Your Credit May Be Good, But Is It Jumbo Good?

“I have an 800 FICO so I know I’ll qualify…”

We, here at Guaranteed Rate, pride ourselves on being a great jumbo mortgage lender. And because of my geography and clientele in the San Francisco Bay Area, we encounter a lot of higher loan amounts. Our rates are very competitive and we have many investors who can cover the needs of just about every jumbo loan scenario that can realistically be done these days. Moreover, we retain control of the underwriting, so we can exercise “makes sense” judgment and get files approved where many other banks and brokers cannot.

Yet, we are not immune to the quirks of the current state of jumbo mortgage lending and credit tradeline requirements definitely fall into the “quirk” category. A theme that will emerge here, and true to our opening statement, is that FICO score alone does not a jumbo approval make. As we’ll see, the credit requirements for jumbo loans reach beyond a borrower’s score and delve deeper into the components that comprise those very numbers, namely:

  1. Credit history — depth and age of tradelines.
  2. Blend of credit — distribution of open credit between mortgage, installment and revolving debt.
  3. Use of credit itself — how recently have accounts been used?

If you are in the market for a jumbo mortgage, it’s important to work with a mortgage professional early, as some of these requirements simply cannot be met in the time period it would take to close a traditional escrow. Let’s look at one jumbo investor’s credit profile requirements:

  • Minimum of 3 open tradelines with minimum of 12 month history for EACH borrower.
  • Authorized user accounts cannot be used to meet minimum tradeline requirement.
  • Credit depth must be a minimum of 2 years.
  • All 3 tradelines must have had current activity.

Or another’s:

  • Minimum 3 tradelines open and active for at least 24 months.
  • At least one of the three tradelines must be a mortgage or installment loan.
  • Remaining tradelines must be rated for 12 months.

So, a moral of this story might be that you may indeed have a very good FICO score. But if you do not demonstrate to a jumbo mortgage investor that you can produce a high score by way of the behavior that they believe will most likely lead to repayment of their loan, you may find yourself on the outside looking in. Remember, if you don’t like to use credit — if you pay cash for that auto, if you eschew credit cards — this can be highly effective financial behavior from a personal standpoint, but it can leave the mortgage lender in the dark about whether you’ve got the right credit curriculum vitae.

 

If you have questions about a jumbo home loan and/or about how your credit report and profile will be viewed by a jumbo lender, get in touch today. I can help you make sense of what it takes to qualify for a jumbo mortgage, and in many cases, we can find just the right investor to work with your existing credit profile. Your credit may already be excellent but we’ll make sure it’s jumbo good.

 

Rob Spinosa
Senior 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 ChicagoIL 60613 – (866) 934-7283

Part-Time Jobs, Second Jobs and Your Mortgage Application

I remember thumbing through the Recycler in Los Angeles when I first moved out there as a teenager.  Living on a shoestring budget, I was especially intrigued by the ads that promised the ability to make thousands per month while sitting in the comfort(?) of your home.  In my mind, that meant I could keep my day job, practice guitar eight hours and day and still have some other check rolling in without too much trouble.  Who wouldn’t like that?  I never actually pursued any of these trinket-making, envelope-stuffing, part-soldering side hustles, but the reality of part-time income, either as a primary or supplemental source of monthly revenue, is appealing to many and necessary for some.  But what happens when these individuals make a mortgage application and attempt to qualify with some or all of this income?

Part-Time Income

Just because you don’t work a full 40 hours a week does not mean you are disqualified from getting a great home loan.  Maybe you have a seasonal job or a position that does not require a set schedule.  If you have a two-year history of earnings in this role and you can document this with paystubs, W-2 forms, tax returns and a verification of employment, you’re in business in our eyes.  Consistency is key and the more you have of it, the easier it will be to qualify your income from a part-time position.

Secondary Income

In today’s gig economy, many individuals earn extra income through a secondary position, such as driving for Uber or Lyft, for example.  Still others, because of a highly refined skill in technology and/or medicine might find themselves effectively working a second job due to their expertise (and assuming a non-compete clause doesn’t prevent them from doing so).  Here too, even if the income earned is substantial, we will generally not qualify it unless there is at least a two-year, documented history of its earning.  We must also show that the secondary position continues, so we would verify this employment with the employer just as we’d typically do for your primary job.

