purchase a home of 1- to 4-units to be used as an income-producing property — can sometimes be limited in their attractive jumbo mortgage options. This is especially true if they are looking to keep their down payment as low as possible. Many potential rental property buyers are told flat out that even a 20% down payment is California dreamin’, and that a jumbo loan on a duplex or triplex, for example, requires a 30 or even 35% down payment. So in addition to being known for good vibrations and sun, let’s talk about our proclivity for innovation and examine some of our low down payment jumbo mortgage programs specifically catered to investment properties.

15% Down Payment

For a property of 1 to 4 units, we’ll lend up to $1,000,000 at a loan-to-value (LTV) of 85%. This implies a max purchase price of about $1,175,000 at the highest LTV. There is no PMI on this loan.

20% Down Payment

For a property of 1 to 4 units, we’ll lend up to $1,500,000 at a loan-to-value (LTV) of 80%. This implies a max purchase price of $1,875,000 at the highest LTV.

25% Down Payment

For a property of 1 to 4 units, we’ll lend up to $2,500,000 at a loan-to-value (LTV) of 75%. This implies a max purchase price of approximately $3,300,000 at the highest LTV.

Investing in real estate can be elusive where the property values are expensive and where the buyer doesn’t have 30% or more to put down. But we strive to lead the market with loan options that can turn buyers into landlords with even half of what they may have expected to invest at the start.  Further, with the capacity to accommodate multi-unit properties, some of these lower down payment programs can and do cash flow from Day 1.  If you are on the cusp of making your first rental property purchase, get in touch any time and I’ll be happy to review your options with you.

New lease on life, 

 

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

Should I Get a HELOC?

Thankfully, many of our clients are happy with their mortgages. The interest rate, the terms, the peace of mind — all are satisfactory and there’s no motivation to change or refinance. But what happens if there’s a need to use the equity in the home to finance a remodeling project, a large purchase or to just have a “safety net?” A home equity line of credit or “HELOC” can be used to meet these purposes, but should you get a HELOC and, if so, how do they work?

What Is a HELOC?

A home equity line of credit, or HELOC, is most often a second mortgage or junior lien, that “goes behind” your existing (first) mortgage. Unlike a traditional “closed end” mortgage that is fully-amortized, a HELOC usually allows the borrower to draw a balance on a line or limit, then pay it back and repeat the process again. So, where your typical mortgage may start at $400K, for example, and with every payment made will see its balance reduced a little further until completely paid off, a HELOC might have a limit of $50K. Our homeowner may “draw” $35K on the line to purchase a vehicle, then pay it back in the span of a few years and until the balance is at zero. Later, there may be another need for all $50K in order to remodel the kitchen of the home and our borrower could again write a check against the line for that amount. A good analogy for a HELOC is a credit card. You have a limit and you have a balance, and the balance can go both up and down depending on your use and repayment.

As the name would imply, a home equity line of credit allows the homeowner to access the equity in the home. What does this really mean? Let’s use an example. We’ll say our home is worth $500K. The owner has a first mortgage of $400K, so the loan-to-value (LTV) is 80%. The owner therefore has 20%, or $100K, of equity in the home. Some of our HELOC programs allow a combined loan-to-value (CLTV) of 90%, so in this case the homeowner could take a line of credit for $50K (10% of value and a CLTV of 90%). The HELOC now gives the owner access to some of the equity without having to do a cash-out refinance, which might be expensive or, in many cases, impossible.

How Do HELOCs Work?

Let’s first differentiate between a home equity line of credit (HELOC) and a fixed rate second mortgage. The latter is simply a junior lien of (usually) 10, 15 or 20 years that often has a fixed rate and is fully-amortized. You pay it down just like your first mortgage. But a HELOC, as explained above, works differently and as a result, usually has two distinct periods during its full term; the draw period and the payback period. A HELOC’s full term might be anywhere from 15 to 30 years, and some even have a balloon feature, so you have to ask every time. But let’s examine a common HELOC program we offer. It has a 30-year term. The first 10 years are the draw period. You can access the line electronically or with checks. Your payments during the draw period are interest-only, but you can pay the principal balance back as you’d like at any time. After the draw period, the HELOC will convert to a fully-amortized payment for the remaining 20 years and the draw feature ends. During the entire term, the interest rate is adjustable and tracks Prime Rate. The line of credit will have a margin over or under Prime and this combination (index + margin) is considered your fully-indexed rate or “FIR.”

