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

What is APR on a Mortgage?

Caller:  “Can you tell me what your APR is?”

Me:  “Sure.  Can you tell me what APR is?”

Caller:  “Uhhhh…”

So this really happened.  Many times, in fact.  This is your garden variety, otherwise-intelligent consumer trying to shop for a mortgage.  This is someone earnestly trying to figure out the best deal on a home loan.  And yet, most often, they have absolutely no idea what they are doing when it comes to the annual percentage rate, or APR, on a mortgage.  But I don’t blame them.  The point of this blog is not to make anyone look or feel stupid.  In fact, it’s the opposite.  APR was meant to help, but I have experienced that our regulators and our industry have done a poor job of explaining how it works and how one calculates it.  If we reduce it to plain language and easy examples, APR starts to makes sense and, most importantly, can be put in its rightful place in the shopping process.  Spoiler alert — APR is not the be all, end all of mortgage research.  As we’ll see, it’s just a numeric representation of costs —- costs hat can be deduced elsewhere in the loan documentation you’ll receive.  But let’s get started on APR.  It is worth understanding.

Tip #1

APR is the “price per pound” (PPP) of the money you are borrowing.  If you go into a supermarket with the lofty objective of buying sugared breakfast cereal at the lowest price possible, you might just come across boxes of different sizes (and prices).  How will you determine the best deal?  You will reduce the cereal to “price per pound,” or in this case, the price per ounce.  If a 32oz. box costs $5.99 and a 24oz. box costs $4.99, some basic math tells us that the per ounce cost for the 32oz. box is $.19,  For the 24oz. box it is $.21 per ounce.  You’d be better off buying the larger box.

Now let’s say that you’ve decided to step up your game from frosted flakes to four bedrooms.  You need a mortgage and Lender A tells you that you can get $400K 30-year fixed rate mortgage at a rate of 4.000% with a cost of $3000.  Lender B says you can get a loan of the same size for 3.875% at a cost of $7000.  How do you determine the better deal?

Tip #2

APR is a lot like triangles.  Remember in high school algebra (sorry for the flashback…) we learned that the angles of a triangle must always equal 180 degrees?  Remember how we were told that if one angle decreases, so too must another increase?  Well, this is APR.  Let’s go back to our example above:

  • Note Rate:  4.000%
  • Loan Amount:  $400,000
  • Payment:  $1910

Follow me so far?  Good.  Now let’s introduce cost.  If it costs you $3000 to get $400K, then the “net” funds that change hands will really be $397K (yes, you still get a loan of $400K…).  But since you have a fixed rate loan and a payment of $1910 that cannot change, what would your rate need to be to produce a payment of $1910 at a loan amount of $397K?  The answer is your APR, and in this case it is about 4.07%.  Now, what about our other option from Lender B?  Will APR be higher or lower?

  • Note Rate:  3.875%
  • Loan Amount:  $400,000
  • Payment:  $1881

Again, let’s do our “net” math.  You have $393K changing hands ($400K – $7000) and a fixed payment of $1881, so your APR is 4.02%.  If you are looking for the lower APR, you found it.  But if you are looking for the loan with less costs, the 4.000% Note Rate is perhaps the better fit.

Tip #3

You always make your mortgage payment based on your Note Rate (the actual rate) and not the APR.  I think this one confuses a lot of would-be borrowers.  APR is an aid in the shopping process.  It is never the basis for your monthly payment.

Tip #4

Trying to determine the APR on an ARM loan is an exercise in futility.  By definition, ARM loans will have a period of time where the interest rate is subject to a combination of the index plus a margin.  The index will change during that time.  Because of this, creating a static APR calculation with accuracy is impossible.  If you are weighing an ARM loan versus a fixed program, you will have to review a cost itemization or Loan Estimate to calculate total costs for each option.  There is no shortcut.  While on the topic of things that can skew APR, PMI is another one.  If you’re weighing two loans with PMI, or one with and one without, know that PMI can wildly increase APR to the point where it ceases to be an effective shopping tool.