Burning the Candle at Both Ends

Here are some of the things that will disqualify, or at the very least make challenging, the use of secondary or part-time income.

  • Payments in cash.
  • Irregular schedules.
  • Multiple secondary jobs that do not appear stable.
  • Part-time positions that do not appear to be ongoing.
  • Second jobs that pay you as an independent contractor (1099).  These technically create a “self-employment” situation where we would need a two-year history of tax returns which support consistent self-employed income.

This is not a complete list, but it will give most a good sense of whether their scenario might get consideration by a mortgage lender and allow them to use the income to help qualify for a home loan.  If you have secondary or part-time employment and you need it to help you purchase or refinance, get in touch at any time and we’ll be happy to assess your situation and advise on what’s possible.

Help wanted, 

Rob Spinosa
Senior 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 ChicagoIL 60613 – (866) 934-7283

Can Income from Your Vacation Rental Help You Qualify for a Mortgage?

Ok.  I’m going to go out on a limb here and say that someone reading this post has, at one point in his/her life, taken an Uber to an AirBnB.  It makes sense and it’s a perfect exemplification of the “gig economy” working in both housing and transportation.  Take a car you don’t own to stay in a play you don’t own, yet efficiently meet the needs of your travel and lodging.

What about the other side of the equation?  Let’s say you’re the owner of the property that you list on a short-term rental website?  And let’s go a step beyond and say that you make a practice of renting your property such that it generates a quantifiable amount of income each year?  Can you use this income to qualify for a mortgage?

The Basics

Let’s first paint rental income in some broad strokes.  We’ll come back to some of these later so it’s important to understand how the mortgage industry treats rental income in general.

  1. Rental income almost always needs to be generated by an investment home.  This means the subject cannot be a primary residence or a true second/vacation home.  In cases where the property is a multi-unit (duplex, triplex, 4-unit), it is acceptable if one of the units is a primary residence while the other(s) is rented.
  2. Rental income, for the vast majority of mortgage qualifications, requires a one-year lease agreement in place.  Yes, the lease may have converted to month-to-month after the first year, but lenders are looking for stability and they largely define that as a 1-year lease to start.
  3. Guidelines will vary depending on whether the borrower is purchasing or refinancing, so in the latter case, demonstrating rental income on a property by way of a two-year tax return history can go a long way towards establishing stable and usable income.
  4. Boarder income (rooms rented within what is usually a single family residence, or SFR) is not generally allowed as qualifying income with a few exceptions.  If you think you may have such a situation, let me know and we’ll discuss in detail.

Off We Go!

I realize that some “vacation” rentals are just that.  Stunning locations, resort-like amenities, etc.  But what about the very “workmanlike” accessory unit (aka, “ADU”) on your primary home that you’ve consistently rented out over the last few years?  Sure, you’ve never had a long-term tenant or lease, but thanks to technology, you’ve been able to keep the unit rented for a majority of days in the year.  Here, we’re going to assume our borrower is looking to refinance and use the income generated by the short-term rental to help with the qualification.  Let’s again go to the numbers:

  1. If this property is your primary home AND it’s a single-family residence AND the accessory is legally permitted AND you have a two-year rental history per your tax filings, it’s likely you can use this income to qualify.  On a purchase, a rental survey would be used to determine the market rents.  On a refinance, the owner’s tax returns would show the historical rental income/loss.
  2. If you do not claim rental income on your tax returns, you cannot use it to qualify, even if you have the rental receipts to show you’re renting the property.  An exception here might be a bank statement or investor loan that does not require tax returns.
  3. If the home in question happens to already be your vacation residence, you cannot refinance it as a second/vacation home and use rental income from it.  Vacation residences cannot claim rental income per the definition of their occupancy status.

The Devil in the Details

As you can see above, the underwriting attitude surrounding short-term rental income is more favorable than it was in the past.  The trend is good.  But if you’re going to make a case for using short-term rental income (AirBnB, VRBO, etc.) from a property you own, your best bet is to have a 2-year history of declaring the income on your tax returns.  It’s further helpful to have all of your service provider receipts for the renting of the property.  Last but not least, your property must be legally able to be rented both per the terms of your existing or new financing and by any ordinances in the town where the property is located.  With the above, we are available to help with an understanding of what’s possible in terms of your mortgage goals, so get in touch any time.