Home equity lines of credit are the most common kind of second mortgage and they can serve many purposes. Because they allow access to the equity in a home without having to actually service any debt, we see many of our clients open a line of credit and save it for a rainy day. Others will use it to replace the roof on their home to assure a rainy day doesn’t end up inside the home itself. Either way, promoting an understanding of how HELOCs work is something we’re happy to share. Get in touch if we can help you unlock the mystery of a home equity line of credit.

Loc, stock and barrel, 

 

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’s a Piggyback Mortgage?

As if! As if mortgages weren’t complex enough, now you’re going to tell me there’s such a thing as TWO mortgages stacked on top of each other — just to buy the same home you could otherwise get with one mortgage?  Are you a glutton for punishment?

OK, calm down. You’re correct about the part that adding a second, or “piggyback,” mortgage might add complexity, but you’re not quite right about the fact that our buyer could have just as easily killed the proverbial financing bird with one stone/loan. Often, when we suggest borrower consider secondary financing, aka a piggyback loan, there’s a good reason for it, and we’re going to cover the top three of them below. If you view piggyback loan options as another tool in the mortgage toolbox, then you’ll start to see the value they provide when certain circumstances arise. So let’s jump into the mud with the pig.

Avoiding PMI

Most buyers are aware that once their loan-to-value (LTV) exceeds 80% (in other words, they have less than a 20% down payment), they will be faced with private mortgage insurance (PMI). Some will therefore try to avoid this by breaking the financing into two loans, with the first mortgage at 80% of the value of the home, and the second or piggyback loan filling in the gap between the first mortgage and the buyer’s down payment. Classic example: $500K purchase price and a 10% down payment ($50K). The loan amount would be $450K and the buyer would have PMI, unless the buyer gets a first mortgage at $400K and a piggyback loan at $50K. In the piggyback example, the buyer is still going to finance a total of $450K, but because his first mortgage LTV is not over 80%, there is no PMI. Now, this same buyer will need to compare the terms of the financing. Will it be better/cheaper to go with PMI or the piggyback? Only the research will tell.

Circumventing Conventional Loan Limits

In the above example, we used a piggyback loan to avoid PMI, but what about purchase price points that would force an 80% LTV to be just above the conventional conforming loan limit? Same deal. Some of these buyers will circumvent that cutoff by using a piggyback. Today, for instance, the conforming loan limit in many areas is $484,350. But let’s say the buyer is considering a home that will sell for $675K. At 80% LTV, the loan amount would be $540K — above the conforming loan limit by $55,650. So, from time to time, we’ll see a buyer get a $484,350 first mortgage coupled with a $55,650 second mortgage and voila’, jumbo mortgage avoided.

Jumbo 80/10/10

Speaking of jumbo mortgages, especially in higher cost areas like the San Francisco Bay Area, even if you endeavor to buy a median-priced home with less than a 20% down payment, you will need a mortgage solution that often deviates from a single loan.  Jumbo 80-10-10 options have been popular in our neck of the woods since at least 2015 and the reasons for that are primarily that the terms are very competitive and there is no PMI. If a buyer wishes to purchase real estate with less than 20% down and we’re talking about price points up to $2MM, we almost always consider a piggyback loan as one of the first tier options. In some parts of my county (Marin), in San Francisco, on the Peninsula and in the Silicon Valley, one can easily find a typical residence in the $1.2MM price point. If you’re putting 10% down on something like this, you’d have a first mortgage at $960K and a second mortgage, usually a HELOC, at $120K. This would be contrasted with any other single-loan jumbo option, though as the price points increase, it gets harder to find and qualify for such programs for many buyers.

