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

What’s a Qualifying Payment on a Mortgage?

Qualifying. It’s always harder than it looks, right? I’ve talked before about my erstwhile career as an Ironman triathlete and for those familiar with that sport, they’ll confirm that qualifying for the race in Kona is way harder than they make it look on TV. I suppose it’s the same with getting into certain colleges, but since I struggled to get out of high school, I’m going to let someone else blog about that…

No, today, we’re going to talk about qualifying for a mortgage and specifically we’re going to cover the payment that we lenders use behind the scenes whenever any time of ARM loan is selected. Common mortgage programs, such as a 5/1 ARM or 7/1 ARM, are known as “hybrids” and the payment the lender uses to determine your debt-to-income ratio (DTI) and your asset reserve requirement will often vary from your “note” rate, which is the rate on which your actual monthly payment will be based. So how does the borrower keep this straight and avoid trouble in the loan process?

Getting a Fix on Qualifying Payment

While most of what follows could get a bit complex, one aspect of qualifying payments is simple. If you are obtaining a fixed rate loan (30-year fixed or 15-year fixed), your lender will use the actual payment for your qualification parameters. And most borrowers still do choose a fixed rate loan. If you’re one of them, very little of what follows might apply to your qualification and since blog posts about mortgages are generally pretty boring, this might be a great place to stop.

But what if you’re opting for, say, a 10/1 ARM? This is (usually) a 30-year term, but only the first 10 years of the term have a fixed rate (hence the “10” in 10/1). After year ten, the loan will become an adjustable rate mortgage (ARM) and will have an annual adjustment (that’s the “1” in 10/1) for the remaining 20 years. Because the adjustable rate will be determined by combining a fixed margin with a variable index, it’s impossible to know at the time of loan origination where the rate will go during the last 20 years. Yes, the adjustments will be governed by caps, but still the lender must allow for a rate that could possibly be higher than the fixed, start rate. In these cases, the lender will specify how the loan originator should qualify the borrower.

Examples, please…

When we have an ARM, as above, there are three common qualifying payment scenarios a lender will require, plus another for extra credit (no pun intended):

  • Qualify at the note rate. From time to time, we’ll see this on the 7/1 and 10/1 ARM and it’s usually a great deal where you can find it. Often a borrower’s greatest qualifying power can be found with programs of this nature. As stated, we treat these ARMs like a fixed rate loan for qualifying purposes. Whatever your locked/note rate, that is your qualifying rate.
  • Qualify at the higher of the note rate or the fully-indexed rate. Where lenders don’t use the note rate on a 7/1 or 10/1, we’ll often see this structure. Let’s say our index is the 1-Year LIBOR and that, on the day of lock, the index is 2.6%. The loan’s margin, for example, is 2.25%. To obtain the fully-indexed rate (FIR) we add the index and margin, so here we have 4.85%. If the borrower is locking at 7/1 ARM at 4.125%, under this profile he’d still need to qualify for the loan based on a rate of 4.85% as it’s the higher of the two. Further, his asset reserve requirement would need to be based on the payment at 4.85%.
  • Qualify at the higher of the note rate + 2% or the fully-indexed rate.  We see this a lot with the 5/1 ARM. Borrowers often think that because the note rate can be lowest on this program, it may afford them the greatest qualifying power. Unfortunately, they have to think again. Lenders artificially increase the qualifying payment on shorter-term ARMs to offset risk of the fewer amount of fixed years and this frequently conspires to make the 3/1 ARM and 5/1 ARM harder to qualify for than their brethren of 7 or 10 years.
  • Interest-only? All bets are off… OK, not really. But as an extension of the logic on the 3/1 and 5/1 ARM qualification, lenders in the age of the Qualified Mortgage (QM) have to qualify interest-only loans to a much higher standard of the borrower’s expected ability to repay. For this reason, interest-only loans typically have the highest qualifying payments of all programs. Usually, if you have a 10/1 interest-only loan, the lender might be required to use the higher of the note rate or fully-indexed rate, amortized over the period of time that is not fixed (in this case, 20 years). And as we know, shorter amortization periods mean higher payments, all other things equal.

