When an existing homeowner wants to buy a new home, usually they have to first sell the old home, rent for a while, and then buy a new home with a new mortgage and the proceeds from their sale. This process can be extremely stressful, having to move twice and find an interim place to live. Even if one is able to find a new home to purchase immediately after selling there is still the need to rush the transition. This can bring with it a whole new dimension of strain.
Now, what if you could remove the "moving twice" trauma? It may be possible with loan options for buying the new home first before selling the old home. If there is enough equity in the old house to satisfy the combined loan-to-value (LTV), one can leverage the equity in their current home without having to sell it first.
Bridge Financing – Collateralize current home with a short term loan to acquire liquid assets for down payment on new home. No prepayment penalty and can be closed in one week.
Cross Collateralization – Utilize one loan across both properties to avoid selling current residence and allowing buyer to make a non-contingent offer on the new home. This will be more appealing to the seller since the seller does not have to wait for the contingent sale of the buyer's old house, which also makes the buyer more competitive and on equal footing with other non-contingent bidders for the same house. Cross Collateralization is typically used to apply equity in one property as down payment for another. It is designed as an alternative to bridge financing and is one loan with two Deeds of Trusts and a release price on each property. When the current home sells, its release amount is deducted from the cross collateral loan amount and the loan is automatically recast at no cost. Typically, 75% of market rent from a rent survey is applied to income if the existing property is not listed.
"Departing Residence" Program - Use "rent" on current home to offset mortgage, even if property is on the market, with no rental agreement, and no equity requirement on the departing residence.
Asset Depletion – Create additional income from existing interest-bearing assets that buyer doesn't want to touch; eligible assets amortized over 15 years at the current 10-year bond rate.
Traditional Solutions – Qualifying with current income, utilize 1st/2nd combo to reduce down payment, paying off 2nd on new home with proceeds from sale of departing residence.
In a rising market, buying a new home before selling the old one not only saves the stress of moving twice, but surprisingly the increased equity in the more expensive new house may cost the home buyer less, thus offsetting the costs associated with carrying two mortgages.
For More Information, please contact me at 925-381-8190. Together we can structure a plan for you to make the transition as smooth as possible.
Our new Alt-ATR loan program, is completely unique in the market. It is a fast and simple solution that offers owner-occupied borrowers purchase and refi home loans without requiring income documentation or employment verification.
For more information please contact me at 925-381-8190 or tgalde@commercemtg.com. Learn more about me and Commerce at www.commercemtg.com/tgalde.
I sent my letter to Santa a month or so ago and all I wanted for Christmas was an increase in the Loan Limits for 2018. Well, guess what. Santa Claus came through, and even before Christmas day!
That's right, the FHFA announced early this month that the traditional Conforming and the High Balance Conforming loan limits will be increasing for 2018. This is great news because it allows more buyers to qualify with the less restrictive guidelines from Fannie Mae, Freddie Mac, and even FHA, who adopted the new loan limits last week.
How does this affect YOU and your buyers, you ask?
With the new loan limit of $679,650 and the minimum down payment requirement of 5%, a new home buyer could potentially qualify for a $715,421 home with only 5% down and no reserves!
This is not a commitment to lend. Subject to borrower qualification.
5% = $35,771 and the entire amount can be a GIFT from family.
The loan limits have increased in every county in California. If you would like to know the new limit in another county, just send me an email or call or text and I'll let you know exactly what it is.
This is great news for home buyers throughout the state of California and nationwide.
A few weeks ago Fannie Mae implemented new guidance for the qualifying of student loans that will undoubtedly help get more borrowers get approved to buy a home!
Until recently, many student loans that were not yet in the repayment phase, or with a current payment of $0 were qualified at 1% of the loan balance – which routinely caused DTI's to be pushed above the allowable thresholds. For example, a $25,000 student loan with payments deferred for several years would have to show a $250/month payment in the past. This undoubtedly affects the debt-to-income ratio of the buyer.
Following Fannie's recent clarification, fewer student loan situations will require the use of a higher payment than what is currently required.
If the lender obtains documentation to evidence the actual monthly payment is $0, the lender may qualify the borrower with the $0 payment as long as the $0 payment is associated with an income-driven repayment plan.
This is great news for young millenial buyers who have entered the work force and looking to purchase their first home.
Are you self-employed or derive 100% of your income from commissions?
Do you take advantage of the IRS tax laws in order to reduce your taxable income?
Do you not "show" enough income on your taxes to qualify for a traditional home loan?
The CFPB's Ability-to-Repay and Qualified Mortgage Standards require Conventional lenders to use the income disclosed to the IRS for qualifying, even though the actual deposited income may be considerably higher. As a result, you may have been declined for financing.
For the last several years we have been asking for "make sense" home financing solutions for Self-Employed borrowers and now, at long last, they are here!
Commerce Home Mortgage has rolled out a suite of new loan products, with special emphasis on catering to Self-Employed borrowers who have been unable to obtain financing.
These new programs avoid looking at tax returns and even P&L statements and simply focus on the business-related DEPOSITS on the bank account statements. This allows us to use alternative methods for deriving income in order to qualify the borrower for a higher loan amount.
It works for purchases and refinances, including obtaining cash-out of your existing home to pay off IRS tax liens, credit cards, or cover children's school tuition.
We have been asking for "make sense" home financing solutions for Self-Employed borrowers and they are now here! Commerce Home Mortgage is one of the first lenders in California to roll them out.