While we always try to keep matters as simple as possible, because we realize that real estate transactions are inherently complex, sometimes there’s just no good way to avoid a piggyback mortgage solution. When you find yourself in this situation, we can help and we offer a wide array of both first and second mortgage programs that can be combined together to meet your needs. Oh, and when you do need a piggyback setup, we handle both loans as part of your singular process. We don’t send you out into the mud to fend for yourself on the first or second loan. We’ve got your (piggy) back.

Ha ha, charade you are, 

 

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

Jumbo Mortgage with 5% Down Payment

You never hear anyone say “Give it 95%!,” do you? And, curiously, when it comes to getting a jumbo mortgage, that still holds true — the vast majority of home buyers still think it takes a 20% down payment to enter the market. As of 2019, there are 34 metropolitan statistical areas (MSAs) in California that have a maximum conforming loan limit of $484,350. Another handful of counties can only get to a jumbo-conforming limit of around $550,000. So what do these homebuyers do if they have a maximum of a 5% down payment yet need to exceed the conforming or FHA loan limits? Are they shut out or can they actually buy a home with a jumbo mortgage? The good news for them is that we will continue to lend up to $650,000 with as little as 5% down (for a maximum purchase price of approximately $685,000) and we’ll pick up where their county’s conforming loan limits may leave off. And, in many cases, we can make these 95% loans without PMI, or private mortgage insurance. Using our LPMI (lender paid mortgage insurance) program, we can go to a loan amount of $850K with just 5% down, giving these buyers the reach up to a purchase price of almost $900K. Let’s dive 100% in and look at the key features of our 5% down jumbo program.

There are a few key distinctions between a jumbo and conforming loan and it’s important to understand these if you are going to purchase a property in a higher price range. All of these aspects can be sorted out at the time you get a pre-approval from us, and this process does not cost you any money or involve any obligation. Your preapproval is valid for at least 90 days and can be refreshed if your search extends beyond that time period. Let’s focus on the Big 3; FICO scores, asset reserves and debt-to-income (DTI) ratio:

FICO Minimum for 5% Down Jumbo

You’ll need a minimum 700 FICO score to get to a loan amount of $650K and a 720 FICO up to $850K. For jumbo mortgages in general, especially at a higher loan-to-value (LTV), getting down to 700 is very generous. Of course, the higher your FICO the better your loan’s rate might be, but it’s good to know you can still qualify with greater than a 700 (or 720) score.

Asset Reserves for 5% Down Jumbo

Reserves are a component of getting a jumbo loan — c’est la vie, as they say. But fortunately our 95% LTV jumbo loan does not have an onerous reserve requirement. In fact, in some cases we need just two months of reserves but for most options here, it is never greater than six months. Compared to other 90% jumbo mortgage options that require 18, 24 or 36 months of reserves, this makes qualifying far easier. Remember, reserves are calculated from your total monthly housing payment (PITI). If you have a PITI of $4000 and you have a 6 month reserve requirement, you need to have $24,000 left in your bank account(s) after you close your purchase transaction.

Debt-to-Income (DTI) for 5% Down Jumbo

Since this is a jumbo mortgage, your debt-to-income ratio will need to be under 43% in most cases. How do we arrive at this number? Let’s say you have a gross monthly income of $10,000. If your housing payment is $4000, you have a 40% “front end” or “housing” DTI ($4000 / $10,000). Let’s say you also have a car payment of $250. Now you have a debt ratio of 40% over 42.5%, and you’d still qualify. Your “total” or “back end” ratio is your proposed housing payment, plus any other monthly debts that come over from the credit report. Total debts divided by gross income equals total DTI.

The long-held belief that it takes a 20% down payment was shattered long ago when we offered competitively priced 10% down payment solutions up to price points of $2MM. Many buyers still take advantage of those programs today. But even where the price points go to $700K or even $900K, now buyers have the option to bring in only 5%, often without private mortgage insurance (PMI). If you want to know more and are intent on getting out of the rent cycle, call me today and let’s see if this program is a fit for you.

