Getting a Mortgage on a Vacation Condo in Hawaii

Now that you’ve snapped out of your daydreams of swaying palm trees and the enveloping comfort of warm tropical air, you may recall that in a previous blog post I covered the things we need to know when buying a second home in Hawaii, and using a jumbo mortgage in the purchase transaction. But what if, instead, you are looking specifically to buy a condominium to use as a second home? Are there any tips, tricks and general good advice when it comes to getting a home loan to purchase one of these? The answer is a resounding “Yes!,” and if you can follow some of the ones outlined below, you may just set yourself up for saving money, assuring a smooth process and securing terms that ensure that you can enjoy your vacation property for many years to come. First, let’s cover the essentials of any second home:

What Is a Second Home?

While any vacation residence may seem to fit the bill, true second homes have specific, defining characteristics in the eyes of a mortgage lender. For us, a second home must meet these three guidelines:

  1. Must be a reasonable distance from your primary residence. Since we’re going to assume you live in the contiguous 48 or Alaska, this is likely the easiest hurdle to clear.
  2. Must be suitable for your year-round occupancy. This goes hand-in-hand with the point to follow, but think of it this way. Your vacation home is yours. That means if you decide to show up for an impromptu weekend or an entire month of the winter, you don’t have to move anybody out. The home is always there for you when you want to occupy it for any amount of time.
  3. You must not enter into any rental agreements. Sure, AirBnB and VRBO have muddied the waters considerably but if you’re going to purchase a home, the true test is your intent. If you plan to make money off of the property, then you technically have an investment property and not a second home and your lender may approve or deny your loan application on that basis. And let’s be very serious. If you deceive your lender into approving a second home mortgage, presumably to take advantage of a lower rate and smaller down payment requirement, and then begin renting out the property, you could be in serious trouble on a Federal level. Just don’t do it.

Getting Your Condo to Conform

Fortunately, all five of Hawaii’s metropolitan statistical areas (MSAs); Hawaii, Honolulu, Kalawao, Kauai and Maui all have a 2019 conforming loan limit of $726,525 and this allows buyers some additional room to obtain a conforming loan. What is a conforming loan and why does that matter here? Well, conforming loans provide a great deal of uniformity and efficiency in underwriting and they also tend to provide the buyer with rates and terms that most would consider to be very competitive. In essence, a conforming loan option tends to narrow the scope of the loan selection and attainment process in a helpful way to the consumer.

When it comes to condos, working to get a mortgage for a second home with a 25% down payment, if possible, allows the buyer to greatly streamline the efficiency of the condo approval process through what is known as a “limited review.” Up until recently, second home condominium projects in Hawaii often ran into issues such as too high a concentration of owners who do not occupy as a primary home — which makes sense in Hawaii. With this ratio higher than lenders preferred, many condo projects were deemed “non-warrantable” by Fannie Mae and Freddie Mac and thus, buyers needed to find loan options that often had less desirable terms. But now, a savvy, vacation home condo buyer with a 25% down payment can stack the deck in her favor, use the guidelines to her benefit, exploit the higher loan limits and perhaps just make that second home scenario work with an excellent conforming loan option.

Also worth noting is that the new conforming condo guidelines are more lenient with other “hotel-like” characteristics that some condo projects in Hawaii tend to exhibit. Today, and with a limited review, condo projects just need to meet the criteria of a handful of reasonable questions pertaining to the characteristics, amenities and requirements set forth by the homeowner’s association (HOA). And in general, so long as the subject property’s project functions more like a condominium for owners and less like a hotel for visitors, the process for approval is less onerous than in the past.

Hanging More Than $726,525?

But what happens if you need a loan greater than the conforming limit? In that case, a jumbo mortgage is required and we offer those as well. A buyer can assume that a jumbo lender will have its own questionnaire and requirements to determine approvability of the condo project. One can expect that the process will involve more scrutiny of the owner occupancy ratio and other financial and management attributes of the project. But by no means is it impossible to get a jumbo loan on a Hawaii condo, and we’ll go up to a loan amount of $3,000,000 with as little as 20% down ($3,750,000 purchase price). For now, anyway, your dream of that luxury condo overlooking Diamond Head remains intact…

The Pineapple Express

Many who consider purchasing a second home in Hawaii are led to believe that they must use a lender on the islands. Not 100% true. While there are many good options for financing there, you are not exclusively limited to working with a lender in Hawaii. In fact, some of our vacation home borrowers prefer to work with us because of our similar work styles, California-competitive pricing as well as the immediacy of the time zone, etc. But in any case, we have an understanding and respect of the culture and customs on the island and are ready to provide a “best of both worlds” experience to those in the vacation condo market. Get in touch and let’s talk story!

