Closing in the Name Of

January 24, 2019 ~ Rob Spinosa ~ Leave a comment

There will be no profanity in this post, just in case you get the cultural reference in the title. I won’t even repeatedly scream at you. Instead we’re going to cover a topic that sidesteps injustice, drama or even frequent occurrence, but it deals with a scenario that comes up occasionally and when it does, there is quite a bit we should know before taking action. So let’s talk about closing a residential real estate transaction in the name of an LLC or other business entity, like a partnership or a corporation. Can you do that? What’s different and where does one start the process?

[Too lazy to read the rest? Watch the video instead!]

Guarantee, Guarantor, Guarantas

The first two words above, anyway, are the key concept here. It is indeed possible for a one- to four-unit residential property to be closed or vested in the name of a business entity, but when this happens, essentially what’s transpiring on the lending side is that one or more of the business owners are using their personal income, asset and credit profile to guarantee the loan on behalf of the entity. So, in essence, the “borrower” becomes a “guarantor.” Again, critical to grasp the concept that the business itself is not the borrower(s). If that were the case, we’d be talking about a commercial loan and not a residential mortgage, as here.

Wage Against the Machine

Consistent with a traditional mortgage for a traditional borrower with a traditional credit profile, our business entity borrower will have to provide an additional layer of documentation pertaining to the business itself. When vesting or closing in the name of an LLC, partnership or corporation, the owners of the business, if not the same as the borrowers/guarantors for our loan, will need to provide articles of incorporation, partnership agreements and other forms and questionnaires to support that the owners are all aware that a mortgage is being taken on the subject property. Perhaps most importantly, when seeking to obtain a loan in the name of a business entity, expectations need to be set up front to assure that the “borrowers” as well as the other majority owners in the business understand what will be involved.

So yes, we can close in an LLC. We can close in a partnership or corporation too. But we have to view things differently from Day 1 in order to get it right and our clients must understand what will be expected of them and their co-owners. With the new tax laws and with an increasing number of real estate investors holding their properties in an entity for both legal and tax purposes, closing in an LLC or other entity is becoming more common. If you have questions about how to efficiently get a mortgage in the name of such an entity, let me know how I can assist.

Some of those that work forces,

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 Mortgages with 10% Down (80-10-10)

January 2, 2019 ~ Rob Spinosa ~ Leave a comment

Just a few short years ago, if a buyer here in the San Francisco Bay Area attempted to purchase a home with a 10% down payment, the call I would anticipate from the listing agent might have gone something like, “Uhhh, your buyer is only putting 10% down. Can they even do that?” But as we get 2019 underway, with some higher-priced homes sitting on the market for longer and others seeing price reductions from their original list price, savvy buyers are taking advantage of these trends and again putting forward strong offers — albeit some with only 10% down. Can they still do this and win?

Of course the answer is “Yes!” But since some doubt still swirls around the topic, why don’t we look closer at jumbo mortgages with 10% down. Particularly the piggyback option.

“What is 80-10-10 Financing?”

I remember my grandmother calling the refrigerator a “Frigidaire” and our jeans “Dungarees.” So it is with 80/10/10 financing. It’s sort of the brand name we bandy about when what we’re really discussing is a concept, and the manifestation of that concept is subordinate financing, AKA as a “piggyback loan.” Most simply described, a buyer using this structure will be obtaining two loans instead of one in the purchase of a home. This is often referred to in broad strokes as an “80-10-10” loan.

“How Do 80/10/10 Loans Work?”

When we say “80/10/10” we are specifically implying the following:

A first mortgage to 80% of the home’s purchase price.
A second mortgage equal to 10% of the home’s purchase price.
A buyer’s down payment for the remaining 10% of the purchase price.

Since the lending world is replete with guidelines, it doesn’t always play out exactly this way, and for any number of reasons. Just keep in mind that “80-10-10” could also just as easily be 75-15-10, or sometimes when we need to use a conforming first mortgage, you could even see a 62-28-10, for example. You get the idea, we don’t always have to be at a strict 80% and 10% for the loan amounts. But no matter how we structure the transaction, the sum of both loan amounts plus the down payment will equal 100% of the purchase price.

“Can I Qualify for a Piggyback Mortgage”

When obtaining a jumbo 80-10-10 loan, the first mortgage will typically be a fixed rate loan (30-year fixed) or a hybrid ARM (10/1 ARM, 7/1 ARM or 5/1 ARM). The second mortgage is most often a home equity line of credit (HELOC). There can be different qualifying criteria for both loans and your loan officer will have to navigate two sets of guidelines in most cases. Not all loan originators are adept at subordinate financing but for my clients, the pre-approval process for a piggyback loan is identical to the process for obtaining a single loan — we understand it on every level. While an 80-10-10 can sometimes be harder to obtain than a single loan, there are also cases where it can enable an approval that otherwise would not exist. For example, a buyer may not qualify for a single loan of $750,000, but may pass with flying colors if the loan is restructured as a first mortgage of $625,000 and a second loan of $125,000. Same total sum borrowed, but two very different outcomes.

