The Four Horsemen of Deals Dead

My wife likes to joke that all I do for my job is talk to people.  “I hear you in there yucking it up all day…” So maybe there is always an element of the truth in jest, but an aspect of these conversations that she does not take into consideration is the near-constant battle I fight fending deals from The Four Horsemen; Delay, Indecision, Unfounded Expertise and The Unreasonable Pursuit of Perfection. When these vigilantes appear over the horizon of any real estate transaction, having a powerful defense can turn them away and save even the most vulnerable purchase or refinance. 

The enemies of our real estate transactions can be real persons; buyers, sellers, family members, agents, lenders, underwriters, appraisers — you name it.  But also, and more often, the real villains can be the thoughts and actions (or inactions) of those same parties. When this is the case, I have observed over my career that the destructive forces loosely fall into four categories:

Delay

There it is in black and white, written into our contracts: “Time is of the essence…” Delay, intentional or head-in-the-clouds inadvertent, is a huge risk to all real estate transactions. Providing necessary documents or signatures a day (or a week…) late may seem like no big deal at the time, but the real estate clock is always ticking. In a sales capacity, we walk a fine line. Trust us, we don’t want to be pushy. But you know what we want even less than being a backbreaker? The conversation about the additional costs incurred due to the seemingly innocuous delay you introduced when you thought you had all the time in the world. Oh, and those dates written into your contract? The ones by which you must perform? You may have gotten lucky before and you may get lucky again, but know that eventually your roulette game of missing contractual dates will land upon a counterparty reaper who will cut you no slack. And when the bell tolls that time, it will toll for thee.

Indecision

Teddy Roosevelt famously said, “In any moment of decision, the best thing you can do is the right thing. The next best thing is the wrong thing. And the worst thing you can do is nothing.” I would agree that when you engage in the serious business of real estate buying, selling or refinancing, you should do so with a firm understanding that you WILL be required to make important decisions. Yes, you can entrust your agents to help, but you cannot stay on the white picket fence forever. A trait I’ve noticed among my most successful clients? Resolve. When decisions are made, they are made AND done. Progress can then be made from that point. But to not decide, you must delay and if you do, you will hear the hooves of the Horsemen just the same.

Expertise, Unfounded

The internet is a wonderful thing. But as I write this today, there are otherwise smart people who, in the middle of a global pandemic that’s killed 600K+ Americans to date, are taking medications their very own doctors would implore them not to take. If some of our clients would be willing to bet their own health they can outsmart their medical doctors do we seriously think, for a minute, that they’re not also “doing their research” about their transaction, their property and their loan? Now, I am all for seeking an education on all matters important. Knowledge gained in this manner has the benefit of making one conversant with the pros — it allows us to communicate at a higher level and this, in turn, earns us respect and benefits us with the return of more precise answers. But I could read a thousand web pages about replacing my water heater. I could watch a hundred videos on how to do it. Yet make no mistake that if I attempted to actually perform the replacement I would be at great risk of making mistakes and getting in well over my head the instant something didn’t go to plan. Because the simple fact is, unless and until I have performed dozens and maybe hundreds of water heater replacements, the seasoned plumber is the guy/gal with the right training, the right tools, the right tricks, the right intuition and the right finishing touches. OK, you say, “I’ve hired a pro but I don’t really trust that person.” Sorry, but the burden is still on you. Make another and a better decision. Without delay.

The Unreasonable Pursuit of Perfection

It is my opinion that if you asked any sizeable group of even the very best real estate professionals what percentage of all of their deals go absolutely perfectly, the number would be very small. Sure, you’d get some sporadic total success stories, but the vast majority of closed deals would have instead come with their expected twists and turns, drama and excitement. Because real estate transactions are inherently complex, it’s important to embrace an attitude of “controlling what you can control” and being flexible in the face of the factors you cannot control. Buyer, sellers and homeowners who have an unreasonable expectation of perfection or who demand that the universe bends to their will are often setting themselves up for failure. Sure, we should all strive for the best and we should make every effort to promote that outcome, but when things do not go our way, most often it is not personal. It is also not the end of the earth. Can we adapt, adjust our sails and keep the greater goals intact? If we can avoid letting the perfect be the enemy of the good, almost always the answer is, “Yes!”

