Property type:    

Backstory:

Clients are empty nesters who recently sold their larger family home in San Anselmo. Before they could finish the sale of their previous home, they found a replacement home they loved in Novato but the seller would not wait for the previous home sale to close. Rather than risk losing the home to another bidder, they decided to pay all cash, because financing both homes was not possible.

Once settled in their new home with the previous home sold, the client approached a major bank for a home loan to replenish their savings and take advantage of today’s dramatically low fixed interest rates. The major bank denied their application despite excellent income and credit.

In late June of this year, Fannie Mae introduced the “Delayed Financing Exception” that eliminates the previous requirement to wait at least 6 months before getting cash out on a mortgage when the homeowner has paid all cash. However, not all lenders allow this exception, including the major bank where this client first applied. When they came to us, we directed these clients to a flexible wholesale lender who quickly embraced Fannie Mae’s delayed financing exception and their application was approved in only 5 days.

* * * * * * * * * *

Want to receive more useful articles like this? Click here to subscribe for automatic updates by email.

This story was recently published in the San Francisco Chronicle Sunday Real Estate Section.

Property type: An owner-occupied single-family residence in San Francisco

Appraised value: $1,025,000

Borrowing amount: $820,000

Loan type: 10-Year Fixed Rate, Interest-Only Payment Option, 40-Year Term

Rate: 3.875%

Backstory:  Borrowers refinanced from their old loan at 5.25% to increase their monthly cash flow by $1,835 and make larger contributions to their retirement plans. This was especially advantageous for the wife whose employer matches her monthly retirement plan contributions. Before refinancing, this couple did not have enough monthly cash flow to take advantage of this opportunity because their interest rate was higher and the old loan required principal reductions. Working with their investment advisor, this couple realized that it was a lot more valuable to direct their cash to a conservative retirement investment account earning 6 to 7% than to pay down a loan that only costs only 2.50% after taking the mortgage interest deduction on their income taxes. Even without the employer’s matching funds this made good sense. The matching funds made the choice easy.

This loan was also unique because the loan-to-value ratio was 80%. Very rarely do jumbo loans offer both (1) the option for interest-only payments and (2) a loan-to-value ratio of 80%. We directed this couple to one of the very few investors who make home loans in California on these terms.

* * * * * * * * * *

Want to receive more useful articles like this? Click here to subscribe for automatic updates by email.

This story recently appeared in the San Francisco Chronicle Sunday Real Estate section.

Property type: An owner-occupied single-family residence in Benicia
Appraised value: No appraisal required
Borrowing amount: $539,000
Loan type: FHA 30-year fixed
Rate: Fixed 3.75%

Backstory:

Because their home had dropped in value below the amount of their mortgage, these homeowners thought they were stuck with a much higher interest rate and higher payments. However, under the FHA streamline refinance program, an appraisal is often not required and the current value of a home is not important.

These borrowers were able to lower their rate from 5.50% to 3.75%, saving them $604 per month. They were also pleased to learn that, unlike many refinance transactions, the paperwork was easy. There was no need to document income with tax returns and W-2s and pay stubs. With less paperwork and no appraisal required, the whole process was faster too, closing in 34 days from start to finish.

The FHA streamline program can be a great opportunity if it fits. Homeowners must already have an FHA loan. And even though credit standards are more relaxed, the homeowner must be current on their mortgage payments.

Beyond saving money with a lower interest rate, another large incentive is coming. Beginning this June, President Obama has ordered that the upfront insurance premium required on FHA loans will be reduced to mere fraction of what it used to be. This will save the average FHA borrower thousands in closing costs.

* * * * * * * * * *
Want to receive more useful articles like this? Click here to subscribe for automatic updates by email.

Property type:  Owner-occupied single family residence

Location: Menlo Park, CA

Appraised Value: $1.87 million

Borrowed Amount: $1.15 million

Loan Type: 5 year fixed ARM

Rate: 3.00%

Backstory:

This married couple refinanced their home loan to lower the interest rate from 5.50% to 3.00%. This reduced the interest expense on their home loan by 45%. The new loan only replaced their existing home loan balance. They did not take cash out and there was no other loan is second position.

What made this transaction unique is how they qualified.

Before coming to me, this couple had been frustrated to learn that they did not have sufficient income to qualify for a refinance on the traditional basis of calculating their income using  their tax returns alone. A few other lenders had turned them down using this standard approach.

However, in the jumbo loan market, a few key lenders have discretion to qualify a borrower using an expanded approach that looks beyond just the income demonstrated by tax returns. (They have this discretion because jumbo loans today are often made by banks as an investment to keep on their books and not with the intent to sell the loan to a third party. They are not subject to the underwriting standards of what Fannie Mae or Freddie Mac will buy).