Real Estate Commissions for Down Payment or Credits?
Are you a Real Estate professional looking to buy a home?
Did You Know that for Conventional transactions, Real Estate Commissions may be used towards the down payment or closing costs?
Please read below for details on how each situation is treated.
If the borrower is a real estate professional and is receiving commission income from the subject property transaction, the borrower may utilize the commission for any down payment and for any required funds to close. Note that commission funds cannot be used to meet any necessary reserve requirements.
If the purchase is Primary or Second Home and the loan-to-value is at or below 75% the max contribution is 9%.
If the purchase is Primary or Second Home and the loan-to-value is between 75% and 90% loan-to-value the max contribution is 6%.
If the purchase is Primary or Second Home and the loan-to-value is above 90% then the maximum contribution is 3%.
If the purchase is for an Investment property then the the maximum allowed is 2%.
Note: Any amount paid to the buyer in excess of the above percent or the actual closing costs and pre-paids will be considered a sales concession. The excess amount is considered a sales concession and will be deducted from the sale price and LTV/CLTV/HCLTV will be recalculated.
First of all, let me state right up front: if you only have $2 in your pocket for a down payment on a home, you aren't ready to buy a home. This is not 2005, where that $2 bill would get you a million dollar home with a negatively amortizing loan. We don't want that ever again... even millenials should remember the great financial meltdown of 2007-2008. Home ownership in America is a privilege, not a right, and should be earned with at least a modest deposit... even if it's only 3%.
The Zillow survey stated, "Saving for a down payment was a barrier to homeownership for more than two-thirds of renters surveyed... topping other hurdles including qualifying for a mortgage and job security."
Many of the respondents think 20% down is still required to buy a home. Huh? There are great programs available that allow for as little as 3% down and with very competitive rates to keep the payments down.
What is 3%? On a $425,000 home it's only $12,750.
Looking to buy in a higher price range? Did you know that in the nine California counties that touch the bay a $650,000 home can be purchased with as little as 3.5% down? That's only $22,750!
As you can see, buying a home is not as hard as these survey's make it sound. It truly is within the reach of every American.
If you have any additional questions or would like to discuss a specific scenario please don't hesitate to email, text, or call.
FHA Pricing is Looking Great!
FHA Rates are Looking Great!
We know that FHA-insured mortgages tend to offer the lowest par rates in the marketplace. Now with FHA rates on a downward tear over the last few weeks we are currently sitting at the best levels in over a month!
Just how good are rates currently? In some higher cost areas (for a Purchase at 96.5%), Par rates as low as 3.75% are currently on the table! That is 3.75% with no points! In most other MSA's for the same scenario the prevailing FHA par rate is around 4%.
Thinking about cash-out but worried about the adjustments? Don't be! Most FHA scenarios do not feature any LLPA's for Cash-Out – meaning the aforementioned par rates are available with cash-in-hand (up to 85% LTV).
Curious about High Balance FHA pricing? Most scenarios will only equate to a 0.125% increase (to the rate) vs. the conforming pricing scenarios above.
Right about now someone out there is mumbling about FHA Insurance premiums. Yes, FHA mortgage insurance is not attractive – but did you know that in some cases the FHA annual insurance does not apply for the entire life of the loan?
When a FHA loan is closed with LTV of <90% or less, the annual MIP is only required until the end of the mortgage term, OR for the first 11 years of the mortgage term, whichever occurs first.
First, what is Asset Depletion? This is the ability to use your existing assets as income to qualify for clients without traditional income and who have enough assets to make it worthwhile. Borrowers who could utilize Asset Depletion are those who are retired, or who write off too much on the tax returns, or who simply don't make enough money to qualify for the payment but who have assets locked up in interest-bearing accounts.
Asset Depletion is a useful income tool which provides monthly qualifying income from the borrower's liquid available assets, without having to actually liquidate or move the funds in any way.
Calculate the depletion of assets using a 3% return over the life of the loan, similar to calculating a P & I payment for a mortgage: Every $1M In eligible assets equates to roughly $4,200 in monthly qualifying income!
Assets that are "depleted" for qualifying income CAN also be used as reserves!
DTI as high as 49.99% permitted!
As you can see, Asset Depletion is a useful income tool which provides monthly qualifying income from the borrower's assets without having to actually liquidate or move the funds in any way.
If you or someone you know needs a solution like this please don't hesitate to email or call. My team and I will take great care of you or someone you refer to me.
Is Now The Time For a 15-Year Mortgage?
So there you are, sitting around the kitchen table, bemoaning the fact that you have 25 years left on the mortgage you took out back in 2012 and with rates on the rise, "It's time to hunker down, hon..."
With 15-Year fixed rates still in the 3.25-3.5% range, now may be the time to potentially save over $100,000 by shortening the term of your loan. Say what? Yep, you heard it right. If you took out a $400,000 30 year mortgage in 2012 with a 4% rate you would be sitting at a principal balance of about $362,000. By converting it now to a 15-year fixed mortgage at 3.5% you would save $103,159 in principal and interest payments by cutting the term short by 10 years. Of course, the monthly payment will be higher with a 15-year term, but so is your income now, and it should continue rising over the next 10-15 years.
Interest Paid – Over the life of the loan a 15 Year mortgage will typically result in more than 60% less Interest-paid – that is a huge savings!