If you are a consumer looking to buy, sell or refinance real estate, there are many, worthwhile steps you can take to help your cause. There are also a few surefire methods of self-sabotage, as above. The best of us professionals work to impart our knowledge and experience to achieve the outcome for which we are hired and if you one day hear something along the lines of, “I understand that’s what you’ve heard or read, but that’s not the way this will play out and it’s time to decide what you’d like to do, even if it doesn’t seem entirely ideal…” This is not some long-winded way to hear ourselves talk for the better part of the day, but instead to send a concise signal to the sixteen galloping hooves that they are not welcome here and it’s time for them to turn back. You may not hear them, but we do.

Still they ride,

Rob Spinosa
SVP 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

Refinancing a Jumbo Mortgage After a COVID Forbearance

Despite some recent setbacks that see COVID cases increasing, many of us are optimistic that vaccination rates will continue to go up and all of America will eventually commit to getting the worst of the virus behind us once and for all. There is no doubt that as we headed into the summer, we could feel the economy coming back on line and the country getting back to work. Sure the recovery has been uneven, but compared to the uniform bleakness of last summer, there could only be reason for hope this time around.

Not surprisingly, the progress we’re seeing in the general economy has carried over to what we’re seeing in the mortgage industry — many homeowners who took advantage of COVID forbearance and payment deferral plans are now back to work, back on their feet, seeing those arrangements draw to a close and contemplating their best options for long-term, future financing. This happens to coincide with an ongoing low rate environment, and that has opened the door to a refinance for a good percentage of owners. But wait… If a borrower has had a recent forbearance or deferral, and has a jumbo loan, can he or she even refi at all?

The answer is “Yes!” But if you have had a forbearance or deferral plan, you have a jumbo loan and you are out there researching a refinance, you are very likely going to get some conflicting information. A key thing to remember is that not all jumbo lenders are created. Because they are not required to follow the “Agency” guidelines, that is, the rulebook that governs conforming loans as dictated by Fannie Mae and Freddie Mac, jumbo mortgage lenders will have different demands for refinancing post-COVID.  Here’s what we’re seeing for the most lenient of our investors:

Repayment Plan

The homeowner must have completed the full repayment plan or made at least three consecutive timely payments (and not missed any other payments under the program).

Payment Deferral

The homeowner must have made at least three consecutive timely payments following the effective date of the deferral agreement.

Modification Trial Payment Plan

The homeowner must have completed the trial payment plan.

If you are in doubt about whether or not you will meet the requirements above, get in touch and we can figure it out — often without any credit checks or exchange of any other personal documents. From there, if a refinance looks promising, the process is IDENTICAL to the one employed by a borrower who has not gone through any sort of hardship plan. We understand the nature of these inquiries and the place from which they stem. If you need a hand with your scenario, extend yours to us today.

Wash your hands,

Rob Spinosa
SVP 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

Divorce Buyout Mortgages

I don’t think it would have surprised many married couples to learn, as they worked from home in a room that may have doubled and tripled as a dining room, nursery and rec center, that divorce filings were up 34% over the first half of 2020 and as pandemic despondency set in and influenced nearly every aspect of work, home and social life.

I would be the last one to make light of the stresses that COVID imposed on marriages and households, but instead I did see this unique time as equally opportune for shining a bright light on how divorce buyout mortgages work.  These types of transactions constitute a percentage of the refinances we do each year and particularly at such critical junctures in our clients’ lives, it’s helpful to be a source of reliable and reassuring information.  An equity buyout mortgage may enable one spouse to retain the family home and leave that part of their world intact while also allowing the spouse who is “bought out” to begin the next chapter of his or her life.

Sometimes it’s most helpful to use an example to illustrate how a divorce or equity buyout refinance might work.  Let’s say a married couple purchased a home together for $500,000 and made a down payment of 20% of the purchase price.  They jointly had $100K in equity (aka, “ownership”) and they started with a $400,000 mortgage at the time of purchase.

Fast forward to the depths of COVID and this couple decides to divorce.  By that time, they have paid the mortgage down to $380,000 and the home is appraised at $540,000.  Their equity position is now $160,000, or $80K per spouse.  In order for one spouse to buy out the other, a mortgage of $460K would be necessary ($380K + $80K).  But some things need to happen first.