As a home buyer looking for a jumbo loan with a 10% down payment, it may be intimidating to search for the perfect loan options. A preponderance of outdated and confusing information will often greet you “in the field,” and many real estate professionals will still tell you a 10% down payment jumbo loan is not possible. But as we stand on the cusp of 2019, we presently have the capacity to allow a buyer to make a 10% down payment, using the 80-10-10 structure, on a purchase price almost as high as $2,200,000. And here in the San Francisco Bay Area, this is not an uncommon scenario. Get in touch today if you have a home loan need of this nature!

Happy New Year!

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959 Fax: 415-366-1590
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

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

So You Wanna Buy a Home in 2019?

January 1, 2019March 17, 2020 ~ Rob Spinosa ~ Leave a comment

You’ve decided that 2019 is the year when you stop throwing away your rent money and paying someone else’s mortgage. Maybe you’ve even made this a written resolution and saved up a down payment to show for it. But up until this point, it’s just been a vision, an item on a wish list or — how millennial of you — a dream board. Perhaps you came close to pulling the trigger in 2016, 2017 or 2018, but the thought of getting beat out by the severe competition was just too anxiety inducing to bear. However, this time will be different because as the last strains of 2018’s Auld Lang Syne faded into the midnight air, you decided this is it. This is the year. Good for you.

What You Need to Know

2019 is starting with interest rates trending lower and (once normal market activity resumes) a greater amount of housing inventory. The extreme sellers’ markets of years recently passed are giving way to more price reductions and longer days on market. These are all very good signs for the buyer, first-time or otherwise. Credit availability is at its best levels since before the downturn of 2008 and while you still need to qualify to get a loan, even the self-employed borrower or the entrepreneur without a steady paycheck now has a multitude of mortgage options that allow them to jump into the market with their less-financially-complex brethren. And low down payment options remain as well; 0% down for veterans, 3% down for conforming loans, 3.5% down for FHA and 5% and 10% down on super jumbo. Speaking of conforming and FHA, new and higher limits exist for the higher-cost areas of the country. Can you find anything negative in the paragraph above? Me neither! It’s still a great time to consider buying over renting.

What You Need to Provide

As mentioned above, we are still squarely in a “fully documented” world, even if bank statement and asset depletion mortgages don’t follow the traditional documentation guidelines entirely. Still, for most, getting your paperwork organized is a worthwhile exercise if you plan to purchase this year. As the year gets underway, you’ll want to create a folder for the following:

30 days worth of paystubs. If you earn bonus or commission income, save your year-end paystub from 2018 as well.
2 years of W-2 forms (you’ll have your 2018 W-2 by the end of January).
2 years of Federal tax returns. Until you file your 2018’s, we’ll work off of 2016 and 2017.
2 months of bank statements. Save all pages of your statements, even if blank.

Now if you’re self-employed, this list will vary, but we’re happy to help you understand your specific requirements. And remember, WE LOVE THE SELF-EMPLOYED. You work hard to maintain your business and we work hard for you.

What You Need to Do

Admittedly, looking at homes is the exciting part of your search and also admittedly, that piece does not fall within a mortgage lender’s purview. I’m sorry about that. However, no top-notch Realtor is going to take you out to look at property without a pre-approval letter in hand and that’s where we can assist. Our pre-approval process can be entirely digital (if you prefer), it’s free and it doesn’t obligate you in any way. Your pre-approval is valid for at least 90 days and can be updated if necessary. The exercise, even in a worst case, is insightful, informative and confidence-instilling. In my nearly 20 years as a mortgage professional, I can attest that going through the pre-approval process is the single best step any potential homebuyer can take. It makes you serious. It makes you smarter. It makes the difference and sellers can sense it when you make an offer. So invest in your pre-approval once you resolve that you’re serious about buying a home.

With diligent care, thought and planning, there’s no reason 2019 cannot be the year that sees you become a homeowner. Real estate ownership is, in many high-cost areas, a fundamental pillar that supports financial freedom and we’re here to help you understand what it takes to turn a resolution into reality.

Should auld acquaintance be forgot,

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

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

How to Get Rid of PMI on Your Mortgage

December 12, 2018 ~ Rob Spinosa ~ Leave a comment

Nearly every home buyer initially hates the “P” word — PMI, or private mortgage insurance. Years and years of conditioning have taught generations upon generations of first-time buyers that PMI is something to be avoided at all costs, and even though I daily go to great lengths to demonstrate this is patently untrue, even those that come to see the light about PMI and find themselves with a form of private mortgage insurance will soon arrive at their next concern: “When can I remove the PMI from my payment?”

Good Housekeeping

In the spirit of efficiency, let’s cover some basics first:

We’ll be talking about conventional PMI here, not the FHA version. FHA insurance (MIP) does not adhere to these rules.
All of our guidance here assumes that the borrower is current on payments. If there have been delinquencies, the game could change.
The Homeowners Protection Act (HoPA) of 1998 dictates that when a loan with PMI reaches a loan-to-value (LTV) of 78%, based on the original value, PMI must be canceled by the servicer. This is known as “auto termination.”
We’re going to base our guidance here on “agency” guidelines and that means the interpretations of Fannie Mae and Freddie Mac. You must always get specific policy from your servicer (the company to whom you send your payments).
We’re limiting the scope of our conversation to one unit properties. Multi-unit homes have different guidelines in some cases.