Bon voyage, 

Rob Spinosa
Senior 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 ChicagoIL 60613 – (866) 934-7283

What Is an Alternative Mortgage?

Every so often in popular music, movies, art and culture, the unconventional becomes the rage, the “alternative” becomes mainstream.  When it does, it usually reshapes people’s ideas of what’s “normal” and it can redefine what’s acceptable — even preferred — for a generation or more.  But…mortgage lending is not quite that exciting.

No, instead, alternative mortgage lending, also known as “non-QM” or “unconventional mortgage” or even yesteryear’s “Alt-A,” simply provides a viable solution to home loan scenarios that don’t quite fit in the relatively narrow box of conventional mortgages.  Conventional loans include mainstream conforming loans, FHA and VA programs and even the widely-accepted jumbo mortgage options for those who need loans with higher amounts.  But for now, let’s focus on some of the main alternative mortgage programs and how they help buyers and homeowners in the real world.

Asset Depletion

An asset depletion loan allows a buyer or borrower to leverage his/her cash equivalents, investments and sometimes even retirement accounts to derive a hypothetical income stream that can be used for qualifying. These assets do not need to be moved or liquidated, just documented. For those who have sufficient net worth but insufficient traditional qualifying income, an asset depletion loan (also known as asset-backed, asset utilization, asset amortization, etc.) can prove an ideal solution.

Bank Statement Qualification

Business owners who show strong income into their business may want to consider a bank statement loan as an alternative to a stated income loan. For a bank statement qualification, we will typically examine 12 months of business bank statements. We’ll total all of the legitimate business deposits and we’ll apply an expense ratio to that sum. The resulting figure is the qualifying income. For those who “write off” a lot of business income on tax returns, a bank statement loan may circumvent that age-old challenge, because for these programs, no tax returns are required.

Debt Service Coverage Ratio (DSCR)

For the real estate investor who will struggle with a conventional mortgage qualification, we now have the debt service coverage ratio, or DSCR, home loan option. This program looks at the property’s income and nets out the housing payment on it. As long as the ratio is positive (and all other qualifying criteria are met), we have a deal.

Another great aspect of alternative lending is that some of the features above can be combined, or other positive aspects of a borrower’s profile can be added.  For instance, those who have a lot of equity in real estate may be able to parlay some of it into qualifying income, then combine that with regular asset depletion and circumvent an issue a conventional lender may be having because this same person’s tax returns don’t really show the fair story.

The moral of the story is that there’s a “makes sense” element to approving alternative mortgages and if you feel that the mainstream lending industry hasn’t given you a fair shake, we are here to help match you to a program that sees the light and gets you a great outcome.

Get on the snake, 

 

Rob Spinosa
Senior 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 ChicagoIL 60613 – (866) 934-7283

Howdy, Partner!  How’s the Income Look on Your Mortgage Application?

I don’t care how successful your S-Corporation or partnership may be.  When you go to get a home loan, there will be a new sheriff in town — your mortgage lender.  So before your loan process gets hung up at high noon, I thought I’d let you in on a secret about how most lenders will qualify your income.  Let’s go, amigo.  We’re burnin’ daylight.

Check Yourself

Most of what we focus on below will pertain to the self-employed partner or owner in an S-corp.  The widely-accepted definition of ‘self-employed’ is greater than a 25% ownership interest in any business entity.  So, look at your K-1 form if you don’t already know.  If your ownership interest exceeds 25%, you can expect that your mortgage lender will ask you for not only your personal income documentation (as applicable); paystubs, W-2 forms, K-1 forms and personal tax returns (1040 Federal Tax Return), but also the Federal tax returns of the business entity itself.  In the case of a partnership or LLC, this will be a Form 1065 and in the case of an S-Corporation, this will be an 1120S.  “But wait!” you say, “They can claw the business returns out of my cold, dead hands!”  OK, that’s why we’re having this conversation, partner.  Get this straight with your tax professional and the other owners before finding yourself in this one-horse town.  If you’re greater than a 25% owner, we need your business documents too.