Mahalo, 

 

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

Unlocking a HELOC Mystery

If you could create a client-facing “tip sheet” for your business, a simple punch list of things to do and not-to-do, what would be on that list? You know, the items that always seem to fly under the radar of public knowledge and wisdom, but the ones that frequently undermine the best-of-intentioned customers? I’m sure all of us have this wealth of “insider knowledge” that we’d love to share with the public and, as a result, save them from the misery and inconvenience of being counted among the unfortunate and unsuspecting.

High on my list would be an explanation of how home equity lines of credit (HELOCs) are treated when a borrower goes to refinance a home. Typically, a borrower would obtain a HELOC one of two ways:

  1. At the time of purchase (as with an 80-10-10 or “piggyback” loan).
  2. At a later date. The borrower would have a first mortgage in place an later add a line of credit in order to do home improvement, consolidate debt, etc.

There’s an important distinction between the two options because in the first case, the funds used from the HELOC are considered “purchase money.” In the second case, well simply, they are not.

For the homeowner who has both a first mortgage and a HELOC, refinancing involves some additional considerations. The borrower may either consolidate the balance on the HELOC with the remaining first mortgage amount, or he may subordinate the HELOC altogether. This second option implies that the HELOC will stay as is, but that the second mortgage lender will agree to a process that allows that lien to stay in second position on the title of the home.

Assuming that we have a borrower who is looking to consolidate a HELOC balance into a single, new mortgage, lenders will first look at the nature of the proposed loan. If it will be a conforming or FHA loan, then any balances that are NOT purchase money, once combined will create a “cash out” refinance — even if the borrower does not get a single red cent back at the time of closing. Again, simply consolidating any balances that were not exclusively used to buy the home (such as with an 80/10/10) mean the new loan will be classified as a cash-out refinance and be priced accordingly — typically with slightly higher rates and more restrictive loan-to-value (LTV) parameters.

If the new loan will be a jumbo mortgage then things get a little more interesting. If the new loan balance will fall above the FHA and conforming limits then many jumbo investors will look at the line of credit itself. Specifically, they will look to see if any draws were taken on the line over the last twelve months. If not, then they will often classify the refinance as “rate and term.” This can be a real benefit to the borrower in the way of lower rates and higher LTVs. Just to clarify, the HELOC in these cases did not need to be purchase money, it just needs to have been recently inactive with respect to its balance increasing. If that holds true, structuring the refinance as a jumbo as opposed to a conforming, if possible, may be a highly beneficial approach and we employ it all the time here in the high-cost environment of the San Francisco Bay Area. But caveat borrower. If you have 11 months of payback on the HELOC that is punctuated by a $1 draw on the line in month 12, you go back to square one or you are looking at a cash-out refinance.

And so this last point is the one I wish I could shout from the rooftops.  If you have a jumbo scenario, and if you have a home equity line of credit that you’re looking to consolidate, try to avoid draws for 12 months before you refinance.

Let me know if any questions any time. We’re here to help you with your jumbo or conforming refinance and we’re here to help unlock a common mystery of the HELOC.

LOC her up, 

 

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

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

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

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

I Got Another Rate Quote. Can You Beat It?

Talk may be cheap, but money is not. And you can bet your bottom dollar that most consumers seeking to get a mortgage will shop for the best rate quotes through any number of ways; their local bank, the internet, etc. We will often get requests to match or beat rate quotes as a result. Instead of publishing rates and promising that we’re the cheapest and best source for all rate shoppers, which is something that is frowned upon by the regulators of our industry, I instead want to shed some light on some of the governing principles that guide rate quotes from any and all lending sources. Below are three constants that apply in each case and to all shoppers for all programs.

[Too lazy to read the rest? Watch the rockin’ video below for all the information covered in this blog!]

Follow the Regs

With the passage of the Dodd-Frank Wall Street Financial Reform Act, the mortgage industry became subjected to the ‘anti-steering provision’ which prevents a mortgage loan originator from earning any more or less in commission depending on the rate charged to the consumer. In short, whether we provide you with a 3%, a 4% or a 5% rate, our compensation is the same. We have no incentive to put you into a program with a higher rate. In fact, you could argue that we have an incentive not to do this. After all, lower rates give an edge in winning rate competition and they bestow more qualifying power on the borrower. But there is an ugly side to the anti-steering provision — the lender’s inability to leverage their compensation to be more competitive. For example, prior to Dodd-Frank, originators had flexibility with their commission. If they needed to cut it in order to win a deal, they could. But now, our regulators say that if we had the ability to charge less to Consumer A, who does a lot of homework and negotiates strongly, what would prevent us from raising our compensation on unsuspecting Consumer B? The ability for us to negotiate is largely a thing of the past. Sure, we can submit for price exceptions on occasion, but they are just that — the exception. And the rule severely limits a lender’s ability to match or beat.