Tip #5

Don’t lose sight of what you’re attempting to do with APR.  Namely, seeking to determine how much it costs to get any interest rate on any loan.  If you review all of the above and still don’t feel confident, you are not alone.  To make matters worse, there is no real uniformity in what costs and fees get included in APR.  One lender to the next, you’ll see some variation.  But here too, a rule of thumb should be that a lender should include any fee in the APR that could not otherwise be avoided if the borrower paid cash for the home.  For example, an appraisal.  You need that for a mortgage process, you do not if you pay cash.  So an appraisal fee should be included in APR, etc.

We’re here to help with any questions about Note Rates, APR and the costs and components that impact your mortgage pricing.  Smart shopping is always a good idea.  Thinking that APR accomplishes that goal alone is not.

Don’t know much about algebra, 

 

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

#OKBoomer, You Don’t Need 20% Down

Bound to happen from time to time in the digital age, a saying goes viral — in this case, “OK, boomer,” — which is meant to expose a close-minded or out-of-touch opinion, thought or mindset of one generation by another (I’ll let you figure out the age demographics here). Hopefully, the topic of this blog will transcend generational differences and address the assumptions about the down payment one needs to make when purchasing a home, versus the reality of what we see every day with those who are actually buying homes. I think you’ll be surprised at the expanse between fact and fiction.

Let’s start by saying that in the US, it’s been widely assumed that a homebuyer must make a 20% down payment of the purchase price. This concept has been propagated from one generation to the next and since Americans have been buying homes instead of carving them out of frontier land. In fact, not a week goes by where we don’t get a call from a prospective buyer that starts with an iteration of, “We’d like to buy our first home but we haven’t saved 20% yet…” Yet, over at least the last 20 years, the average down payment across the US has hovered closer to 6 or 7% of the purchase price. A far cry from the gold-standard 20% many buyers struggle to save. Let’s look at the number of ways that contribute to a buyer’s access to lower down payments:

0% Down Payment

Veterans and those in rural areas may have access to 100% financing. The VA loan program is a huge benefit and great way for our industry to show appreciation for those who have served our nation. The USDA loan program has geographic restrictions, but for some may also allow access to the financing without a down payment.  VA loans also have access to 0% or reduced down payments at loan levels that exceed the nationwide, $484,350 1-unit max.

3% Down Payment

Conforming loans still permit a 3% down payment up to a loan amount of $484,350 (thus permitting a purchase price of approximately $510K at max leverage). Yes, these loans have PMI, but they can be a great entry program for the first-time buyer, and they are not restricted to veterans, rural areas, income limitations or property types. Conforming loans are accessible by all who qualify and programs like the Home Ready mortgage have PMI that is less expensive as well.

3.5% Down Payment

FHA loans come in at 3.5% down, and in many areas, FHA loans are the bread and butter of the market. Borrowers with lower FICO scores, higher debt-to-income ratios and other challenges that could trip up a conforming loan, may find the FHA program to be the best fit. And, FHA will permit 3.5% down even in high-cost areas where the conforming loan limit exceeds $484,350. Remember that on conforming loans, even in high cost areas, once above a loan amount of $484,350, the down payment requirement steps up to 5%.

5% Down Payment

Conventional, high-balance (or super-conforming) and even jumbo will come into play with a 5% down payment. Again, the higher loan amounts and purchase prices may not touch every state, but across the country stats have proven that this level of initial investment is closer to the norm when it comes to buying into the real estate market.

10% Down Payment

Even in super jumbo land (loan amounts that exceed the high-balance conforming limits) and up to price points that much of the country would consider absurd ($3MM+), believe it or not, a 10% down payment mortgage is an option. And we do them with frequency here in CA. For a while, the toughest aspect of getting a 10% down loan had nothing to do with the borrower, but instead we observed that sellers in competitive markets overlooked these offers in favor of buyers who structured their financing with a larger down payment. Now that we’ve seen some softening in the higher price points, motivated sellers are again considering qualified buyers with 10% down payments.

If you examine the statistics for down payment patterns, you’ll see that some states, like California, tend to trend toward the higher end of percentage down payments (approaching 20%). This is due to higher purchase prices in many cases and the fact that those prices push out some of the programs that permit lower down payments. But in other states (GA, for example), home prices in concert with percentage of veterans, rural areas, and so on, can push the down payment average percent below 3%. As always, all real estate is local and you should consult with local professionals on your options. But make no mistake, boomer or otherwise, you don’t need 20% to get into most markets. And if you have questions, send me a letter or give me a call or page me or e-mail or text or Skype or message me when you’re ready to set aside your preconceived ideas and focus on the way it really is today.