Saloon Math

Assuming you’re greater than a 25% owner and we now have the ability to review your documents, we’re going to start analyzing your income by reviewing your K-1 forms.  A very key piece of your qualification, and one that most do not know about, is that we are primarily looking for distributed income.  Owners who receive ordinary income (Box 1) but do not have distributed income will often have difficulty qualifying with K-1 income.  Yes, they could still qualify with so long as the business itself is not showing a loss in that year(s), but frequently a business owner will have both compensation to officers (W-2) and K-1 income.  When income is not distributed, we will next turn to the balance sheet on the business tax return and seek to prove business liquidity.  We will almost always require additional support from the tax preparer to state that distribution of previously undistributed income would not cause financial harm to the business.  These kinds of requirements often rankle not only the tax preparer but the business owner himself/herself.  So again, before galloping into this town, guns a-blazin’, have your posse ready to save your hide.

The OK Corral

Here’s what I find most often.  If a business (partnership, LLC or S-corp) is doing well and paying both wages and distributed earnings to its owners, it’s a fairly straightforward qualification.  Yes, there is more documentation required but if the business keeps good books, none of this is tragically problematic for the borrower.  Where a business is not distributing earnings, things can get a little trickier, but certainly not impossible.  Lastly, and thankfully more rarely, are businesses where they are paying out wages (W-2 earnings) but posting a loss on the K-1 and/or business returns.  These borrowers should expect for that cover to be blown shortly after getting out of the saddle.

If you are a self-employed business owner, especially a partner, LLC member or S-Corp owner and you are having difficulty getting a great loan, don’t assume that your loan officer understands how to qualify your income.  Sadly, many in our profession lack the knowledge, expertise and experience and there is no education or licensing requirement that could assure you they know what they’re doing.  Ultimately you would find out once your loan goes through underwriting, though you may not have the luxury of waiting.  If you need clear, expedient answers on these scenarios, whether you are a borrower yourself or a tax professional assisting a borrower with a mortgage application, get in touch any time and I’ll be happy to help.

Giddy up, 

 

Rob Spinosa
Senior 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 ChicagoIL 60613 – (866) 934-7283

Form 1098 and Your Mortgage Interest Statement

“At first you go bankrupt slowly, and then all at once.”  This quote has been attributed to Ernest Hemingway, Mark Twain and even F. Scott Fitzgerald.  Indeed, it’s a great one, though fortunately I cannot personally attest to its veracity.  Nevertheless, it does touch on a concept I want to cover at a particular time of year — from about mid-January to the end of February.  It is during these weeks that most of us gradually give up our moorings to the previous year and then suddenly realize that we need to start planning to file our tax returns for it.  Also during this time, we receive our W-2 forms, 1099s and, if we hold a mortgage, our Form 1098.  With the help of one of my very capable colleagues at Guaranteed Rate, Michael Most, I’ve compiled some of the most frequently asked questions and answers regarding this document.

Q: What is a 1098?

A: The 1098, also known as the Mortgage Interest Statement, is a form issued by a mortgage servicer to the borrower which details the interest and expenses paid on a mortgage during a tax year. These expenses can be used as deductions on U.S. income tax form Schedule A, which reduces taxable income and the overall amount owed to the IRS. Tax disbursements are not included on the 1098. Contact your county tax authority for those figures.

Q: Where can I find my 1098?

A: Your annual 1098 comes from the company that services your mortgage loan (your “servicer”). Verify the lender has your correct mailing address if you are not living in the home. Most servicers allow you to access and print tax forms free of charge by logging into your account on their website. Guaranteed Rate provides 1098 copies from previous tax years upon request.

Q: When can I expect the 1098?

A: The IRS requires that tax documents are available on or before January 31st, which is the typical distribution date. The 1098 form is mailed to the address listed for the primary borrower.

Q: I have multiple borrowers on the mortgage. Do we all file the 1098?

A: 1098s are mailed solely to the primary borrower listed on the mortgage. If multiple borrowers are listed on your mortgage, you may decide among yourselves who will file the form. The form may only be filed once.

Q: Is there any way to get the 1098 myself?

A: Most long-term servicers allow you to access and print tax forms free of charge by logging into your account on their website.

Q: Can I obtain a copy of my 1098 from years past?

A: Guaranteed Rate can reprint and mail 1098 forms, which may take several business days.

Q: The 1098 I received doesn’t reflect all the payments I’ve made.

A: It is possible that you made payments to more than one servicer during the year. Please allow until February 15th to receive the 1098 from all servicers.