In any divorce situation, it’s critical that the spouses/borrowers are working from an enforceable divorce decree.  A loose or informal separation agreement won’t work for a mortgage lender.  Without a formal separation document, a home loan originator would have additional concerns about the future disposition of assets, spousal support, etc.  Once the marital home’s status is outlined in the divorce decree, the spouse who will keep the home can work with a lender to determine how a buyout refinance needs to be structured.  Sometimes the couple will agree on a specific equalization payment and sometimes a percentage of the appraised value will dictate how much it takes to buy out the spouse who is leaving the home.  As long as the payout amount goes directly to the departing spouse, the loan is not considered a cash-out refinance, and this helps with both the rate and the maximum loan-to-value (LTV).  This is important because most often now one of the spouses will be solely carrying the housing payment and this can sometimes also be compounded by the additonal debt burden of paying spousal or child support.  Lining all of this up at the pre-approval stage and even before the decree is finalized is helpful to some.  After all, if the divorce is structured to give home to one of the spouses and that person cannot afford to support the payments, it is setting the family up for failure.

Navigating a divorce buyout scenario often requires careful planning and always benefits from clear advice.  We’re here to help at any stage of the process, understand the inherent difficulty in these situations and can work with all parties to foster a better understanding and clear a path to success.

You can go your own way,

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 Chicago, IL 60613 – (866) 934-7283

Buying a Home All Cash, Then Getting a Mortgage

Back in a real estate market a long time ago and in a mortgage galaxy far, far away — otherwise known as 2009/2010 — some buyers needed to purchase a home with cash, then hope to refinance after they had the keys in hand.  The reason for this?  Bad credit?  Nope.  Extinction of stated income loans?  Sorry, try again.  The reason was often that the homes were not eligible for financing — many had been ravaged by the neglect of economic downturn.  Plumbing was torn out, there were holes in the walls and a good number of the properties that came on the market through short sales, foreclosures and otherwise were just in various problematic states of disrepair.  They could not pass the appraisal test for “as is” condition, and so buyers needed either a private money (“fix and flip”) loan or cold hard cash in order to make the purchase.

In response to market conditions, a guideline provision known as “delayed purchase financing,” or “delayed purchase” or “recoup of funds” was implemented.  This allowed a homebuyer to get what was essentially a cash-out refinance shortly after buying a home with cash.  Heretofore, it had not been possible to get a cash-out loan within the first six months of ownership — sort of an industry standard also aimed at preventing fraud.  But with the volume of homes purchased “free and clear” out of necessity, the lending guidebook needed to adjust its sails to reality and create a finance option for buyers who ultimately desired to have a mortgage.  The delayed purchase finance exception became reality.

Flash forward to 2021, and many of California housing markets are demanding the benefits of delayed purchase financing for an entirely different reason — fierce competition.  Buyers today feel they are being forced to make cash offers to appear most attractive to sellers who have lots of choices.  And in a world where certainty and speed are highly desirable, cash is king.  I’m not kidding you when I say that houses worth $3MM or more routinely sell all-cash in our area.  But at the end of that luxurious day, some of those buyers still hope to put a mortgage, at today’s low rates, on the property and recoup some of their cash investment.  So how do they do it?

How Does Delayed Purchase Financing Work?

The question above can best be answered by saying that if you think of this transaction JUST LIKE a purchase money loan, you will be very near to the truth.  That is, the income, assets and credit you’d need to qualify if you were buying and financing the home traditionally still all apply if you are doing delayed financing.  But like with all things mortgage, there are  a few exceptions, potential snags and special considerations…

Down Payment

When you buy traditionally, you have a down payment and a mortgage and the two amounts added together total your purchase price.  But when you finance after purchase you’re just obtaining a mortgage and the “down payment” is already converted to equity (synonymous for “ownership”) in the home.  So remember, if you buy a home for $500,000 and you seek to use the delayed purchase finance exception, you’re not getting a loan for $500K, but probably $400K or less (this would be equivalent to an 80% loan-to-value and 20% down payment, for example).  This may seem obvious but it can get lost in the shuffle of conceptualizing the recoupment of funds.  You’re recovering what you would have otherwise financed, not the full purchase price amount.