Gimme five, 

 

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’s the Point of Points?

Let’s get right to the point. What point? Points. I don’t get it. What’s your point? The point is points — what are they, how do they work and should I pay them when I get a mortgage? There’s a lot of confusion about points and when a borrower researches his or her best mortgage options, inevitably there will be an element of points in the debate. So in order to help ourselves find the best terms on any home loan, we need to get this point thing under our belt.

Point One (One Point)

Simply, one point equals 1 percent of the loan amount. If you have a $500,000 mortgage, 1% of it is $5000. Similarly, fractions of a point work the same. In our example, 1/2 point on $500K is $2500. If a lender says you can get any certain rate by paying 3/4 of a point, simply take your loan amount and multiply it by .75%. This rule never changes, despite loan size, type, borrower profile, etc. One point is one percent of the loan amount.

Point Two

Let’s put a finer point on points. We’re going to focus on “discount points” and not “origination points.” Discount points are meant to have a direct impact on the rate that the borrower obtains. “Origination points” are a cost to get the loan itself — independent of the rate provided. An important concept to know here is that on any given day, a mortgage lender can offer the public a range of rates. Let’s say a borrower qualifies for a 4.000% rate with “zero points.” This means that without paying any discount cost, the borrower’s rate would be 4.000%. Easy, right? OK. So what happens if the borrower wants a rate of 3.75%? Is that possible? Yes. But in order to get the lower rate, the borrower will need to “pay” the lender what it would cost to bring the 3.75% rate to “par,” meaning to level equal with the cost of the money at 4.000%. On the lender side, there is more cost associated with lower rates and an “inverse cost” (aka, lender credit) associated with higher rates. So on the scale of, say, 3.500% to 4.500%, the lowest rate would have the highest cost to obtain and the highest rate would have the highest “rebate” or lender credit. Due to regulation, lenders cannot profit any more or less depending on the rate chosen, so the cost or credit to obtain any rate must come from, or go to, the consumer.

Point Three

Does it make sense to pay points when you get a mortgage? Now I must tell you that as a veteran loan originator, many borrowers pay points to get a “sexy” rate. Let’s say a 4.000% rate is available with zero points, but that a 3.875% rate can be bought for a half point. Some will make that investment just to have the ‘3’ handle on their “water cooler rate.” OK, fine. It happens. But the decision to pay points should always include a math calculation and fortunately, it is a simple one. Let’s use our example again and say that 4.000% is available on a $400K loan at 0 points, or “par.” The payment on this loan would be $1910. Now let’s say this borrower hopes to get a rate of 3.750%. The lender comes back and says that 3.750% will cost .75% (3/4 of a point) to obtain. So, we have an investment of $3000 that will be paid at close as discount points, but in return, this borrower will get a 3.750% rate instead of 4.000% for the life of the loan. The payment savings per month in this case would be $58. Remember that the borrower is “investing” $3000 at close to get the $58/M savings, so we divide the cost by the savings to determine the number of months it will take to recover the investment. In this case, it will take 52 months, or a little over four years. If this borrower plans to be in the home and not replace the mortgage within the that time, the choice to pay points may indeed be a good one. However, if the borrower does sell or refinance in that initial window, the investment (or part of it) really will not return. Yes, the borrower got the better cash flow per month, but he/she never realized the true savings the lower rate would provide.

The decision to pay points is a personal one. This is not a “right or wrong” choice and is highly individualized to the scenario and the borrower’s financial plans and goals. Helping a buyer or someone looking to refinance understand how points work, and if paying them is worthwhile, is a conversation we are always happy to have. Call any time if I can be of service!

In the right direction, 

 

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 Is a Debt Service Coverage Ratio Mortgage?