As always, please call or email me with any additional questions. For specific questions regarding taxation and the filing of your income tax returns, please be sure to consult your own tax professional.

The sun also rises, 

Rob 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 ChicagoIL 60613 – (866) 934-7283

What Kind of Insurance Do You Need When You Buy a House?

Let me start by saying that I’m not in the insurance business, but that the insurance business is in mine.  And my business is helping home buyers and homeowners get a great mortgage.  So just what are the insurance requirements when you buy a home or go to refinance a mortgage on residential real estate you own in California?  Why does your lender care about the insurance coverage you keep?

Homeowner’s Insurance

Also known as “hazard insurance,” or “fire insurance,” this is the key policy you will be required to carry if you have a mortgage.  While the actual coverage may seem to be a clear benefit to you, there’s a mutual benefit for the lender.  After all, the home is both where you live and the collateral for the lender’s loan.  Without the home itself, it’s unlikely the lender would/could ever be paid back in the event of a loss.  By this logic, some homeowners who are “free and clear,” meaning they have no mortgage, will opt not to carry a homeowner’s policy.  In the event of a total loss from a fire, for example, they would be completely out of a place to live with no reimbursement for loss of its use.  Ouch.

Flood Insurance

If your lender determines that your property is in a FEMA special flood hazard area, you’ll be required to carry flood insurance.  Regulation requires that mortgage servicers impound your flood insurance premium even if your homeowner’s insurance and property taxes are not impounded (aka “escrowed”).

Earthquake Insurance

Earthquake insurance is not required by lenders in California, even though the risk of earthquake damage is real in many areas.  You can, at your discretion, purchase earthquake insurance but only about 10% of CA owners will choose to do so.

Title Insurance

When you buy a home and use financing, you’ll be required to get a “lender’s” title insurance policy.  This protects the lender from title defects and future claims against the title (which, like with homeowner’s insurance, could jeopardize their rights to the collateral).  You’ll notice that you’re also being quoted an “owner’s” policy, which is technically optional.  The vast majority will purchase this coverage too, and with good reason.  Should anyone claim an interest in your property down the road, the owner’s policy would provide you cover and the title insurer would step in to deal with the claim.  Worth noting is that the owner’s title insurance policy is in effect for the time you own the home.  The lender’s policy is in place for the time you hold the specific loan involved in the transaction.  If you refinance, you would purchase only a new lender’s policy.

Life Insurance

Like earthquake insurance, life insurance is not required when you take on a mortgage.  Also like earthquake, it may not be a bad idea.  Life insurance can help a surviving spouse pay off or better manage the payments on a loan in the event of the death of the other spouse, and you can make a very good argument that life insurance is an incredibly responsible financial purchase to consider at the time of home ownership.  We work with some great life insurance agents on a regular basis, so ask if you need a recommendation.

Private Mortgage Insurance

I am including private mortgage insurance or “PMI” in the insurance category because it makes sense that when borrower looks at the voluminous paperwork involved in buying a home, all of the insurance terminology starts to look the same.  But PMI is exclusively related to your mortgage and if you’re putting at least 20% down and/or not using an FHA loan, you may not have PMI at all.  So the best way to look at PMI is not as an insurance coverage required by the property, but one sometimes required by the loan.  You also do not need to “shop” for PMI like you would any of the other insurance types listed above, like homeowner’s.  Your lender should always attempt to find the least expensive private mortgage insurance available among the eligible providers.

So, to recap.  If you have a mortgage on a home, you will always need homeowner’s insurance and a lender’s title insurance policy.  You may be required to carry flood insurance.  Depending on your loan’s characteristics, you may also be required to have private mortgage insurance.  Owner’s title insurance, earthquake insurance and life insurance are up to you.  If you need help or perspective on these decisions and choices, I am always available to share my experience and insight.  We routinely work with many great insurance professionals because our industries are inevitably intertwined with the financing of real estate.  If you would benefit from a referral, please don’t hesitate to ask.