Gift Funds

Let’s paint a common picture.  Sometimes given the competitiveness of the market, a young couple seeking to buy a home might lose out on a number of bids.  Maybe they even have 20 or 25% to put down, but still, time and again they are outbid.  Finally, their generous parents swoop in and agree to help them buy the home all-cash so that they have an edge and, lo and behold, they win this bid.  Next, our young couple goes to refinance the home with the delayed purchase finance exception and we ask from where the funds to purchase came.  “Oh, that was a gift from our parents…”  Well, now we have an issue because technically gifts have no expectation of repayment.  So in structuring the acquisition, it’s important that our buyers understand the implications of source of funds, particularly when it comes to gifts, and how to otherwise structure their purchase so they can recoup via mortgage financing later.  Get in touch if you have this scenario yourself.

Reserves

Another potential asset hiccup occurs when delayed financing coincides with a jumbo loan amount.  As we’ve discussed in prior blogs, jumbo loans require asset reserves.  If a cash buyer delves too deep into his savings to buy a home with cash, he may come up short on the assets that were earmarked for meeting the reserve requirement.  The funds are no longer liquid assets, but instead equity in real estate and cannot be considered as reserves.  What’s happened here is that this buyer’s assets have been reclassified as equity.

Rate Differences?

Some scenarios and lenders will price out a delayed purchase differently than a traditional purchase.  Usually where this happens, the rate on the delayed purchase would be higher.  That’s because these lenders will view these transactions like a cash-out refinance instead of a “purchase money” loan.  And in the realm of lending, a cash-out refinance is perceived as riskier and thus it comes with a higher rate.

It’s important to begin with the end in mind when contemplating delayed purchase financing.  Yes, it’s a great way to get a jump on making a competitive offer on a home, but adding the mortgage later is not exactly the same as adding it at the time of purchase.  Because of this, discussing with a mortgage professional how the end loan will look before making the leap into an all-cash purchase is the best strategy.  The good news is that you can still pre-approve for the loan in advance of your purchase.  If you feel that a cash offer is going to be what’s required to prevail in your market, getting a pre-approval for a delayed finance mortgage is exactly what you should do. 

Don’t delay,

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

Can I Refinance a Mortgage on a COVID Forbearance Plan?

Back at the end of the first quarter of 2020, the president might still have wanted to downplay COVID, but many real American homeowners suddenly found themselves in dire financial straits and quickly took advantage of the forbearance plans offered by the servicers of their mortgages.  This payment relief allowed them to navigate the most uncertain and immediate impacts of the pandemic and for some, provided a bridge to re-employment and/or firmer financial footing.  Now that some of these borrowers have made readjustments to the new normal, they may wish to take advantage of the historic low interest rates that have stemmed largely from the Federal Reserve’s response to this same pandemic.  So can a borrower refinance if there has been a forbearance or deferral on the current loan?  Let’s examine the options available today if the borrower has a conforming/conventional loan.  Jumbo loans and government loans (FHA and VA) behave differently and I’ll cover those in a separate post.  But here’s what we need to know today:

  • If you are or were in forbearance with no missed payments, then we must verify that all payments were made to terms of the agreement AND the payoff of the existing loan cannot include any funds due. 
  • If you were in forbearance, had missed payment but brought them current prior to making your refinance application, then we just need verification that your mortgage is current and no funds due to complete any reinstatement are included in the loan’s payoff.
  • If you were in forbearance, had missed payments and brought them current after making your refinance application, then we need verification that your mortgage is now current and we need to source the funds used to bring the loan to that status.
  • If you have a plan for payment deferral then you must provide a copy of the agreement issued by your servicer and you must have made at least 3 consecutive payments following the effective date of the deferral agreement.  The payoff of the loan can, in this case, be used to satisfy the full amount of the mortgage, including the payments deferred.

The low rate environment that exists today is unprecedented, a lot like the adjustments we’re all being required to make as we confront our new reality.  If you’ve taken advantage of the forbearance or deferral agreements available to you, and have adhered to the terms, there’s a good chance you can refinance your conforming or high-balance conforming mortgage today at historic low rates.  You’d be incorrect to assume otherwise.  Get in touch if you think we can help. 

Mask it or casket,

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

Should I Keep Making My Mortgage Payment?

With so many people refinancing these days, and with the loan process sometimes crossing one or two months’ time, a question we frequently get from those in process is, “Should I keep making my mortgage payment?”  The answer is a simple and clear, “Yes!”  