So there you have it. Punching your ticket to the big dance, whether it’s the college of your dreams, the toughest day in endurance sports or your next home purchase, might involve some qualifying gymnastics. If you could use a good coach, give me a call any time.

I am pleased to inform you…

 

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

Are You a Lender or a Banker or a Broker?

“So are you a broker or a lender?” “Or a banker or a lender?” “Or a broker/banker?” Yes, yes, and yes!

We get this question all the time, but I think it comes from a good place. Naturally, everybody shopping for a home loan wants to get the best rates and terms and some confusion swirls around how the type of mortgage originator one uses has a bearing on the outcome. So when they work with me, who is really behind the curtain?

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

Banker / Broker / Lender

In the post-downturn lending industry, there are really only three primary channels for obtaining a residential home loan; mortgage banker, mortgage broker and mortgage lender. It’s important to know that no matter which you choose there is ALWAYS a “middleman” and that person is called the mortgage loan originator or “MLO.” Now don’t confuse an MLO with a single individual — it could well be a call center with a series of “clerks” that work to get your loan from start to finish. Regardless, there are some distinct characteristics of each channel:

  • Lender: This is usually a single-entity banking institution that will fund your mortgage with their own money (most of the time…). Maybe you have a checking or savings account with this bank already. A lender will have its own specific set of guidelines for a jumbo loan and it may have its own “overlays” for conforming and government loans, like FHA and VA. Overlays are defining characteristics — let’s say a minimum FICO score, for example — that are technically not a guideline of the government-sponsored entities (Fannie Mae and Freddie Mac), but that are adhered to by this individual institution on top of the standard guidelines. So, if you’re going to be a customer of a direct lender, you have to meet their guidelines. If you don’t you won’t qualify with them.
  • Broker: A broker can be seen as the opposite of a lender. A broker has none of its own money to lend, but instead works with many lenders to offer a variety of options to its clients. A broker just may have more flexibility to get some scenarios approved, though when they are in the process of doing so, they turn the control and authority of the file over to the lender.
  • Banker: An independent mortgage banker fits between the lender and the broker and can often offer the services of both. Instead of lending its own money, an “inde” will have warehouse “lines of credit” from lenders and will have authority to fund loans with that money. Thus, an independent mortgage bank has a combination of in-house control over your application and the ability to match a specific profile to a specific lender. Many indes can also broker loans when brokered options prove to be the best fit. Guaranteed Rate is one of the nation’s largest independent mortgage banks, for example.

Who Has the Best Rates?

Great question! But you won’t find the answer here. And you won’t find the answer anywhere but in your own research. As mentioned above, there are many complex factors that go into a consumer’s rate and the entity type alone does not exclusively determine the outcome. Can a broker beat a lender? Yes. Can the opposite be true too? Absolutely. It’s very important to note that many originators advertise exclusively based on rate, but for consumers it’s practically impossible to shop exclusively on rate — there are often too many variables for the scenario, let alone the fact that rates can change every day.

What a Roundabout!

Not really. The purpose of this blog is not to get you to resign to the fact there’s no one option better than another. In fact, by understanding the differences, it may help you get best positioned to optimize your research. For 10+ years, I have worked for an independent and the reason I really enjoy doing so is because we can say “Yes!” to more clients. We have a great variety of choices when it comes to programs, rates and terms and this power, when understood and effectively communicated gives, I feel, our customers the edge in today’s market.

I’m happy to discuss the mortgage industry and what we can do for you today. Get in touch any time and I look forward to being of service!  And of course, you can always begin the pre-approval process, free of cost or obligation, by clicking HERE.

So much better than a, 

 

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

Time Is of the Essence

There it is in black and white.  Section 29 of the California Association of Realtors’ residential purchase agreement.  “Time is of the essence.”  And in real estate transactions, which are inherently complex, this simply means that every day matters.  To be competitive as a buyer you need time on your side because very likely the seller of the home in which you’re interested knows that the longer things take to get to the closing table, the greater likelihood something might go wrong with the financing you need in order to acquire the home.

“Like what?,” you ask.

Perhaps the borrower/buyer will file his tax return and it will change the qualifying income.  Or gosh, maybe the buyers will inadvertently miss a credit card payment, or their autopay will malfunction and they’ll learn that they’re late on a revolving debt.  Or as we’ve recently seen, the darn government could shut down.  You get the picture.  Things happen.  And more things can happen if you give them more time.