Stop, hey, what’s that sound? 

 

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’m SUArta Back! The FHA Spot Condo Approval

Mortgage lenders that see a fair amount of FHA loans have, for the last few years, lamented the loss of the condominium “spot” approval. This erstwhile shortcut would allow a single unit of a condo project to be eligible for an FHA loan even where the entire project might otherwise not pass muster. And for FHA, it’s been widely recognized since the sunsetting of the spot approval that buyers whose search requires an FHA loan and a price range that might only include condos, had real challenges ahead. Specifically, their target inventory would need to be confined only to existing FHA-approved projects, which can be found on the FHA approved condo list.

However, as of 10/15/2019, the Federal Housing Administration has reinstated a version of the spot approval. As one would expect with such news, there are misconceptions about how it will be implemented. The main ones stem from announcements suggesting a tremendous anticipated increase in FHA condo approvals as a result of the new FHA spot approval process.  While there will undoubtedly be an increase in FHA condo lending, it will mainly be because the new process allows lenders that were not previously authorized or willing to assume the risk of full project approvals to do SINGLE UNIT APPROVALS (SUA) in projects that are not currently FHA approved.

However, this new SUA/SPOT program is not a streamlined review process and it is not similar to Fannie Mae’s “Limited Review” or Freddie Mac’s “Streamlined Review” on the conventional side. SUA documentation requirements are similar to FHA full project approval criteria, and obtaining documentation for full FHA project approval can take anywhere from 30 to 90 days. Guaranteed Rate will be providing SUA (Spot) Approval within 24 HOURS from receipt of ALL of the required documents, but the time and effort needed to collect the required documentation remains the same. Another misconception is that it will somehow be easier for projects to qualify for SUA (SPOT). In actuality, it is the opposite, as there are items that are more stringent for SUA/SPOT approval than full project approval.

That said, we here at Guaranteed Rate still see this as a great thing for our buyers and our industry. For instance, there will undoubtedly be condo loans originated on projects that do NOT qualify for SUA (examples: FHA concentration within the project or single entity ownership exceeds SUA thresholds). In these cases, we’re capable and staffed to handle full FHA (HRAP or DELRAP) approvals, adding additional value to condo agents, buyers, owners, and sellers. Get in touch any time if you feel these are services that can help you today.

I’ll be back, 

 

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

How Can I Make My Home Appraise Higher?

Whether buying or refinancing a home, when obtaining a mortgage it can be expected that an appraisal will be required. I talked in a previous post about how we are able to use appraisal waivers in certain instances, but still, most residential real estate transactions that involve a mortgage also involve an appraisal. An appraisal is a professional opinion of value, completed on a standardized report by a licensed appraiser. Are there steps the buyer or homeowner can take to assure that this value comes in as favorable as possible? Here are a few tips from the experts:

  • Choose a lender that uses an appraisal management company (AMC) with access to local appraisers. At Guaranteed Rate we place a high degree of importance on contracting with appraisers that know any area first-hand. This has the obvious advantage of bringing “boots on the ground” perspective to the property being appraised. But let’s not forget too that local appraisers are also often well-known appraisers to local real estate agents and these relationships are valuable.
  • Clean the house and yard. The cleaner the home the better it shows, and the higher value you will get.
  • Prepare a list, including cost estimates, of improvements completed to the property in the last year. If any updates have been done to the kitchen and/or bath within the past 15 years, include them on this list as well.
  • If you, or your Realtor, know of a good sale (or two) in the area within the last six months, you can give the address and sales price to the appraiser.
  • If refinancing, tell the appraiser the predominant feature of your home — the reason you bought it and the characteristic a future buyer may find most important and desirable. This may seem everyday obvious to you, but could easily be lost on even the best appraiser — who doesn’t live in the home each day.
  • Be mindful of “health and safety” issues, regardless of how minor. An opening in a wall, water stains on the ceiling, a disconnected faucet, peeling paint or a missing handrail on a staircase may all seem trivial, but they could require further notation in the report, potentially stalling your transaction. Make the small repairs in advance (or have the seller do so), even if it means hiring a handyman.
  • Install smoke and carbon monoxide detectors because in many areas (if not all!) it’s the law. Also, here in California, if you have a water heater, it must be double-strapped for earthquake safety.