Payoff the Mortgage Faster – especially for borrower's nearing retirement who will see disposable income significantly reduced with a mortgage payment in retirement.
Same Rate, Less Risk – The 15 Year is comparable to a 5 or 7/1 ARM rate today, but with no interest rate risk vs. an ARM which adjusts after the initial fixed period.
Loan Level Price Adjustments – 15 Year Fixed loans (FNMA) carry less LLPA's, meaning better rates and more rebate for higher LTVs and Lower FICO scores.
If this is something that is of interest to you or someone you know, please feel free to email or call. We are here to serve you.
A few crucial loan characteristics on Fannie Mae's new HomeReady loan are (surprisingly) better than those offered on the FHA-insured loan from a cost perspective.
In case you're unfamiliar, HomeReady is Fannie Mae's affordable, low down payment mortgage product designed for creditworthy low-to-moderate-income borrowers, with expanded eligibility for financing homes in lower-income communities.
Unlike FHA, income limits may apply for most counties nationwide on the HomeReady program, but there are other areas where the HomeReady program is easily superior as it relates to loan costs and even interest rate.
The HomeReady program allows for as little as 3% down on loan amounts up to $424,100 (FHA requires 3.5% down) and as little as 5% down with loan amounts up to $636,150.
The biggest benefit of HomeReady, though, is the reduced cost of Mortgage Insurance due to reduced coverage requirements on loan-to-value ratios over 90%.
FHA financing comes with a one-time 1.75% Up Front Mortgage Insurance Premium. On a $500,000 loan the FHA premium amounts to a cost of $8,750. This is generally added to the loan amount which increases the monthly payment as well. Fannie Mae's HomeReady program has NO up front premium.
The "Annual" premium with FHA is .85% with 5% down or less, regardless of credit score. On a $500,000 loan that equates to an additional $354/month. With HomeReady, the annual premium can be more than half the cost with good credit, coming in around .40%, saving over $188/month.
Another benefit of the Fannie Mae HomeReady program is the Mortgage Insurance is cancellable when the loan-to-value reaches 80% or less. In essence, after several years it can be removed forever. With FHA, the monthly premium is mandatory for the life of the loan. The only way to remove it is to refinance the entire loan to a conventional format.
For new home buyers looking to purchase in 2017 who have been waiting to save up enough money, the HomeReady program may be an ideal solution in their quest.
Feds Meet. Rates Rise. Time to Buy!
In the Bay Area, owning a home is still less expensive than renting.
Unless you've been sleeping under a rock this week (my apologies if you are this beta fish) you know by now that the Feds announced their decision to increase the Fed Funds Rate by .25%, the first increase since December of 2015, and only the 2nd increase since 2006.
The increase came as little surprise to those in the finance world as the FOMC had been hinting back in November that a rate hike was coming. In fact, this weeks' Fed statement gave an indication that more increases are coming in 2017, although they are still taking a "wait and see" approach.
As a result, it must be more expensive now to buy than rent… right?
With interest rates slowly ticking up, many think buying a home may become more expensive than renting. Mortgage rates are now at the highest level they have been in over two years and may continue to gently increase in the coming months. The reality is we may never see rates as low as they have been in the past year or so and maybe that is a good thing.
"There is a great debate over whether rising rates really matter to housing. After all, increasing rates are indicative of a stronger economy and a stronger economy favors housing," writes Diana Olick of CNBC.
The nuts and bolts: let's talk numbers.
Rhetoric aside, with interest rates increasing, current renters want to know, how does the increase in rates affect the decision to buy a home or stay renting? The answer (if you live in the Bay Area) is relatively straight-forward: at the current levels of rental costs in the Bay Area, rates would have to go MUCH higher for it to not make sense to buy.
As an example, when comparing the purchase of a $650,000 home with only 3.5% down to renting a comparable home for $3,500/month, the Net monthly payment of an FHA loan at 4% is less expensive than renting. The savings only gets better with a bigger down payment, such as 10 or 20%.
Click here for the fully Interactive "Rent vs Own" Total Cost Analysis presentation.
Erin is right, especially when you consider that rates were as high as 18% in the early 80's. Fortunately we will never get back to that level, not with the measures put in place during the Reagan administration.
It's important to remember what "home" means and that once you are in the home with a fixed rate, the payment can't go up but your income will and over time, any anxiety experienced over rates will give way to the sheer joy and peace of mind that comes with owning your own home and being able to make it "yours".
For the first time in over 10 years the Conforming and High Balance Conforming loan limits will be increasing in 2017. This is great news for all potential borrowers and especially for new first time home buyers with less than 20% to put down on a purchase.
The Federal Housing Finance Agency (FHFA) recently announced that it would be increasing the maximum baseline conforming loan limit for mortgages purchased by Fannie Mae and Freddie Macfrom $417,000 to $424,100.
The FHFA also raised the ceiling loan limit within high cost counties like those in the Bay Area, increasing the "high balance" conforming limit from $625,500 to $636,150.
While an increase from $417k to 424k and $625k to 636k may not seem like much on the surface, these increases amount to more volume and more opportunity than one may think.
In a recent report from Black Knight Financial Services, released in early November, it was calculated that increasing the conforming loan limit by $10,000 could result in approximately 40,000 additional originations totaling nearly $20 billion in loan balances.
