Big Leverage is Back!

Remember when it was possible to finance a $2mm home with only 10% down payment? Of course, that was 2007 and mortgage lending guidelines were so loose that they eventually led to the Great Recession. That written, it is possible today to purchase a $1,760,000 home with only 15% down, and the seller is NOT required to participate in the financing! Let’s break it down for better illustration:

• Purchase price of $1,760,000
• First mortgage of $1,232,000 (70% loan-to-value)
• Second mortgage of $264,000 (15% loan-to-value)
• Down payment of $264,000 (15% loan-to-value)

Add up the total amount of leverage/mortgages available in this scenario, and that’s $1,496,000 in total leverage!

You may be asking how this is possible when the Great Recession was blamed on lending guidelines being too loose. The answer is that the risk of high leverage can be offset by sticking with sound fundamentals of mortgage lending, which include good credit, stable employment, reasonable debt-to-income rations, solid reserves and a stable real estate market.

For a one-page illustration of the program above, please visit http://online.wsj.com/article/SB10001424127887323798104578454853809083688.html#mod=todays_us_marketplace

For more details on high-leverage programs, along with details on any of the vast mortgage-lending programs that we offer, please contact your preferred mortgage advisor.

Don’t Let Solar Interfere with Mortgage Financing

Don’t you hate it when you go to purchase a new home with solar equipment installed, only to find out that there is a solar equipment lien on the title report that is preventing you from getting mortgage financing?  What now? 

First, review the agreement between the current owner and the solar equipment provider.  Chances are that the solar equipment is removable, does not constitute a lien against the property and the agreement is transferable to you.   In that case, whether you are obtaining a conforming loan or a “jumbo” loan, the mortgage loan should be unaffected.

Ah, but what if the solar equipment WAS installed as a fixture and a lien is valid against the property?  In that case, there are effectively two options:

1. Ask the solar equipment provider to subordinate their lien to the mortgage so that the mortgage is in first position or
2. Negotiate with the seller to pay off the lien in escrow

Another, future solution would be to have municipalities form public/private partnerships with solar-financing companies to provide solar financing to homeowners.  Here are some potential benefits of simply having a line item for solar on the utility bill and paying the financing company through the city:

1. It could serve as an additional revenue source for the city, since the city acts as the Servicer
2. Payments would logically transfer to each successive owner until the financing is paid off, making the payments fair for each owner
3. There would be no issues with liens against the property potentially affecting mortgage financing
4. More property owners would likely adopt solar energy going forward under this structure

By all means, if you have the time and energy to implement the potential solution above, please proceed!

If you have any questions about the various mortgage financing options available, please contact your favorite mortgage advisor.

AMB’s Featured Agent of March – Dawn Thomas

We are excited to announce AMB’s Featured Agent of March is Dawn Thomas of Intero Real Estate Services in Los Altos, CA!

For best quality, click the settings button on the video to view in HD.

Dawn and her team strive to offer their clients with the highest level of service. Dawn’s 20+ years in sales and negotiations, in combination with her vast network, allow her to truly provide for her clients’ needs. 

More information on the Dawn Thomas Team: http://siliconvalleyandbeyond.com/

Gap Money

When someone pays all cash for a property, and then seeks financing to fill that gap in her/his cash position, we call that kind of financing Gap Money.

In the last four years, we’ve seen a decent increase in the number of real estate transactions where buyers have elected to pay all cash.   I certainly see the appeal of doing so when the cash offer is truly superlative over other offers, but there are some pitfalls to be aware of and some strategies to consider:

If one wants to take full advantage of the mortgage interest tax deduction(s), the mortgage application date must be within 90 days of the property purchase

What’s important to keep in mind is the fact that even though the IRS will allow the deductibility of the interest and consider the loan a purchase –money loan, lenders still consider the financing a cash-out refinance, which may limit various loan options and possibly raise concerns about the non-recourse nature of a true, purchase-money loan.  Another strategy may be to obtain a Bridge loan to finance the purchase with the intent of refinancing the mortgage post-close, as doing so allows for a broader range of available loan programs.

Purchase-money loans can close in as little as three weeks, and strong borrowers are no riskier than cash buyers

We have seen a number of financed transactions beat all-cash offers simply because the financed offer was better and the borrowers were solid.  There may also be an emotional element on the seller’s side to sell to a buyer who will occupy the property.  Make sure to consult with your real estate professional about such nuances that may affect your transaction.

With municipal bonds paying over 5% on a tax-adjusted basis, and with mortgage rates below 3% on a tax-adjusted basis, that’s a serious investment strategy consideration

Whenever the spread on investment income is greater than the cost of debt, it’s wise to consult with your financial planner and your mortgage professional about the appropriate amount of debt that should be considered and your risk tolerance.  We site municipal bonds as an example since AAA rated muni’s are considered a very conservative investment with a great return.

Securing a cash-out loan post close will cost more

Title fees alone are higher for refinance transactions, and true purchase-money loans generally have lower rates and allow higher leverage versus cash-out loans.

For more on various financing strategies and to determine the right program for you, please consult your trusted mortgage professional.

FHA Fees Rising Again

 

FHA loans are some of the very best loans available for those who want to preserve cash, have credit issues or are lower income.  Problem is that FHA loans continue to cost more to obtain.  In the latest Mortgagee Letter issued from HUD, we see that fees are increasing, and cancellations of the Mortgage Insurance Premium (MIP) being extended.

Here’s what you need to know to advise your clients accordingly:

1.  Effective with all loans originated and case numbers issued on or after April 1, 2013, the monthly MIP premiums are increasing by 10 bps across the board, which ranges from 0.95% to 1.30% of the loan amount depending on loan program, loan amount  and loan-to-value
2. Effective with all loans originated and case numbers issued on or after June 3, 2013, the automatic cancellation of the annual MIP premiums has been rescinded.  
3. All FHA loans with a loan-to-value  less than or equal to 90%, will have annual MIP for the first 11 years of mortgage, or until the end of the mortgage term, which ever comes first.
4. All FHA loans with an LTV greater than 90%, will have annual MIP for the life of the loan, or 30 years, whichever comes first.

Please contact your preferred Mortgage Advisor at Absolute Mortgage Banking for further guidance on FHA loans or to inquire about the literally hundreds of loan programs that AMB provides.