Real estate investors have long turned to private money loans when conventional mortgage lenders have determined that either they, with their multiple property holdings, or the properties they are looking to buy, pose too great a risk. But for its benefits of closing quickly and not involving an intrusive qualifying process based on ability-to-repay (ATR), hard money loans are expensive and most often have terms that require the investor to refinance or pay off the loan in the short term — not an ideal fit for those who own, or are building, a portfolio of rental properties and who are looking to stabilize their cash flow. Enter the DSCR or “debt service coverage ratio” mortgage. This unique program seeks to provide the investor with a way to qualify for the mortgage without focusing on personal tax returns and debt-to-income (DTI) ratios. These are conventional loans that look more at the property than the borrower — almost like a commercial or private money loan — but with the added benefit of more appealing terms.

Our DSCR or “DCR” (debt coverage ratio) mortgage is designed for borrowers who are experienced real estate investors looking to purchase or refinance an investment property that is held for business purposes. We qualify these borrowers based upon the cash-flow of the subject property and they are not required to provide additional employment or income related information — let’s emphasize this again.  We are focusing on qualifying the property above the borrower. So where, in a traditional mortgage for a primary home, for example, we would be calculating debt-to-income based on the borrower’s paystubs and tax returns, and liabilities that carry over from the credit report, here we are looking at the cash flow of the property instead. Let’s dig in a little deeper.

Qualifying with Debt Coverage Ratio

The debt coverage ratio is calculated by taking 100% of the gross rents divided by the total monthly housing payment (PITIA) of the subject property. If a lease is in place on the subject property, we’ll use that number (with some exceptions) but if a lease is not in place, we’ll defer to the appraiser’s rent schedule. In order to qualify, our property must produce a DSCR ratio of greater than 1.0. So for example:

Property 1

  • Gross Rents = $3000
  • PITIA = $2800
  • Formula to determine DSCR: $3000 / $2800 = 1.07
  • A 1.07 DCR is greater than the 1.0 requirement to qualify, so this property is eligible for approval.

Property 2

  • Gross Rents = $1900
  • PITIA = $2250
  • Formula to determine DSCR: $1900 / $2250 = .84
  • Our DCR is .84 under the 1.0 requirement to qualify, so this property is NOT eligible for approval.

Both fixed rate and ARM programs are available to the investor on a DSCR qualification basis and this further expands the benefit of this qualification method. For those who own multiple investment properties and may not fit the qualifying criteria for a qualified mortgage (QM), the debt service coverage ratio alternative may be the solution you’ve been looking for. We’re here to help and answer any questions regarding your rental properties.

Come on in and cover me, 

 

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

No-Cost Refinances. Too Good to Be True?

With all the talk of trade wars pushing mortgage rates to lows we haven’t seen in a couple of years, perhaps you’ve been thinking of refinancing and maybe even done a bit of research on the topic. It’s likely you’ve come across the term “no cost refinance,“ and you may be saying to yourself, “How do some lenders offer a refinance without costs?” or, “Is this too good to be true?”

It’s important to recognize that all financial transactions involve some costs. In the case of a mortgage these could be lender fees, appraisal fees, charges paid to a title or escrow company and even days of interest on the loan itself. It would not be fair to say that a refinance has “no costs,” but perhaps more accurate to realize there are different ways these costs can be paid. Let’s look at the three most common ways a borrower will cover the expenses of a refinance:

  1. Increased loan amount: Let’s say our borrower has an existing loan balance of $400,000 and closing costs that total $3000. This applicant would aim to finance $403,000 with the new loan. So long as the appraised value of the home will permit and so long as the new rate and payment allow, this would be the most common way we’d see a borrower refinance his or her home loan.
  2. Out of pocket: In our example above, this homeowner would not increase the loan amount, but instead leave it at $400,000 and would write a check, at closing, for the $3000 in total settlement charges. The largest benefit here is that the loan amount does not increase. This is the least common approach we see.
  3. “No Cost” structure: In a no cost refinance, the borrower actually opts to take a slightly higher rate than he could otherwise attain. With the higher rate, the lender will usually be able to offer a higher “rebate” or lender credit, and these funds are then used to pay the settlement charges. The borrower does not increase the loan amount, but foregoes a rate that might otherwise have been slightly lower.