The report also noted that 17 times as many originations occur at the conforming limit as compared with preceding slices based on dollar amount. Immediately above the limit, whether it be conforming or "high balance", the originations drop by 70%, Black Knight reported.
The announcement by the FHFA has been welcomed by Real Estate agents and buyers alike, offering more buying power for consumers looking to purchase, especially for those with less than 20% down.
California Association of Realtors' president Geoff McIntosh says that the raised limits will benefit thousands of Californians who have been looking in the upper limits of the ranges.
The increase in conforming loan limits is a long time coming, according to William Brown, president of the National Association of Realtors.
How Does the Increase Help Buyers?
For those looking to purchase in the $650,000 range, it is a little-known fact that FHFA allows as little as 5% down payment when utilizing Fannie Mae and Freddie Mac securitized financing. Most consumers think you need 15-20% down, or at least 10% down to purchase in this range but the reality is that "High Balance" Conforming loan amounts will allow for as little as 5% down.
Prior to the new increase by FHFA, a down payment of only $32,921 would allow a buyer to purchase a home selling for up to $658,421, with the loan amount being capped at $625,500.
With the new increase in 2017, a 5% down payment of $33,481 now allows a new buyer to purchase a home selling for $669,631, an increase in buying power of $11,210 for only an additional $560 down!
While home prices may be larger, consumers' purchasing power has also grown. As a result, while the outright cost to buying a home is greater, in a relative sense it is actually cheaper than in the past.
The Federal Housing Finance Agency (FHFA) recently announced that it would be increasing the maximum baseline conforming loan limit for mortgages purchased by Fannie Mae and Freddie Mac from $417,000 to $424,100.
Hoping to buy a new home soon?
Hoping you qualify for the amount you want?
Hoping the lender doesn't laugh at your credit scores?
Don't get me wrong…hope (and prayer) can work in the face of challenging situations. BUT you need to be prepared to do your part when it comes to buying or refinancing a home. That means taking control of the home loan process. Yes, YOU, the home buyer, can take control of the financing of your new home.
Are you ready to bring you're 'A' game?
You might already know this but the difference between a thermostat and a thermometer is that a thermometer reports the temperature. It doesn't have any control; it just tells you that it is really hot!
A thermostat, on the other hand, allows YOU to set the temperature. The thermostat regulates and controls the temperature based on what YOU want.
In the same way, you can take control of your home loan process. Determine the outcome you want and make a difference.
Know Your Credit. Do NOT just know the scores; identify and understand why the scores are what they are and what they need to be. Too much debt? Too little debt? Got unpaid collections? TIP: do not pay them off yet. Do you think a score of 719 is high enough? It may not be. Do you think you will never buy a home with a score of 590? It may be high enough. Become your own credit expert.
Know Your Income. Do not just know the amount you make every month; know how the bank or lender will interpret your income and what amount they will use to approve you. Only employed for 18 months? Is half of your pay considered commission? Just graduated and start new job next month? Is most of your income from tips or overtime? Self-employed and making less this year than last? These are all interpreted differently and may affect your qualification considerably.
Know Your Assets. Do not just know the amount you have in the bank or have access to; know how much the bank or lender will be able to use. Did you recently transfer money from overseas? Did you get a gift from a family member or friend? Is your Uncle Joe giving you his prized gold coin collection? Planning on "borrowing" from your business account? These are all viewed differently and may have restrictions for use based on the lender or bank requirements.
Know Your Property. Do not just know what kind of home you want to buy. Know how the bank or lender interprets the kind of home, the use of the home, the location of the home, the condition of the home. Looking to buy a condo? Second home in Tahoe? Rental property? First-time home for your daughter? Six-unit apartment complex for extra income? New construction? Plot of land to build on? Each of these will have unique requirements for down payment, potential restrictions for occupancy, and "overlays" from investors to minimize the risk involved in the transaction.
Know Your Rules. Rules? End of last year, the lending landscape shifted under everyone's feet, with the roll out of TRID. Never heard of TRID? Get caught up here. Do you need to close quickly on a purchase? Purchasing with a 1031 Exchange? Are you looking to sell your existing home and buy a new home, back to back? The new TRID rules and more specifically, the mandatory wait periods, may affect you and your new purchase, costing you thousands of dollars if not properly understood and managed.
TRID and other important rules and regulations.
You are on the cusp of embarking on what could be the biggest financial decision of your life. Take control. You can bring your 'A' game and in the process make this new purchase an enjoyable and stress-free chapter in your life.
Thinking of Buying a Second Home?
The San Francisco Bay Area is a fantastic place to live, work and play. It is home to many major corporations, including PayPal and Apple Inc., and it is a haven for tourists who want to set their sights on the Golden Gate Bridge and the California coast. The people who live in this region love the energy and the vibe within the large cities that make up the communities, but some are seeking solace in a second vacation home. It can cost a pretty penny to live in San Francisco or the Silicon Valley — which is why many residents simply rent a small house or apartment. However, many can afford to invest in real estate and choose to purchase a vacation home in Lake Tahoe or Napa Valley. It's a place to retreat and enjoy life's simple pleasures while reaping the benefits of home ownership.
Financing a 2nd home is a bit different than financing the purchase of a primary residence. The following tips will help you prepare your finances so that you can more easily purchase that dream vacation home with those beautiful coastal views of Carmel.