The expanded approach requires that the borrower has considerable financial assets (cash, stocks, bonds, or other marketable securities). The lender presumes that the borrower could, if necessary, spend down their financial assets to supplement their income. The basic formula is to divide the borrowers financial assets by 10 and add that figure to the borrower’s annual income.

In this case, the borrowers previously did not qualify because their housing debt ratio was more than 50% of their income. However, using the alternate expanded approach (called “asset depletion” in the trade), these borrowers were able to supplement their income for mortgage underwriting purposes. This brought their housing debt-to-income ratio under 30% and hence they qualified for the new loan.

* * * * * * * * * *
Want to receive more useful articles like this? Click here to subscribe for automatic updates by email.

This story was recently published in the San Francisco Chronicle Sunday Real Estate Section.

Is your home loan balance greater than $625,500?  Don’t believe outdated negative reports about how banks are not writing jumbo home loans. The truth in 2012 is that the market has loosened up considerably, and several key banks are lending jumbo money in California on excellent terms.

In the early stages of the mortgage meltdown, the market for true jumbo home loans nearly froze. Many California homeowners with larger home loans were stuck with a high rate of interest even though rates for smaller loans continued to decline.

Jumbo home loans have always carried interest rates that are somewhat higher than smaller loans, but in the immediate aftermath of the financial crisis, the gap between the rates on smaller loans and the rates on jumbo loans was huge. Homeowners with jumbo loans were denied a financial incentive to refinance because banks practically stopped lending to this niche or raised the rates on these loans beyond any normal relationship to the general level of interest rates.

During this atmosphere of extreme uncertainty, a story took hold in the minds of many that jumbo home loans were nearly impossible to get and the rates were too high. Even though this was true for a time, conditions have changed for the better in a big way. So don’t let lingering misinformation steer you away from the possibility to save a lot of money by refinancing your jumbo home loan now.

Here is a real story that illustrates the point:

A client in San Anselmo recently closed a refinance of her existing home and cut her interest rate by almost half. She didn’t think it was possible to refinance her home because she suffered from the mistaken impression that she could not refinance because her loan was more than 50% of the value of her house. Where did she get that idea? A so-called financial expert at the 2011 Milken Institute Global Conference told an outdated story about homeowners in Beverly Hills who were denied financing by a particular bank that required 50% equity a couple of years ago.

Based on that mistaken and outdated information, our client assumed that she had to keep her 6.50% interest rate on a loan balance of just over $1,250,000. But we corrected the situation and brought her to an active California lender who routinely writes jumbo loans up to 80% of a home’s value. Our client’s home had plenty of value to secure the loan with this lender and she now has a rate that is fixed at just 3.50%. She is now saving $37,500 per year with a more efficient loan locked at a much lower interest rate.

Today’s interest rates on jumbo home loans are dramatically lower than just a couple of years ago. You may stand to save as much as this client or even more. The key banks who make jumbo loans in California use common sense underwriting. They want to lend to qualified homeowners. Now is a very good time to investigate your options. The money you save could make it very worth your while.

* * * * * * * * * *
Want to receive more useful articles like this? Click here to subscribe for automatic updates by email.

When you own a condominium, you do not hold title to the building structure like you would for a single family residence. Instead, what you own is limited to the interior space together with a shared interest in the common areas of the condominium.

Still, the interior space of a condominium can include fixtures, decorative finishing materials, flooring and other items that would need to be replaced in the event of a fire or other loss. What is new is that all lenders now require that a condominium owner has insurance to cover loss and damage to these interior finishing elements.

The insurance industry name for this type of insurance is HO-6. Most refer to it as “walls in” coverage.  This insurance is a good idea in principle.  Few homeowners would be satisfied to move into a condominium with bare sub-floors and sheet rock walls following a fire.  The rub is that the amount of coverage required can be over-kill for the actual improvements that exist at a given condominium.

Some believe that walls in coverage is provided through the master insurance policy maintained by the homeowners’  association. However, this is rare, and in practice lenders insist to know the specific dollar amount of coverage provided which is usually not specified in the CC&Rs.

On a recent refinance in a two-unit building, my client had to purchase $162,000 of coverage for potential walls in damage to her home.  This is a very nice unit in the Castro District that appraised for $890,000, but that amount of coverage far exceeded the realistic cost to replace the interior improvements at her home.  As her insurance agent explained, the coverage required was based on a somewhat arbitrary percentage factor of the appraised value of the home.  It was not based on any actual inspection or estimate of cost to replace the improvements at this particular home.

The refinance of this condominium still made good financial sense because my client will save more than $11,000 per year with a lower interest rate. Still, the added $1,162 annual insurance took a little fun out of the deal.

* * * * * * * * * *
Want to receive more useful articles like this? Click here to subscribe for automatic updates by email.