Borrower Requested Cancellation

So now that we know that the law requires your servicer to end PMI automatically when certain circumstances exist, what do you do when you realize that it could take years to get to a 78% LTV? You’ve probably heard that you can request a cancellation and demonstrate to the lender that your home has increased in value due to home appreciation in your area and/or that you’ve done improvements to the home that have increased its value. You basically have two options at this point:

Original Value. When your loan balance reaches 80%, or is scheduled to reach 80%, of the home’s original value (the price you paid for the home or the appraised value at the time you obtained the loan being refinanced), you can make a written request to have PMI removed.
Current Value. This implies that an appraisal will be done to determine the current market value of the home. When this has happened, the borrower may request a cancellation of PMI at 80% of the value assuming that the loan has a 5-year seasoning, a cancellation at 75% of the value with a seasoning of between 2 and 5 years, and a cancellation at any time if the borrower can demonstrate that improvement to the home has increased its value to 75% or less.

Be Like Blondie

The moral of the story here is to call me if you have PMI on your current loan and are thinking about removing it to lower your payment. I’ll help you assess if it’s possible and also present alternatives where they may exist. In some cases, a refinance is actually a better option financially, but in all cases, the review will be insightful and make you aware not only of your options today but any future thresholds you may cross that could enable your terms to become more advantageous.

Private eyes are watching you,

Robert J. Spinosa

Vice President of Mortgage Lending

Guaranteed Rate

NMLS: 22343

Cell/Text: 415-367-5959 Fax: 415-366-1590

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

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

Each Year I Conform a Little More

December 5, 2018 ~ Rob Spinosa ~ Leave a comment

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 2019.

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 $453,100. 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 $679,650. Let’s look at how these will increase in 2019:

2018 Conforming Limit 2019 Conforming Limit

$453,100 $484,350

2018 High Balance Limit 2019 High Balance Limit County

$679,650 $726,525 Marin

$679,650 $726,525 Alameda

$679,650 $726,525 Contra Costa

$615,250 $652,050 Monterey

$679,650 $726,525 Napa

$679,650 $726,525 San Benito

$679,650 $726,525 San Francisco

$679,650 $726,525 San Mateo

$679,650 $726,525 Santa Clara

$679,650 $726,525 Santa Cruz

$460,000 $494,500 Solano

$648,600 $704,950 Sonoma

We will begin to implement the new limits in December of 2018, 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 Fax: 415-366-1590

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

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

What the NRA Can Learn from the Mortgage Business

February 28, 2018 ~ Rob Spinosa ~ Leave a comment

Show of hands. How many of you identify the mortgage business, or better still, the subprime mortgage business, as the face of the last economic downturn?

Right or wrong, our industry served as the convenient scapegoat for what was, in reality, a much larger issue. As a result, we were specifically rewarded with a tectonic shift in regulation and oversight in the years that followed. The wrath of the pendulum swing exceeded even our wildest expectations. The legislative edicts ushered in by the Dodd-Frank Wall St. Financial Reform Act, and its appointing of a top cop in Richard Cordray of the CFPB, dawned a Dark Ages of credit availability. And though we’ve since become quite adept in making more with less, our industry will never be the same as a result. Some would say we had it coming.

Though the record will reflect that I was never a purveyor of subprime or stated income loans myself, I thought I would share my enlightened experience with the NRA. It seems to me they are finding themselves on the business end of a growing chorus of Americans who sense that a change is in the air and that the National Rifle Association is, this time around, the industry with the target on its back. That when innocent people are being gunned down in schools, at a concert or nightclub or, Lord have mercy, at church, something ain’t right. And I believe that one of these mass tragedies or another, or another, or another is going to be a last straw, a final stick in the spokes that sends the NRA’s whole Second Amendment joyride to a caterwauling, head-over-the-bars crash of spectacular proportions. But it doesn’t have to be this way. No, this relative calm before the storm is the NRA’s opportunity to carefully concede, on some of their own terms, to ideas whose times have clearly come. This is their last chance to marshal the last chance their brakes might arrest the careening descent of their overburdened, dilapidated old truck of ideas about gun ownership and gun rights. Before the wheels come off, they can either figure out what’s most important to their constituents, carve it out and keep it, or they can keep on barreling down their path to oblivion.

The mortgage business never sobered up. We couldn’t police our own punch bowl and leave the party in time so it ultimately took a Big Bang before it all went bust. After the smoke cleared, many walked away with tail between legs and without shirt on back. In retrospect, seems like cutting a bargain or two to avoid a complete meltdown, followed by a complete lockdown, would have been a sweet deal. But no, not us. We, too, were once invincible. We goaded them to come pry the NINJA loan out of our cold, dead hands. Then eventually, inevitably, they did.

Now it’s the NRA’s turn to get on the right side of history, embrace sensible change and help move America forward on this very complex and important debate. Or, they can continue to party like it’s 1899. If they do, they gotta know the cops are on their way.

Knock, knock, knockin’ on heaven’s door,

Robert J. Spinosa