Second homes are not as rare as one might expect. In fact more than 20% of residential home purchases in 2014 were for secondary residences. The numbers are rising and it's important for those considering to understand the differences behind this unique type of real estate transaction. As a mortgage on a vacation property is considered higher risk, many lenders require buyers to have a larger down payment – generally 20%. Choosing to pay cash is an alternative. There are potential options for securing cash such as taking out a home equity line of credit (HELOC) on your primary residence to finalize the purchase of your secondary residence.
TIP: In many cases, a gift from parents or family is OK to use for a down payment.
If you plan to use your second home strictly for personal use, then you are likely going to be able to secure an interest rate that is comparable to that on your primary residence. Today mortgage rates are considered low; it is a good time to finance the purchase of a 2nd home. Please note that if the 2nd home purchase is for investment reasons, you may be locked into a higher interest rate – an increase of about .5%.
TIP: Clearly, interest rate is important, but in today's confusing lending environment, it is equally important that you align yourself with a knowledgeable, trusted mortgage advisor who will provide transparency of the process and fees. Choose someone who can help navigate if potential complications arise which would save you a lot of money and headache.
Your current verifiable income will need to cover the future mortgage payments, insurance and taxes on your second home, along with your existing monthly obligations like primary mortgage payments or rent, property taxes, and home insurance. You are NOT allowed to use future income that will be generated as a result of renting the new home when you are applying for your mortgage. Once you have calculated general costs, you will need to calculate the debt-to-income (DTI) ratio. A healthy DTI is around 38%, although it can go higher if there are other compensating factors.
TIP: Due to the tightening of credit since the "meltdown" of 2007-2010, you should consult with a professional mortgage advisor (before submitting any offers on homes) to determine your maximum DTI and purchase price.
There are many benefits and reasons for purchasing a second home. Besides vacation, people buy secondary residences to support aging parents, board kids in college, shorten work commutes as well as for straight investment. Tax deductions can be enjoyed after the purchase. As long as you are not renting the home for more than 14 days out of the year, you can deduct the interest on the principal of your secondary residence, similar to the way that you can deduct interest on the principal of your primary residence. There are some limitations such as you are limited to deducting interest on up to $1.1M in property value combined between the 2 residences that you own. If you decide to rent your property for more than 14 days out of the year, you will be held to different tax standards. Regardless, this rent income can help boost your net worth and improve your own personal finances.
TIP: It is imperative that you find a trusted Certified Public Accountant (CPA) who will guide you through the ever-changing tax laws to make sure you maximize your deductions.
Once you have financed your 2nd home, you can now enjoy the perks. If for vacation purposes, your family and future generations can enjoy the home and its location for years to come. Whether you are located steps away from beautiful vineyards, sandy beaches, or snowy mountains, you will love having a second place to call home.
Give me a call if you would like to discuss any of the above and could possibly benefit from a free, no pressure or obligation consultation. It would be an honor to help you with your home financing needs.
The San Francisco Bay Area is a fantastic place to live, work and play. It is home to many major corporations, including PayPal, Apple Inc. and Workday, and it is a haven for tourists who want to set their sights on the Golden Gate Bridge and the California coast.
The people who live in this region love the energy and the vibe within the large cities that make up the communities, but some are seeking solace in a second vacation home. It can cost a pretty penny to live in San Francisco or the Silicon Valley — which is why many residents simply rent a small house or apartment. However, many can afford to invest in real estate and choose to purchase a vacation home in Lake Tahoe or Napa Valley. It's a place to retreat and enjoy life's simple pleasures while reaping the benefits of home ownership.
Buying a second home in the Bay Area has become a big goal for many of our clients, said Andrew Greenwell, star of Million Dollar Listing San Francisco.
Financing a second home is a bit different than financing the purchase of a primary residence. The following tips will help you prepare your finances so that you can more easily purchase that dream vacation home with those beautiful coastal views of Carmel.
Second homes are not as rare as one might expect. In fact more than 20% of residential home purchases in 2014 were for secondary residences. The numbers are rising and it is important for those considering purchasing a second home to understand the differences behind this unique type of real estate transaction. As a mortgage on a vacation property is considered a higher risk, many lenders require buyers to have a larger down payment, generally 20% or more of the purchase price. Choosing to pay cash is an alternative. There are potential options for securing cash such as taking out a home equity line of credit (HELOC) on your primary residence to finalize the purchase of your secondary residence.
If you plan to use your second home strictly for personal use, then you are likely going to be able to secure an interest rate that is comparable to that on your primary residence. Today mortgage rates are considered low; it is a good time to finance the purchase of a second home. It should be noted that if you are purchasing your second home as an investment property, you may be locked into a higher interest rate, as much as .5% higher.
Qualifying to buy a second home can be trickier than qualifying for your first home, the one you will live in, says Greenwell.
TIP: Clearly, interest rate is important, but in today's confusing lending environment, it is equally important that you align yourself with a knowledgeable, trusted mortgage advisor who will provide transparency of the process and fees. Choose someone who can help navigate the potential complications that may arise, saving you a lot of money, time, and headache.
Your current verifiable income will need to cover the future mortgage payments, insurance and taxes on your second home, along with your existing monthly obligations like primary mortgage payments or rent, property taxes, and home insurance. You are not allowed to use future income that will be generated as a result of renting the new home when you are applying for your mortgage. Once you have calculated general costs associated with your new home, you will need to calculate the debt-to-income (DTI) ratio. A healthy DTI is around 38-43%, although it can go higher if there are other compensating factors.