So you may be asking, “Why would anyone deliberately take a higher rate?” The answer comes down to math and a slight shift in philosophy. In the case of the math, a lower rate and payment, no increase in loan balance, and costs that do not need to be paid out of pocket are all desirable and very likely have financial benefit in both near- and long-term. And in a philosophical light, the borrower is accepting that it is better to get most of the benefit at none of the cost than all of the benefit at some of the cost.

What’s the best way to refinance? The answer depends entirely on your own situation. If your subject property is in California, get in touch today and we’ll help you make that determination.

Freedom’s just another word for nothin’ left to lose,

 

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 Is a Good Time to Refinance?

There’s that great, old maxim that goes, “There are two kinds of jobs in the world; the kind you shower before and the kind you shower after.” And in that spirit, I would offer that there are two kinds of refinances in the world — the kind you transact because you want to and the kind you pursue because you must. We’ll cover both here and we’ll talk about when it may be a good time to consider refinancing your home. But first, some basics.

Refinancing your mortgage(s) allows you to change the terms of your current loan or loans, by replacing them with a new one. Yes, you will go through the loan process again and there will be associated costs. Analyzing the recovery period on the costs involved will be a component we’ll address below, but even in the case of a “no cost” refinance, just accept that there are always some expenses. Next, because your title does not transfer in a refinance, it is very unlikely your property tax basis will change via refinancing. Many homeowners express that concern, but it is a concern that is generally unfounded. You can most often refinance without fear of triggering a reassessment and seeing your property taxes go up. Finally, there are two, broad categories of refinances; rate and term, and cash out. A rate/term refinance will cover just the payoff of your existing loan balance and perhaps your closing costs. A cash out refinance will pay off the existing loan or loans, your closing costs and will allow you to “cash out” some of the equity in your home. In other words, you walk away from escrow with a check. And no, you do not pay income taxes on those proceeds, as they are not income, but equity instead.

Refinances of Choice

By far, most refi activity is driven by rate. If you hold a mortgage at 5.000%, for example, and rates drop to 4.250%, and a refinance at the lower rate can save you $250 per month, you can consider making the switch. Now if it costs $3000 to refinance the loan, you will “recover” your closing costs in the first year you hold the new loan, but thereafter, you are saving $250. Some might argue that part of your savings stem from resetting the loan term back to 30 years — and they would be right. But nothing prevents this borrower from refinancing then continuing to make the original payment they had with the old loan, right? By doing so, they might even get ahead of total interest payments. So a refinance by choice provides options for saving in the near-term or long-term, depending on the borrower’s objectives. And we help them analyze and figure this out.

We’ll occasionally help a borrower convert a 30-year fixed into a 15-year fixed loan to hasten pay down of the loan. Sure, the payment almost always goes up in these cases — so this would definitely fall into the “choice” category — but if the owners can afford it, the reduction in term interest can offer a real financial benefit.

Next, we have the “cash out” refinance where the borrowers will use the proceeds to finance home improvement, a large purchase, college tuition, etc. I’ll even go so far as to say a debt consolidation refinance can fall into the “choice” category because there are occasions where a borrower’s debt may still be manageable but a careful review suggests that by consolidating it with the mortgage, the overall financial result is positive. And then there are other occasions where debt gets out of control and a refinance is really the only way to bring it back to a manageable state. That brings us to our next category…