Time Is of the Essence

In real estate, we write “time is of the essence” into our contracts and this philosophy holds true with rates too. Just like the stock and bond markets, rates fluctuate every day and sometimes even multiple times when the markets are especially volatile. So it is vitally important that consumers shop for rates on the same day. A common scenario we see will have a borrower apply for a home loan in, say, January. Maybe they will get all the way to the altar with a pre-approval but then not find a property. During that process, the lender likely quotes a specific rate. Now, fast forward a few months and the borrower is working with a different lender and gets a quote that is higher or lower. This does not necessarily mean that the second lender’s rates are organically any better or worse. It might simply mean that the market has changed during the interim. So, collect your rate quotes on the same day if you’re comparing multiple sources. It may be time-consuming but it’s the only way you can truly be accurate.

The WebMD Syndrome

Lastly, when pitting one source of rates against another, make sure they’re all on equal footing in terms of the depth of the quote. Look at it this way. If you wake up one morning with a rash, you can research your symptoms online and get an idea of your condition. Or you can actually visit your doctor who will do a physical exam, perhaps blood work and then give you a diagnosis. Now you have a choice, you can follow the instruction of the doctor or of the internet. You see where I’m going with this. So too in the field of rate quotes, if you have had a lender pull your credit, review your complete application and provide terms for your loan, placing this on equal footing with an online quote could be risky. Rate quotes for jumbo mortgages are most sensitive to the finer qualifying attributes of the applicant and for this reason, I highly advise those in the jumbo market to get a complete credit approval prior to comparing rates.

I have always believed that an educated and informed consumer is our best client. And this applies to rate shopping as well. I similarly feel we always have a very strong chance of earning business based on available rates so long as quotes are on a level playing field, and getting the shopping public up to speed on this is something I’m very happy to do. If we can help you with your next home mortgage, let me know!

No one wants to be defeated, 

 

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

Finding Harmony in Unison

Ever since the woebegone days of Greenpoint Mortgage’s 400+ page rate sheet (and those who remember are laughing right now…) we in the mortgage lending industry have become accustomed to recognizing that not every borrower and not every scenario will fit exactly in the credit box. That’s just been a reality of the post-Dodd-Frank era. Lending solutions rarely “check all the boxes” and I hear myself reminding clients, not infrequently, to “not let the perfect be the enemy of the good.”

So you can imagine that when we start talking about jumbo loans and lower down payments AND add in the element of a credit blemish or two, things can get really imperfect. How can we achieve just that perfect level of harmony for the buyer? How can we create a mortgage masterpiece for the 10% down payment borrower who may not have a 720+ FICO score? The answer is the Unison program, which was formerly known as FirstREX.

Let’s cover some basics first. Unison is not a loan. It is down payment “enhancement” that typically matches a buyer’s investment. So in the classic example, the borrower will get an 80% mortgage from us, they will bring in a 10% down payment, and Unison will then match their 10% down payment for a total of 20% down. Unison’s investment comes with no monthly payments and does not need to be repaid for 30 years. When you end the Unison agreement, by purchase, refinance or buyout, you agree to pay them their initial investment plus a percentage of the value change. It’s a shift of the paradigm — instead of servicing debt each month, you are partnering with them long-term and with the understanding that sharing a fraction of tomorrow’s value is much better than not owning at all today. And to serve as a stark reminder, “today” means coming up with the full 20% down payment and bringing the credit profile to the stellar levels it would otherwise take to get a competitive loan alternative.

Now of course, the push back on the Unison program has always been, “No way! I don’t want someone else sharing in MY appreciation.” OK, fine. I hear you. But first, let’s accept that YOU don’t have any chance of appreciation if you can’t buy, and YOU are not in a position to buy without Unison’s help. And secondly, recall that I mentioned that Unison was formerly known as REX. I used to drop this line on potential REX candidates: “I understand you do not want FirstREX partnering in your purchase and potentially getting a share of your appreciation, but what if we called FirstREX ‘Uncle Rex’ instead? How would you feel then?” I didn’t usually need to wait for the answer. I could see the expressions on their faces change. It was evident that if a family member could cut them the very same bargain, most would accept. So why the resistance when we supplant a company that has the capital and wherewithal and has diligently structured such a mutually beneficial agreement? Again, it may take a more visionary mind to come to peace with how this program works. True, it’s not DaVinci’s mortgage. It’s very much the product of a new approach to an increasingly high barrier of entry to home ownership in many desirable areas.

So if you find yourself looking to buy a home with a jumbo mortgage and less than 20% down. If you find that your FICO score is 680, 700 or under 720. If you find that desirable homes in your area continue to fall just out of the reach of your buying power, it may be time to find the harmony in Unison. Call me if I can help today.

Cracking the code, 

 

 

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