TIP: Due to the tightening of credit since the "meltdown" of 2007-2008, you will want to seek the services of a professional mortgage advisor before submitting any offers on homes, to determine your maximum DTI and purchase price.
There are many benefits and reasons for purchasing a second home. Besides vacation, people buy secondary residences to support aging parents, board kids in college, shorten work commutes as well as for straight investment. Tax deductions can be enjoyed after the purchase. As long as you are not renting the home for more than 14 days out of the year, you can deduct the interest on the principal of your secondary residence, similar to the way that you can deduct interest on the principal of your primary residence. There are some limitations such as being limited to deducting interest on up to $1.1mm in property value combined between the two residences you own. If you decide to rent your property for more than 14 days out of the year, you will be held to different tax standards. Regardless, this rent income can help boost your net worth and improve your own personal finances.
TIP: It is advised that you find a trusted Certified Public Accountant (CPA) who will guide you through the ever-changing tax laws to make sure you maximize your deductions.
Once you have financed your second home, you can now enjoy the perks. If for vacation purposes, your family and future generations can enjoy the home and its location for years to come. Whether you are located steps away from beautiful vineyards, sandy beaches, or snowy mountains, you will love having a second place to call home.
Please give me a call if you would like to discuss any of the above and could possibly benefit from a free, no pressure or obligation consultation. It would be an honor to help you and your family with your home financing needs.
You may have read or heard about the pending increase in interest rates this month. After last week's positive report on jobs, it is almost a forgone conclusion that the Feds will be increasing the Federal Funds Rate next month. They meet this month, on December 15th and 16th, and their decision will most likely be implemented at the beginning of the New Year.
Federal Reserve Chair Janet Yellen has stated repeatedly throughout the year that an increase in the central bank's key Federal Funds Rate could come later this year. This is the rate that banks charge each other for overnight loans. The Fed has maintained a near-zero federal funds rate for more than six years to help the United States economy recover from the Great Recession. Now that the economy is beginning to show signs of a rebound, it is time for the feds to increase these rates. With banks paying more, who do you think the increases will ultimately be passed on to? That's right… you and me. These increases will ultimately trickle down to us, the consumers.
This is the ultimate question. An increase in the fed funds rate will affect everything from credit card debt and auto financing, to school loans and large consumer purchases like furniture. But the biggest concern we all have, when it comes to increasing rates, is our home loans. An increase in the fed funds rate will indirectly affect fixed rates on 1st mortgages, by costing the banks more and thus, the home owner. It will directly affect 2nd mortgages, which are tied to the Prime Rate and which in turn, is tied to the fed funds rate. For example, if the fed funds rate goes up by .25%, the Prime Rate will go up by .25% as well.
What is that, in dollars?
For every $100,000 borrowed on a Home Equity Line of Credit (HELOC), the most common form of 2nd mortgage in the United States, a .25% increase will mean an additional $20.83/month in interest, or close to $21. While that doesn't seem like much initially, the fed funds rate will continue to go up over time, depending on the Feds schedule for increases. If the rate increased .25% every quarter, for example, that would be 1% every year. After two years, this would be an additional $168/month in interest. Ouch. Now it starts to look more painful.
If you have a Home Equity Line of Credit (HELOC), you may want to consider refinancing it and your current 1st mortgage in to one 30-year fixed rate loan. This is the safest way to avoid the increases on the HELOC and secure a monthly payment you can live with.
Pay down credit card debt. When the Fed raises or lowers the federal funds rate, the majority of credit card annual percentage rates rise or fall by the same amount.
Take advantage of zero-percent balance transfers, especially if you can't quickly pay down your current credit card debt.
Reconsider savings strategies. Higher rates mean certificate of deposit returns and savings accounts will bring greater returns.
If they decide to increase the federal funds rate, it could be in January, it could be in the 2nd quarter of 2016… no one knows yet.
BUT, you can prepare yourself by contacting a Trusted Mortgage Advisor at Commerce Home Mortgage. Make the call today; you will be glad you did.
"You didn't earn the right to sit at these desks..."
I wanted to wish everyone a blessed Veteran's Day celebration. This is such an important day of memorial for all Americans and we should never forget those who served and fought to preserve our freedoms as United States citizens. Personally, I want to recognize my grandfather Lloyd Galde who fought in WW2 on german soil, my grandfather Ed Phillips who served in the Navy during WW2 at Pearl Harbor, my grandfather-in-law Ray Sterlinski who was in the Navy during WW2, my uncle-in-law Richard Smith who served in the Korean War, my uncle-in-law Bob Brown who served in the Army, my father-in-law David Smith who served an entire career in the Army, my uncle Gene Tyson who was an Army Chaplain for 30+ years, my cousin Mick Keeney who served in the Army, my cousin Jason Galde who served the Navy on the USS Carl Vinson, and my uncle Dan Galde who fought in Vietnam. Thank you all.
In September of 2005, a social studies schoolteacher from Arkansas did something not to be forgotten. On the first day of school, with permission of the school superintendent, the principal, and the building supervisor, she took all of the desks out of the classroom. The kids came into first period. They walked in - there were no desks.
"Ms. Cothren, where are our desks?"
She replied, "You can't have a desk until you tell me how you earn the right to sit at a desk."