Stacking the deck in your favor using the tips above, and working together with us before and after the appraisal is complete, you can maximize your potential to attain the highest value. This can then open up financing options and opportunities, and even factor into the interest rate you’re able to obtain. When you are refinancing a home, the home’s value relative to your existing loan balance determines your eligibility. When you are buying a home, you and your Realtor will want to know the appraised value supports the contract price. In both instances, if you have questions about the appraisal process, and especially if you have concerns about the subject property’s value, we are here to help.

I spy, 

 

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

Qualifying for a Mortgage? Don’t Step in a Large Deposit Mess

By far, one of the most confounding experiences when one goes to obtain a mortgage is the sourcing of “large deposits” on a bank statement.  This is our industry’s gift that keeps giving.  However, there are some ways to avoid inadvertently stepping into trouble and like with most things in life, an ounce of prevention is worth a pound of cure.

What Is a Large Deposit?

Most of the time a mortgage lender will define a large deposit as a non-payroll deposit that exceeds 50% of your gross monthly income.  So, let’s say you provide a bank statement to us.  We see an ATM or teller deposit for $6175 and your gross monthly income is $10K.  You can expect we will ask to know what the deposit is and where it came from.  Different lenders and different programs may have different thresholds, and there is subjectivity to this as well.  With a borrower who makes $10K a month, it’s not unreasonable to think an underwriter might ask to know about a non-payroll deposit of $4750.  It’s happened before…

What’s the Big Deal with Large Deposits?

Remember, at the end of the day, your lender is assessing your creditworthiness and your ability to repay the loan.  If the money you plan to use as a down payment is not derived from savings with a documentable history, your lender will want to know if the money coming into your accounts is from a legitimate source.  Or, is it a loan?  If the latter, does it now require a monthly payment we must factor into the debt-to-income (DTI) ratio?  The large deposit test creates a firewall for the lender where a buyer who otherwise could not afford to buy gets “propped up” by family, friends or undisclosed creditors just prior to purchasing the home.  And it’s precisely these question marks that create the additional risk for the lender.

Reality Sets In

Let’s face it, if you’re planning to buy a home, you should be planning.  If you’re going to be moving money to your accounts from other sources that you know will invite questions, it is best to allow these funds to “season” in your account for a period of time that exceeds the lender’s documentation requirements (usually two months).  After all, I’m not going to assume all large, non-payroll deposits are illicit drug deals.  There can be a lot of honest bank activity that is almost impossible to source.  If you know that you’re going to be relying on this kind of funds to close escrow, get it into your accounts long before you plan to make a mortgage application.

What About Gifts?

Gift funds are allowed in most transactions and within guidelines, but practically every mortgage lender will ONLY recognize gift funds from a family member.  Where large deposits that are “gifts” get into difficulty is not necessarily the sourcing, but the source.  Sometimes, the family relationship is not there.  How do we know who is the donor?  Simple, we require a gift letter that will outline the relationship.

In the mortgage industry, two, clean months of bank statements with no large deposits are our equivalent of Eureka.  I’m convinced that if every potential buyer or borrower knew this in advance, we’d drastically cut down on the number of bad customer experiences.  The worst outcome for our clients is, of course, that when we source a large deposit from another bank account, that origin account also has large deposits, and so on.  You can see how this would get less and less fun…quickly.  So, understand this basic concept and call with any questions.  If we can help you plan for a smoother transaction, we’re happy to be of service.