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

What can a buyer do about this short of a mad and stressful rush in their loan process?  There are two key actions that prove to be universally helpful across all buyers, all price points and all markets:

1)  Get your loan underwritten in advance.  Every serious real estate agent will require that you have a valid pre-approval before you begin looking at homes.  But what if you could not only get a pre-approval but also have the certainty that your loan application has been through a complete underwrite?  That way, all you’d need to complete and provide to your lender once having your offer accepted is a fully-ratified purchase contract and a satisfactory appraisal.  Wouldn’t it be great, in advance and free of time constraints of the contract, to not only gain the confidence of a rock-solid approval but also eliminate the time it typically takes to underwrite a file once your offer is accepted?  In fact, we do this all the time.  An “advance underwrite,” a “pre-underwrite” or a “TBD underwrite” is an extension of our pre-approval process for those who have the time and inclination.  Once we have the underwrite complete, it is sometimes possible for the buyer to offer with an exceptionally fast close of escrow (again, without requiring a rush) and even offer without a financing contingency.

2)  Get organized!  All borrowers owe it to themselves to take the homebuying process seriously.  After all, there is a lot at stake.  Simply, get your financial house in order before searching for a house to buy.  Get all of your income, asset and credit documentation in one place.  We’ll typically require two years of tax returns and W-2 forms, 30 days’ worth of paystubs and often a year-end paystub for the last two years.  For bank statements, we’ll want two months — all pages even if blank.  Other items we request?  Driver’s license and/or valid US identification.  Also, letters of explanation for any unique characteristics of your application.  Remember, I may know your story because we’ll talk about it together, but an underwriter will not have the benefit of those conversations.  The more you’re able to concisely convey any specifics of your credit profile, the better you’ll help your cause.

Every year, some home buyers will fall out of contract both because they cannot take the pressure or they cannot meet the deadlines that were spelled out when they got their offers accepted.  Time is of the essence.  And there are two really good ways, above, that help you adhere to, and succeed in, that reality.

Time stand still, 

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

Still Think You Need 20% Down? Ain’t That a Shame

Back in late 2017, with the passing of Fats Domino, we lost a rock ‘n’ roll legend and pioneer.

 

But nearly every week we lose transactions simply because of the unquestioned and untested myth that every buyer needs to bring in at least a 20% down payment, especially here in California where many of our home prices require loans that exceed the conventional and FHA loan limits. In addition to simply not recognizing that many great programs exist in order to accommodate a 10% down payment on a jumbo mortgage, here are the two other challenges we commonly see:

Getting Approved

Putting down 10% means borrowing 90% and that translates to a larger housing payment and a higher debt-to-income (DTI) ratio. I’d say that my team and I are the best in the west when it comes to understanding the programs available and the parameters our clients must meet in order to become approved borrowers. Sometimes you not only have to think outside of the ordinary credit box, you have to approach future success as if no box exists. While many of our competitors will try to shoehorn a buyer into a 20% down mortgage by having them ask family for gift funds or by suggesting they raid their 401K accounts, we’re going to focus first on what a buyer can do on her own and we’re going to determine the outside limits of her qualifying power. From there, this buyer can determine a responsible budget and strategy, but do so with more cards on the table.

Getting Into Contract

Once we have a loan pre-approved (or underwritten in advance), our next challenge will be to have our buyer’s offer seriously considered alongside the others that may come in on any desirable property. Here, we may encounter a listing agent who wants to take no chances or who is just not aware that 10% down strategies are again very viable for qualified buyers. Instead of defending a position of “Well, your buyer only has 10% down…,” we look at it as, “Our buyer is strong enough to qualify for this type of program!” And then, we back it up with a lot of experience. Winning any offer is a blend of luck and skill, but when we support one of our 10% down client offers, we do not do so from a position of weakness.

It’s a quote often attributed to Mark Twain that goes, “It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.”  And while we’re on the topic of “ain’ts,” it is a shame that more buyers are not aware they can win with 10% down. We do it all the time and we’re here to help them find the thrill of home ownership with less than a 20% down payment.

I’m walkin’, 

 

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

*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