And so they came and went, the first period, second period, third period - still no desks in the classroom. Kids called their parents to tell them what was happening and by early afternoon television news crews had started gathering at the school to report about this crazy teacher who had taken all the desks out of her room.
The final period of the day came and as the puzzled students found seats on the floor of the desk-less classroom, Martha Cothren said, "Throughout the day no one has been able to tell me just what he or she has done to earn the right to sit at the desks that are ordinarily found in this classroom. Now I am going to tell you."
At this point Martha Cothren went over to the door of her classroom and opened it. Twenty-seven (27) veterans, all in uniform, walked into that classroom, each one carrying a school desk. The vets began placing the school desks in rows, and then they would walk over and stand alongside the wall. By the time the last soldier had set the final desk in place those kids started to understand, perhaps for the first time in their lives, just how the right to sit at those desks had been earned.
Martha said, "You didn't earn the right to sit at these desks. These heroes did it for you. They placed the desks here for you. They went halfway around the world, giving up their education and interrupting their careers and families so you could have the freedom you have. Now, it's up to you to sit in them. It is your responsibility to learn, to be good students, to be good citizens. They paid the price so that you could have the freedom to get an education. Don't ever forget it."
By the way, this is a true story. And this teacher was awarded Veterans of Foreign Wars Teacher of the Year. She is the daughter of a WWII POW.
May you be blessed today with the many freedoms we experience because of those who went before us.
Rates are low, but for how much longer?
Residential lending rates have been consistently low for over seven years now, but the party may be ending soon. Now would be a good time to consider refinancing, if you or someone you know has been thinking of it. Here in California, we have seen a strong rise in home valuations over the past several years and many believe we are beginning to plateau in those values.
Many homeowners are now taking this opportunity to refinance, with varying reasons and financial goals. For example, many are combining their current 1st mortgage with their 2nd adjustable Home Equity Line of Credit (HELOC), since the rate on this 2nd loan may be increasing when the Feds increase rates soon. Or, many homeowners have children who are getting close to entering college. With rates still in the high 3's and low 4's, refinancing to get these funds out may be less expensive than obtaining a school loan. And then there are those who are refinancing to obtain cash to remodel their home and/or landscaping. Whatever the reason for refinancing, now would be a great time to consider it, in order to capture the still historically-low rates before they begin going up.
Not knowing your credit status. With the rise in identity theft and mistakes made by the credit bureaus, it is imperative that you review your credit profile at least once a year. Got great credit? Super! But what happens if your scores are lower than you thought they were? They could lead to higher interest rates and possibly even being denied for a home mortgage altogether. What if your credit was able to be "fixed"? Did you know that just paying down a high-balance credit card can increase your scores by 20, 30, even 50 points? That could be the difference between a quarter or more in interest rate.
TIP: Seek the services of a Mortgage Advisor who knows how to interpret your credit report and how to fix it, if necessary.
Failing to disclose all information on the application. Many homeowners think they don't have to include their 2nd home up in Tahoe if there is no mortgage on it. Wrong! This is a big red flag with lenders and could lead to a denial of your loan, even if you were about to be approved.
TIP: Always disclose every property you own or have an interest in.
Don't forget about closing costs. Oh, and there are always costs. The lender may have processing fees, the appraiser needs to be paid, the title company charges title insurance, the notary person needs to be paid, etc. The so-called "No Cost!" refinance exists when the rate is increased to create a rebate on the back end which can be paid to the borrower.
TIP: Find out what the rate is with costs and without costs.
Overestimating your homes value. Be realistic. Sites like Zillow and Trulia are decent measuring sticks but you can also dig a little deeper by asking your favorite Realtor about "comps" in your neighborhood.
TIP: Once you think you know the rough value, lower it by 5% and see if that still works for your potential refinance.
Forgetting about the new TRID requirements. With every refinance, there is a 3-day right-of-rescission period after signing final loan docs. Now, with the release of the new TRID rules, there is an additional 3-day period before docs can be sent to Title for signing. Thus, when the refinance loan is finally "clear to close" (all conditions have been fulfilled), there are SIX mandatory waiting days that cannot be waived. If you are needing the funds from a refinance for time-specific purpose, be sure to anticipate the potentially lengthy closing process.
TIP: Plan ahead for a potentially long refinance time line, even as long as 45-60 days.
It is very helpful to prepare yourself for a potential refinance, by addressing any credit issues, digging up all of the documentation you have, and paying close attention to the closing costs, estimated value, and the time it may take to close the loan. By being aware of the details you may avoid some of the pitfalls many homeowners experience when refinancing their home loan.
If you have any questions about refinancing, where interest rates are headed, or any loan-related concerns, please don't hesitate to email or call me any time. I would be honored to be of service to you and your family.
For most Americans, the ability to pay cash for a home is not a reality. As a result, purchasing a home means taking out a residential mortgage loan. Obtaining this loan can be a complex and confusing transaction, with many forms and disclosures that are unclear to most consumers.
On October 3rd, 2015, the Consumer Financial Protection Bureau (CFPB), the consumer watch dog for the Feds will roll out new disclosures that must be used when obtaining a home loan in the United States. These new disclosures, called the Loan Estimate and Closing Disclosure, will take the place of documents used in the lending industry for nearly three decades. They will replace the Good Faith Estimate, Truth-In-Lending, and the final HUD1.