Refinances of Necessity

Debt consolidation refinances where a borrower can significantly reduce payments are NOT, I repeat, not a free lunch. If you build student loan, credit card and other consumer debt into your mortgage, you might effectively be financing short-term debt at higher rates over a much longer term at lower rates. Still, interest is accruing in both cases.  Further, it’s incumbent upon the borrower to avoid racking up new debt once the old ones are consolidated. That kind of fiscal discipline must go hand in hand with a debt consolidation refi if it truly to move the homeowner forward financially. Other refinances of necessity happen when a loan has a balloon feature. In these cases, the loan holder must change the terms of the note before the balloon payment is due. Even though not as dire, we’ll often see a refinance used to get a borrower out of an ARM loan that will begin adjusting in the future and into a fixed rate loan. I’ll also group refinances to drop PMI (or FHA MIP) in the ‘necessity’ category. Sure, paying the insurance premiums perhaps isn’t life or death, but most borrowers do feel that if they can drop PMI and save right now, that’s something worth acting upon instead of waiting.

Individual financial situations are as unique as houses themselves. Refinancing is a tool that can help accomplish a wide array of financial goals, but regardless of the intended outcome, it’s vitally important that the math and the costs are understood. In each case, we help our refinance clients develop a better understanding of what’s at stake today, during the process and into the future. If you feel we can help you with your refinance decision, get in touch any time.

Back Jack, do it again, 

 

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 Lenders, The Dreamers and Me

Immigration, as a topic, has been in the news a lot lately. Without weighing in politically, at least overtly, this is a matter close to my heart as it’s not hard for me to forget that my grandparents fit the classic Ellis Island mold that shaped the lives of countless Italian-Americans. A couple of years ago, I was honored to write a piece for our industry’s M Report, and in it, I tried to imagine what it was like for my immigrant grandfather to obtain his first mortgage here in the United States. Just conjuring his experience shed new light on my own value proposition and how I might better serve some of the most financially vulnerable, as they take a huge step towards realizing a big part of the American Dream, home ownership.

By now, most of us have heard of “the Dreamers.” These are individuals who have what is known as D.A.C.A. (Deferred Action for Childhood Arrivals) status. Their citizenship, or lack of it, is part of what I want to cover here today, but it’s just a component of the larger policy towards lending guidance by Fannie Mae (FNMA). And FNMA’s guidelines apply to other non-U.S. citizens as well. Can they get a mortgage? If so, what paperwork must they provide? Let’s take a journey to discover what’s possible.

We’re going to use our DACA scenario and we’re going to assume that our borrower has an Individual Taxpayer Identification Number, or ITIN. To be eligible for a conforming loan, a borrower must have a valid Social Security Number or ITIN.  That is Step 1. Next we’re going to verify legally present status in the US. We can use this borrower’s EAD or “Employment Authorization Document” to accomplish this in our case here, but other documents that will verify status are Green Cards, work visas, entry stamps and I-551 stamps. So even though we are talking about a DACA example here, you can see that this flow chart would also apply to those on work visas such as the H-1b, L-1, etc.  Verifying status is Step 2.

Once we have confirmed an SSN or ITIN and verified status, we will next attempt to meet standard income and employment guidelines, as well as all other credit qualifying aspects of the loan they seek. But keep in mind, this varies very little from what a US citizen might expect. For example, can we verify employment? Is there a history of earnings? Is the borrower self-employed? Assuming we can document stable employment and meet the requirements above, our DACA homebuyer may indeed be eligible for a conforming loan.

Creating a path to ownership for those on a path to US citizenship is an objective Fannie Mae is promoting through its practices and policies. We understand these and I feel a responsibility to help those new to our country share in the American Dream. If you need my confidential assistance, don’t hesitate to get in touch. Many years ago, my grandfather bought a property in Brooklyn, NY, and became an American homeowner. All of our family’s generations to come benefited from that decision and that outcome. The rest, they say, is history —- the modern history of the United States of America, if you ask me.

I lift my lamp beside the golden door, 

 

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

FHA FAQ

Maybe you just got the news from your loan officer that you need an FHA loan in order to qualify for your home purchase. “Oh brother,” you say, another acronym, additional lending jargon and still more ways to be confused about the whole mortgage process. Or not? What are the differences between an FHA loan and a “regular” or conventional mortgage? Let’s take a look at some of the most frequently asked questions that swirl around FHA loans and cut right to the chase of what you need to know in order to determine if an FHA loan is a good fit for you.