You’re in good hands, 

Rob 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

Conforming a Little More Each Year

If you know me, you know that I don’t like to stick to convention.  I was the teenager who skipped college, moved to Hollywood and played rock guitar.  In my 20’s, I saved up vacation time not for sandy white beaches but instead for expeditions to the harsh mountain environs of the world’s highest peaks.  In my 30’s, I dove (literally) into the sport of triathlon — an endeavor, to quote my Aunt Marge, that would be something she’d “rather die a thousand deaths” before contemplating.  When I come to the fork in the road where straight and narrow diverges from the path less traveled, you can bet your best Yogi Berra’ism that I’m gonna take the latter.  So to write a blog post solely about the increase in conforming loan limits tests my own limits of conformity.  But for once, I am going to go along with the crowd and talk about pending changes coming to the San Francisco Bay Area, and across the state of California, in 2020.

Let’s step back for a minute and recognize that for the entire state (and country), the current conforming loan limit for a single family residence is set at $484,350.  In many of the higher cost, coastal counties of CA, we also have a “jumbo conforming,” “super conforming,” or “high-balance conforming” loan limit that exceeds this limit.  For example, here in my home county of Marin, that limit is presently set at $726,525.  Let’s look at how these will increase in 2020:

2019 Conforming Limit        2020 Conforming Limit

$484,350                                    $510,400

2019 High Balance Limit     2020 High Balance Limit     County

$726,525                                   $765,600                                      Marin

$726,525                                   $765,600                                      Alameda

$726,525                                   $765,600                                      Contra Costa

$652,050                                   $672,750                                      Monterey

$726,525                                   $764,750                                      Napa

$726,525                                   $765,600                                      San Benito

$726,525                                   $765,600                                      San Francisco

$726,525                                   $765,600                                      San Mateo

$726,525                                   $765,600                                      Santa Clara

$726,525                                   $765,600                                      Santa Cruz

$494,500                                   $494,500                                      Solano

$704,950                                   $704,950                                      Sonoma

As of the writing of this post (late December of 2019) we have already begun to implement the higher limits, so if you believe any of these increases will impact your purchase or refinance mortgage, please let me know.  I am a big fan of the higher limits because a conforming loan generally provides an easier qualification compared to a jumbo mortgage, and simply because we have higher home prices in the Bay Area should not be a reason to subject borrowers to a more burdensome loan process.  Yes, I realize that much of the country may not dance to the beat of my drummer.  But even though I don’t conform to their point of view, my idea of conforming is increasing, and that’s a step in the right direction.

We don’t get fooled 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

Are Your California Property Taxes On Supplements?

Are you one of the 77% of U.S. adults who takes some form of nutritional supplement?  If so, you’ve contributed to the estimated $31 billion dollars of revenue that this industry generated in 2018.  So it stands to reason that California counties would want in on the supplemental action and they’ve figured out just the way to do it…

Seriously, taking on home ownership for the first time is a big responsibility.  And since many first time buyers are coming from a background of paying rent, it’s important that we, in the mortgage industry, educate them about how making a monthly rent payment differs from coming up with the new housing payment once the home is yours.  Specifically, buyers are no longer just responsible for their “payment,” meaning the rent or mortgage payment, but once owners, they also shoulder the responsibility of  homeowners insurance premiums and property taxes.  We’re going to focus on the tax piece and we’re going to take it a step further and detail what you need to know about supplemental property tax bills in California.

(Trying to) Keep It Simple

When you buy a home in California, your property tax rate will be determined, in part, by the price you pay for the home.  If you’re buying a previously owned home, this was also true for the seller, though the seller’s tax basis will almost certainly be different than yours.  Supplemental taxes effectively adjust the seller’s tax basis to yours, as the buyer, and a separate bill is often issued to “catch up” the new basis with the previous one.  Let’s use a rudimentary example.  If the seller paid $800,000 for the home five years ago and had a 1.25% property tax rate, his annual tax bill is $10,000.  If you buy the home for $1,000,000 and the tax rate is the same, your annual taxes will be $12,500.  Again, being overly simplistic, a $2500 supplemental bill will be issued to you, the new buyer, in the first year.

When Is a New Buyer Billed for Supplemental Taxes?

“When” is not easy to predict and will depend on the individual county.  After your purchase, the County Assessor will appraise your property and advise you of the new supplemental assessment amount.  Bear in mind that the assessed value is usually neither the same as your lender’s appraisal value nor the price you paid for the home, though the latter is part of what drives the tax basis going forward.  Before the supplemental bill is issued you can appeal the Assessor’s assessment and, if you will occupy the home, apply for a Homeowner’s Exemption, which will lower your basis slightly.  The bill, once issued will indicate the amount owed and the date the taxes will become delinquent.