Along with the new paperwork will come a new set of rules related to when the documents can be signed, how long the borrower has to review them, and ultimately, penalties to lenders for not adhering to these new requirements. There are major implications to the lending industry. Anyone considering buying a new home or refinancing an existing mortgage, will want to know about these coming changes.
With roughly 47,000 homes sold per month in 2014 just in California alone, a large number of residents have gone through the home buying experience. Prior to the financial crisis of 2007-2010, obtaining a mortgage loan was fairly straightforward. But if you've purchased or refinanced recently you most likely have experienced the challenges the lending industry is currently fraught with. The process is often tedious and slow, too many documents are required, and people often feel like they are not receiving the level of service they desire or need. As a result, people often feel uninformed, anxious, and frustrated.
In an effort to improve the overall consumer experience and in reaction to the financial crisis of 2007-2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The legislation gave birth to the CFPB. The ultimate goal of the CFPB is to "help consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives".
In 2011, the CFPB began the "Know Before You Owe" initiative. This effort combined the existing mortgage industry standard disclosures into a simpler and more understandable set of forms for all parties involved in assisting borrowers with obtaining a mortgage. After four years of proposals, comments from the real estate and mortgage industry, and quantitative studies and tests with hundreds of consumers across the country, the CFPB is NOW rolling out the new disclosures and new rules created by the Know Before You Owe initiative. These new rules and disclosures called TILA-RESPA Integrated Disclosure (TRID) are set to take effect on Saturday, October 3rd, 2015.Lenders will then be required to give consumers these new forms and to follow the new rules around the procedures and timing for closing a new home loan.
The reduction of paperwork and confusion. TRID combines several forms and statutory disclosure requirements into only TWO forms.
Complicated mortgage loan and real estate terminology has been simplified, helping consumers comprehend the information better.
Emphasizing the information most important to consumers. The new forms will clearly present the interest rate, monthly payments, and the total closing costs on the first page, not buried deep in the disclosures.
Information about the costs of taxes and insurance will be presented more clearly, as well as how the interest rate and payments may change in the future, if applicable.
Highlighting features of the loan that consumers may want to avoid, like pre-payment penalties.
Making the cost estimates consumers receive for services required to close a mortgage loan more reliable, such as appraisal or pest inspection fees. The rule prohibits increases in charges from lenders, their affiliates, and for services for which the lender does not permit the consumer to shop unless a specific exception applies.
Requiring that consumers receive the Closing Disclosure at least three business days before closing on the mortgage loan. Presently, consumers often receive this information at closing or only a day or two before closing. The additional time will allow consumers to review the final terms and costs and to compare them to the terms and costs they received in the initial estimate.
Time is on Your Side… Or is it?
In 1965 the Rolling Stones released their classic hit, Time is on My Side. Now, 50 years later, the new Know Before You Owe rules will force buyers to have time, time on their side, to review the Closing Disclosure related to the new mortgage. Mandating that buyers have three days to review their documents is designed to protect the consumer from surprises at the closing table. It also gives them time to consult with their "lawyer or housing counselor" and ask all the questions they might have about the terms of their loan. Most consumers would agree that this mandatory waiting period is a positive step when it comes to protecting consumers from predatory lenders and loan officers.
An important note of caution, though, regarding this three-day waiting period: if the consumer finds something wrong with the Closing Disclosure, such as a closing cost credit that is mysteriously left out or an origination fee that is "accidentally" added, the consumer request that the Closing Disclosure be corrected will potentially add another mandatory three-day waiting period to the close of escrow.
If you've recently closed on a mortgage transaction, whether it was a purchase or refinance, you are probably familiar with the fact that changes occur throughout the process of closing a loan, all the way up to the final day the closing docs are drawn up for signing. While frustrating, it is not unusual. Now, with the implementation of the three-day mandatory waiting period and more importantly, the requirement of additional three-day waiting periods, it becomes crucial that every aspect of the contract, loan documents, how the borrower is taking title, etc. be perfect before the final documents are drawn.
Today, many purchase transactions carry specific days in which every party involved in the transaction understands to be "set in stone," and which dictate the exact day the transaction will close. The most common period is 30 days. Ultimately, this closing date affects the movers, those burly human beings who have been contracted to pack up, deliver and un-pack the belongings of the new buyer. In most cases, these movers have other jobs scheduled and need to leave on a specific date in order to be on time. As you can imagine, if a buyer is forced to incur additional 3-day waiting periods, these delays will affect many other parties like contractors, painters, and… movers.
There are many other potentially expensive situations affected by this new waiting period. For example, one of the principals may need to close by a specific date in order to take advantage of the tax breaks on the sale of their current residence. Or one of the principals might be involved in a 1031 tax-deferred exchange. A properly constructed 1031 allows an investor to sell a property, reinvest the proceeds in a new property and to defer all capital gain taxes. The tax-benefits lost due to a late closing could end up costing hundreds of thousands of dollars.
While change inevitably brings with it unexpected challenges, I believe these changes are ultimately good for our industry. Information is a good thing. Transparency is a good thing. Accountability is a good thing. I believe the implementation of this new initiative is all of these, and more. Consumers can benefit from TRID by working with an honest and ethical mortgage advisor and a team of professionals who can navigate these new processes and communicate effectively.
At the end of the day, success in the mortgage business boils down to providing creative solutions for our clients, seamless and transparent procedures, and an honest approach to closing a mortgage loan. The ultimate goal is a great customer experience.