 

Q)  Is an FHA loan different than a regular mortgage?

A) Not really. At the end of the day, you’ll probably find yourself in a 30-year fixed rate loan. In fact, the core loan program is no different than a conventional or “conforming” mortgage but when you get an FHA loan, the lender who makes the loan to you is “insured” by the Federal Housing Administration.

 

Q)  Do I have to be a first-time buyer to get an FHA loan?

A) No! There are no first-time buyer requirements for FHA borrowers. Shoot, you can even refinance an existing conventional mortgage with an FHA loan if it ends up being the best option.

 

Q)  What’s the minimum down payment requirement for an FHA loan?

A) 3.5% in most cases. And even in high-cost areas where FHA loan amount maximums on a single-family home get to $726,525 (as of May, 2019), you can still put down only 3.5% if you qualify.

 

Q)  Do all FHA loans have mortgage insurance?

A) Yes, they do, but there are some key things to know about how it works. First, when you obtain an FHA loan, the lender will add UFMIP (up front mortgage insurance premium) of 1.75% of the loan amount to the loan balance but not to the loan-to-value. In effect, this form of insurance is paid as part of your regular payment of principal and interest because it is added to the initial loan balance. Then, you will also have monthly MIP (mortgage insurance premium) as an additional component of your total monthly housing payment. The amount of MIP and the duration for which it will stay depends on your scenario. Ask me or your loan officer if you have questions about this.  FHA loans require an impound account for taxes and insurance so when you make your payment each month, the MIP will be included in the total (along with principal and interest, property taxes and homeowner’s insurance).

 

Q)  Are the rates good on FHA loans?

A) Yes! Comparatively speaking, you’ll find that FHA rates are excellent.

 

Q)  My credit isn’t the best. Will I still qualify?

A) FHA has a very forgiving tolerance for lower FICO scores, as well as some of the shortest seasoning periods from a past bankruptcy, foreclosure or short sale. If you have credit challenges in your past, an FHA loan might just be the best fit for a mortgage with decent terms.

 

Q)  Are there any prepayment penalties on an FHA loan?

A) Never. And if rates get better in the future, you may be able to avail yourself of an FHA streamline refinance.

 

Q)  Can I use a non-occupant co-borrower to help me qualify?

A) Yes. Also known as “co-signers,” FHA loans permit a family member, for example, to assist with your qualification if you are unable to go it alone.

 

Q)  Are gift funds allowed for my down payment?

A)  Yes, and they may constitute 100% of the down payment.

 

Q)  I have a lot of student loan and credit card debt. Is that OK?

A) All of your obligations are considered in an FHA qualification, but we allow a maximum total debt ratio of 57%, which is very forgiving (conforming loans max out at 49.99%). Be mindful of the fact that if you live in a community property state (like California) and you are married, the liabilities of your spouse must be considered as well, even if that person is not on the loan itself.

 

Q)  Can I finance a condo with an FHA loan?

A)  Yes, but the condo project must be FHA approved and not all will be on the FHA approved list, which you can find HERE.

 

Q)  Can I get a renovation loan through the FHA?

A) Yes. The FHA 203K loan is specifically designed for renovation projects.

 

Q)  I found a two-unit home that I love. Will FHA permit multi-unit real estate?

A) Yes, the FHA program allows properties between one- and four-units. You can use the rental income from the other units to help qualify, though some restrictions and important guidelines apply. If you are considering a multi-family dwelling, be sure to discuss this with your loan officer.

 

Q)  Can I use an FHA loan for an investment property?

A)  No. FHA loans are limited to primary residencies only.

 

Of course, you may have other questions about FHA mortgages that are not addressed here and that’s an invitation to get in touch at any time and let me know what’s on your mind. The FHA program has helped countless buyers realize the dream of responsible home ownership and if you think it may be a good fit for you, we look forward to being of service.

Frequently asked, seldom imitated… 

 

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