When and How Do I Pay My Supplemental Taxes in California?

All supplemental taxes are payable in two equal installments.  The taxes are due on the date the bill is mailed and are delinquent on specified dates depending on the month the bill is mailed as follows:

  1. If the bill is mailed between July and October, the first installment becomes delinquent on December 10th of the same year.  The second installment becomes delinquent on April 10th of the next year.
  2. If the bill is mailed between November and June, the first installment becomes delinquent on the last day of the month following the month in which the bill is mailed.  The second installment becomes delinquent on the last day of the fourth calendar month following the date the first installment becomes delinquent.

A very important item to note is that supplemental taxes are most often the responsibility of the homeowner EVEN IF the owner has an impound/escrow account for their “regular” property taxes.  So all those who have a VA or FHA loan, take note.  Yes, your loan’s servicer may contact you regarding the supplemental bill and may provide options on how to pay them most efficiently given your servicing arrangement, but barring any notice or contact, the supplemental taxes are your responsibility and are IN ADDITION to your regular property taxes being handled through your mortgage payment.  And remember, supplemental taxes are only applicable to the first year of ownership.  Thereafter, the basis correction is factored into the regular tax bills and you will only continue to receive those.  In CA, the regular bills are issued in October, technically due November 1 for the first installment, with a late date of December 10.  The second installment is due February 1 and late April 10 and you can find more information about paying your “regular” property tax bill HERE.

If you find your property taxes on supplements, get in touch any time if you need to cut through the noise and better understand your responsibility as a new homeowner.

Pass the broccoli, Barry, 

 

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 Yin and Yang of Mortgages for Business Owners

It is no secret that the self-employed have their share of challenges when it comes to getting a home loan. And why wouldn’t they? On one hand, their tax professionals spend hours maximizing their deductions and helping them “write off” every allowable expense and on the other hand, their mortgage loan advisor tells them they have to show more income in order to qualify.

But can these seemingly opposite or contrary objectives actually be complementary, interconnected and interdependent and come together to allow a business owner to get a great mortgage?  Is there a yin and yang relationship somewhere in this puzzle?

Indeed, there may be a solution for some of these borrowers. On both the purchase and refinance side, we have a jumbo mortgage program that allows the self-employed to qualify with bank statements instead of tax return income. We’ll look at 12 months of business and personal bank statements but we won’t request pay stubs, W-2 forms or personal or business tax returns. Here are the key points:

Who is Eligible for a Bank Statement Mortgage?

This program is a match for the self-employed business owner with two-year history of operating the sole proprietorship, LLC, S-Corp or C-Corp. We prefer to see 100% ownership of the business but we can make some exceptions to this guideline. We do not allow any major derogatory events (bankruptcy, foreclosure, short sale, etc.) within the last five years. Realtors, independent contractors and other professionals who receive a 1099 are also ideal candidates for this bank statement loan.

How Does a Bank Statement Mortgage Work?

We’re next going to look at 12 months’ worth of business bank statements and we’re going to get a sense of the business deposits over that period of time. We’ll apply a 50% expense ratio to derive our qualifying income. So, for example, if the business shows $40K of monthly deposits on average, our business owner and borrower now has $20K per month of qualifying income. Simple as that, except we exclude any windfall deposits, transfers to and from accounts or anything other than legitimate business deposits.

What Else Do I Need to Know?

We will permit all occupancy types (primary, vacation and rentals) and we’ll allow loan-to-values (LTV) up to 75%. Interest-only payment options exist and our maximum debt-to-income (DTI) ratio is 47%, because this is a non-QM program. Simply, you have more flexibility under these guidelines than under the stricter qualifying parameters of a qualified mortgage (QM). Best of all, and worth repeating, we will not request your tax returns and we don’t need to see a profit and loss (P&L) statement for the business — the bank statements are our path to inner peace and harmony.

Bank statement qualification mortgages can open the door for the hard working business owner who has heretofore had little luck getting a hefty mortgage payment to fit into his skinny tax returns. If you’d like to know more about this program today, get your ticket at the station, get in touch and I’ll be happy to help.

Confucius say, 

 

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