But let’s talk about why, because the concept is as simple as it is often misunderstood.  In our formative financial years, many of us rented a home or apartment before we made the leap into home ownership.  And I’d be willing to be bet that more than a few of us got chased by a landlord about the rent being a few too many days late past first of the month.  Herein lies the mortgage payment dilemma when it comes to refinancing.  Unlike rent payments, which are due on the first of the month and cover the month ahead, mortgage payments are applied in arrears.  This means that you live in the house in August, for example, and you pay for that time (in interest and principal) on September 1.

Now let’s assume you’re refinancing a home and your expected close of escrow is the 10th of August.  Let’s also assume that you have not made the mortgage payment on the first of August.  Your mortgage has a grace period until the 15th of the month, after which you are assessed a 5% penalty.  But back to our closing scenario — the payoff demand on your existing loan, once received by escrow, will include all of the days of interest for July, plus the expected days of interest in August until the close date of the transaction.  Your new lender will collect prepaid interest from August 10 through August 31.  You will “skip” a September 1 payment altogether (no regular payment with either old or new servicer) and your first payment with the new loan will be due on October 1.  Got it?  OK, great.  But remember, on August 1 and into August AND until escrow closes, you are still responsible for your August payment!  If for some reason you don’t close on the 10th and there are delays past the 15th (where you’d incur a penalty) and, heaven forbid, delays past the end of the month where you’d report late to the credit bureaus, the responsibility to have made the August payment falls squarely on you.  

The best advice any of us can give on any mortgage transaction is to ALWAYS make your payment if you are unsure of how things will work out or if your lender or closing agent is not responsive or clear on the matter.  Until your new loan is funded and closed, you are ALWAYS responsible for making your mortgage payment and the risk of going 30 days late on your home loan is a risk too great to run.  Any overpayment, as painful as it might be, is far less damaging than the credit blemish of a missed payment.  If you have questions on any scenario, get in touch and we’ll be happy to explain further. 

The check is in the mail,

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

How Do Rate Locks Work?

There is one thing in common among all of our clients.  No matter what price point, no matter what loan size, no matter good credit or bad, no matter first-time buyer or seasoned investor, all are looking for the lowest interest rate at the lowest cost.  But how does a mortgage borrower secure such terms?  A part of the home loan process is “locking an interest rate” and this process could use a bit of explanation, so as to dispel some of the myths and offer a better understanding of how things work.

What Is a Rate Lock?

You’ve done your interest rate shopping and made a decision about working with a mortgage lender/broker.  The time has come to “lock” a rate.  What does this really imply?  A rate lock is a commitment the lender makes to you to preserve a given rate for a specific period of time.  In exchange for this commitment, you, the borrower, are insulated from market risk.  Once your rate is locked, that is (barring a few exceptions) the rate you will obtain for the life of the loan.  With many lenders today, there is no cost to lock a rate, but as you’ll see below, there are implications once a lock is in place.  It is fair to say a rate lock is a commitment on both sides of the transaction, borrower and lender.

Time Is of the Essence

All rate locks exist in finite periods of time and the most common lock periods are 30 days, 45 days and 60 days.  Longer locks will commonly have higher rates or costs associated with them, and this is a function of risk.  The longer a lender commits to preserve a rate, the more the lender is exposed to underlying financial market volatility.  Think of your rate lock in the same light as a life insurance policy.  Purchasing a policy with a longer term will be more expensive because the likelihood of a claim increases for the insurer as the years go by.  

Breaking the Chains

So now that you’ve locked your rate, what happens if your lock expires, or you decide to break the lock, or rates go down?  These are all valid questions and they can all be addressed by the blanket statement that just as in life in general, breaking a commitment in finance has consequences as well.  Some lenders offer enticing “float down” policies and suggest that clients can have it both ways — both locked and floating.  There is always an offset with such approaches because behind the scenes in the mortgage secondary market, rates locks are complex hedges that involve costs and have metrics that impact a bank’s efficiency and cost of providing funds.  All lenders want to have strong “pull through” on locks, and their ability to offer future clients competitive rates depends on this.  All this said, sometimes rates do drop dramatically while a borrower is in process and there is potential for a “renegotiation,” but this is not common and any rate lock should always be perceived, first and foremost, as a “for better or worse” proposition.  Finally, transactions that run longer than their lock periods are faced with extension costs, which are best avoided.  Borrowers should know that they cannot deliberately exhaust a rate lock in the hopes of capturing a new, lower rate with the same lender.  In those cases there is often a 30-day “freeze” where a new lock would be subject to “worst case” pricing.