Where’s the beef, 

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 Haunted Loan Process

As we wind our way closer to Halloween, I wanted to cover a few of the graveyard variety hobgoblins of the mortgage process.  You know, the things our clients don’t tell us at the start and that later come back to haunt their home loan transaction like so many nightmares on Friday the 13th.  The goal here is not to scare the prospective borrower, but instead to provide fair warning about the actions you can take or avoid at the start of your application that will help you close your loan on time and without undue stress.  Let’s peek-a-boo at some of the most common loan zombies that come out when the moon is full:

  1. Amending a tax return.  It can be such an innocent mistake.  You file a tax return and later amend it for some reason.  When we ask you for your tax records, you provide us with your Forms 1040, but forget there is a 1040X out there as well.  We order an IRS transcript (Form 4506T) and our numbers on the tax return don’t match the numbers on the 4506T.  Now, you’re not in trouble with us or the IRS, but we do have to underwrite to the amended return.
  2. Beginning or not disclosing ongoing work on the property.  Open walls, torn up flooring, room additions underway, no fixtures in a bathroom, an empty swimming pool, etc.  This is not a complete list, of course, but always tell your lender if your home is in any way undergoing work (or will be) when an appraiser comes out.  In general, you will not be able to fund your loan until all work is complete and a reinspection by the appraiser confirms such.
  3. Changing or leaving jobs, or giving notice.  Expect that every lender will complete a prior-to-funding (PTF) verification of employment.  If you are no longer on the job just before close, or if you’ve signaled your intent to leave the job, we may have a major issue.  In short, the employment by which you qualify for the loan is the one that needs to be in place when you close.
  4. Co-signing on a debt for someone else.  Most often, co-signed debts will show up on the credit report, but if they are new or unreported to the credit repositories, we often have to factor them into the debt ratio (DTI) at that time.  The conventional wisdom is to never co-sign for anything.  In reality, life is more complicated than that and it happens.  Where it does, tell us up front.
  5. Disputing a credit item.  It may seem like the right thing to do and it may make you feel better about sticking it to a creditor who’s done you wrong, but disputing a credit item while in the loan process can take on a ghoulish character.  The advice here is don’t do it until we’re funded, but at the bare minimum, let us know when you’re thinking about it.
  6. Failing to disclose a property you own.  Our borrowers often believe that if they own a property free and clear, there’s no way we’d know about it (and more importantly, why would it matter?).  But remember that real property ownership means there’s county records and we can find those.  And about the fact that it’s free and clear?  Good for you but it still doesn’t address property taxes and insurance?  Those go in your DTI too.
  7. Moving unsourced money into your bank accounts.  This one has stopped more purchases of brick and mortar than Amazon.  When you go to buy a home, know that we will look back at least two months (via bank statements) to confirm that all of the money for your down payment, closing costs and reserves is accounted for and meets guidelines.  If you try to move money into your account, we will often question the deposit.  So it’s essential we identify, reveal and document how you plan to close the transaction when it comes to your money.
  8. Not making a mortgage payment when refinancing.  “But I thought we would close by then…”  Famous last words.  Remember, when you are in the loan process, you are not done until you have keys in your hand or, in the case of a refinance, your new loan is funded and recorded and the old loan has been officially released.  During that time, it’s imperative you continue to make your regular mortgage payments.  “If there is any doubt, there is no doubt,” goes the old mountaineer’s saying.  Keep your existing mortgage current at all times.
  9. Recurring payments for a loan or other obligation.  If you have undisclosed debts or payments and we see a recurring withdrawal from your bank accounts, expect that we will ask.  If the item is discretionary, it’s likely no issue, but if it is an obligation we will want to consider it in your debt ratio.  The sooner we find out about it, the better.  So let us know at the outset.
  10. Taking on new debt before closing escrow on your purchase.  Early in my career I had a young, homebuying couple sign their loan documents on a Friday afternoon.  Jubilant with their new purchase, they spent the weekend shopping for furniture and outfitting their new home, including opening a store credit card where they proceeded to take advantage of the new customer discount on their large purchases.  On Monday, when confronted with the question of whether they took on any new obligations over the weekend, they said yes.  Their rationale?  “Oh, we closed when we signed on Friday.”  The lesson here is that it’s not entirely their fault.  Our industry can do a better job of explaining the closing process and when borrowers are “all clear.”  I learned a lot from that experience and have used the lessons ever since.  On a purchase transaction, you are not closed until you are signed, funded and the deed is recorded with the county.

Look, some of the above may seem funny or obvious.  But the reason I’ve listed them is because they happen.  Over and over and over.  We’ve dealt with each and if you find yourself in a bind as a result of any of them, don’t hesitate to get in touch.  We don’t stand in judgment of how things happened and instead we focus on solutions.  Let me know if I can be of service today.

Trick or treat, 

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