Locking your interest rate on a mortgage is an important decision and an important commitment.  A good lender can help you navigate the nuances of the choices before you.  Fundamentally, one locks a rate to prevent the risk that rates will go higher while in the process of purchasing or refinancing a home.  What we see, in practice, is that deliberate action tends to relieve stress and assure a better outcome.  “Floating” a rate for better is always tempting because as we agree, everyone is enticed by the idea of lower rates and lower costs.  But remember, temptation can lead to unecessary risk and risk is what a rate lock strives to address by tamping down market volatility and containing aspects of your process that you don’t control.  Understanding how a rate lock works and formulating your own plan on locking is a smart move, and we’re here to help you with it.  

Lock ’em and doc ’em,

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

Will My Property Taxes Go Up If I Refinance?

Because the current interest rate environment is so conducive to refinancing, a concern that some have about taking action stems from confusion related to how their property taxes are determined, and specifically the question, “Will refinancing cause my property taxes to go up?”  It goes without saying that nobody wants to save money via refinance, only to see it evaporate in the form of higher real estate taxes.  But is this a real threat?  Or is it safe to assume that simply by refinancing you would not see a change in your tax basis?

Our answer must first address, well, the address — of the home, that is.  Since I’m a licensed loan officer in the state of California, working out of an office in Marin County, I’m only going to view this topic through my designer sunglasses.  In California, properties are assessed to market value when they change ownership, and change of ownership does not typically happen in a refinance.  So if you purchased a home for $500,000 in 2015, and it appraises for $650,000 in 2020 when you obtain your refinance appraisal, the county assessor is still working off your original assessed value as far as your tax basis is concerned.  Behind the scenes is a more complex calculation that has to do with changes to the ad valorem portion of your tax bill, adjusted by the lesser of a 2% annual increase OR the rate of inflation, as dictated by Proposition 13.  If you have questions about how to interpret your tax bill, give me a call or send me an e-mail any time and we’ll review it together.  But again, the incremental adjustments to the original basis prevail here and not a jump to the appraised (or market) value at the time of refi.

“But wait!” you say.  “My tax bill really did go up when I last refinanced!”

OK — let’s look at this a little closer.  We know that a refinance alone would not usually trigger a reassessment, but are there some things that could cause a fluctuation in the amount of tax you’ve been paying?  At times in the past, and especially during the downturn in 2008 through 2012, some homes were eligible for a temporary reduction in tax rate.  Those will revert back to their regular basis with rising values, though this may seem disconnected and cause one to think the property tax rate has been reassessed.  But the most common culprit is an escrow account for taxes and insurance.  Adjustments by your loan’s servicer that are required to maintain a sufficient balance might show up as increases to your PITI payment.  Both of the above examples could have coincided with your refinance and they may have changed your tax payment amount, but they would not have been a result of the refinance itself.

I realize that property taxes are a significant component of your total monthly housing payment.  After all, I pay them too!  So if you’re thinking about refinancing to get into better terms or a lower payment, and you have been reluctant to do so because you feel a mortgage lender’s appraisal and process could trigger an increase in your property tax bill, you can step back from the ledge and take a deep breath.  Refinancing, in and of itself and the vast majority of the time, does not cause your property taxes to increase in California.

Eureka!  I have found it,

Rob Spinosa
Senior Vice President of Mortgage Lending
Guaranteed Rate
415.367.5959  Cell/Text
rob.spinosa@rate.com
NMLS:  22343

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960
East Bay 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 Refi The Cash Out Man

Sing to the tune of Popeye the Sailor Man:

I’m Refi the Cash Out Man.  You’re lookin’ for cash in hand.

Your house is worth plenty, you can access them pennies,

So cash out?  Indeed you can.

We’re in a pandemic, you hear jumbo lenders

won’t refi your equity spare.

But that ain’t the truth and I’ll show you the proof

if you’ve managed your money affairs.

I’m Refi the Cash Out Man.  You’re lookin’ for cash in hand.

If you still got a job and your credit’s the bomb,

If the mortgage makes sense then get off of the fence,

Call Refi the Cash Out Man!

Shiver me timbers,

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 that 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