How a Property Purchase is Like Crew

Every lender on the planet has been asked the question of, “When can you close?” at least once.  Is it just me, or is it somewhat interesting that somehow the lender, who is only one component of a complex transaction like real estate, is the one responsible for when a transaction closes?   After all, the parties include: buyer, seller, listing agent, selling agent, escrow officer, title officer, various inspectors, appraiser and lender.  Like a well-trained crew, if all parties cooperate and row at the same time, the vessel moves fastest.  And when any one party is having difficulty, it affects everyone, as well as the pace and direction of the vessel.

“No, really, when can you close;?)”.  OK fine, put a gun to my head.  The answer is, in all truth here, that it depends.

John Cannon recently closed a $2mm transaction across two properties in ONE week.  Jason Beecham and Scott Chase recently closed deals in 21 days or less.  One transaction that had every chance of closing in 21 days had a nagging 2nd mortgage on the property, and the lender of that 2nd mortgage was very uncooperative about issuing the proper forms to release the lien.  As such, the transaction didn’t close until day 35.

No doubt, the lender is a critical member of the transaction and certainly has much influence over the timing of a transaction.  And like any member of a crewing team, the one with the most experience, solid control, greatest communication skills and strength will certainly help the team cross the finish line first.


Help, I Applied for a Mortgage and Can’t Get Up!

Why is it that some lenders are closing real estate transactions  in less than 21 days, yet some refinances are still in the works from last year?  Why is it that an expense check that was deposited in my bank account last month is being sccruitinized by the underwriter and requires explanation?  Why does my lender hate me?

While the process of obtaining a mortgage has tripled in complexity, if we all do a better job of setting the proper expectations, we can all endure the process better.  Some things to keep in mind include:

1. your lender doesn’t hate you– she/he is in the service business and genuinely wants to serve you best

2. the more complex your financial situation, the longer it takes to get through the review process– think of the time it takes to read through the latest, best-selling novel versus War and Peace

3. A “Jumbo” loan is manually underwritten whereas a conforming loan has automated underwriting, which is the difference between an almost instantaneous decision and a decision that takes at least a day

4. large “Jumbo” loans may require up to two appraisals, which can be a two-week process

5. make certain that you disclose literally everything that may impact your application, i.e. change in job or career, source of funds for down payment and reserves, divorce, any new credit or any concerns with credit profile

6. both borrower AND property are being evaluated, so it’s just as important that the property meets minimum guidelines as well as the borrower– this can be especially tricky on condominiums since the complex must be approved as well!

For tidbits on how best to prepare for the mortgage process, consult with your favorite mortgage professional or stay tuned for future articles.

The 5X Rule– A Quick Qualifier

While there are a slew of great mortgage calulators available, what if you’re engaged in an enjoyable conversation with someone while walking downtown, no computer or calculator anywhere close to you, and they ask you, “How much home do you think that I could buy?”  The quick answer that I like to use, and is a good ballpark for would be real estate buyers, is, “Add your down payment to whatever five times your gross, annual household is, and that’s likely your number.  Once you become pre-approved with your favorite mortgage professional, you’ll know for certain…”  For example, if a couple generates $200,000 per year in gross income, and presuming that they have $250,000 for down payment, and further presuming that they have the average, additional debt of around $750 per month, they comfortably qualify for a $1,250,000 purchase (5x$200,000 + $250,000 =$1,250,000).

And while this is a good ballpark, since so many factors can affect qualification, like credit score/profile, loan-to-value, loan program, occupancy, reserves, property type, additional debt, employment, it’s important that anyone considering a real estate purchase consult with a reputable mortgage professional to confirm qualifications.

Now, what is rather encouraging is the fact that lending guidelines are easing and qualifying for mortgages today is easier than it was a year ago.  For example, some clients were recently approved for a $2,300,000 purchase with a $1,495,000 loan, and they only grossed just over $200,000 a year in income!  This was made possible since they had a great down payment, great credit, no other debt, and chose an aggressive loan program.

There are literally thousands of loan programs available, even ones that do NOT require income, so again, please have anyone interested in purchasing real estate consult with a reputable mortgage professional to confirm qualifications.

By the way, please let us know what you think of the massive overhaul that we’ve done to our website!

No Income Loans Again? Yep. And More.

Call the lending world crazy again (as if you thought otherwise to begin with), but it’s true that those who have significant assets can qualify for loans without a strong tax return.  These programs basically take someone’s hard-earned money and convert the assets into income.  For example, someone who has $2,000,000 but no job and no other source of income can be given credit for over $128,000 of income annually and potentially qualify to buy a $600,000+ home.

And with the current “feeding frenzy” in real estate currently happening, it’s been a huge help that there are also programs for move-up buyers that don’t penalize them on the cash out-flow associated with their current residence.  For example, if someone’s “PITI” on a property is $5,000 monthly, but the property could rent for the same $5,000, a simple rental survey can completely wash out the liability and make the difference to help the client qualify for a mortgage on their new home until they can sell their existing home post close.  There are also “cross collateral” loans available where the equity for the current residence and the equity for the new residence are combined to produce one loan.  For example, a client has a free-and-clear $1,000,000 and wants to move into a $2,000,000  property.   We can lend up to 70% of the combined value of these properties, or $2.1mm; as such, the client really only needs $100,000  to make the move.

No credit?  No problem.  It’s hard to believe that those without credit, whether domestic or foreign, can get a mortgage.  In these cases, all that’s needed is sufficient, verifiable n and a 20%  down payment…  These programs are especially popular with those transferring to the US on a work visa.

And finally, there are programs that can stretch a buyer’s qualifications by 30% or more simply by using 40-year amortization and/or low-interest rates to qualify.   As you may know, qualifying rates on ARM mortgages are generally higher that the actual Note rate, yet programs exist where only the Note rate is used for qualification.

For those of you who knew Jim Byrnes, you’re likely a better person from knowing him, and I look forward to raising a glass of grape juice in his honor this afternoon…

To List or Not to List

ImageLet’s say one is sitting in their beautiful home in lovely Palo Alto, CA enjoying the wonderful weather and contemplating whether to sell that home.  Let’s also say that the home has a ton of equity, so much so that the TAXABLE capital gains on that home will be $1mm.  Today, tax on capital gains is running $15%, so this fortunate client is looking at a $150,000 tax bill*.  But the client also sees the market doing well and thinks, “Maybe I should wait until next year to sell..?”  While that’s certainly an option, let’s look at what might happen:
  1. The capital gains tax is expected to rise to 23.8% in 2013, so a $1mm gain would suddenly have a $238,000 tax.* Ouch — 3.8% Medicare tax and 20% capital gains rate.
  2. Interest rates are expected to rise, which would increase the monthly cost of the property if financed– a .5% increase in rate has about a 25% impact!
  3. If interest rates rise, then the pool of buyers may be smaller since financing is more expensive.
  4. If inventory levels rise due to more Boomers downsizing, then prices may be negatively impacted.

So let’s review what we know about 2012 and why now may just be the “perfect storm” for those thinking about selling their home:

  1. Election year
  2. Lowest interest rates ever
  3. Financing qualifications have eased — In case you didn’t know, there are no-income, cross-collateral, pledged- asset, 50%+ DTI programs available.
  4. Demand is HUGE– according to Producers Forum, there are over 100 active buyers in Palo Alto right now, yet less than 50 homes available!
  5. The IPO market is certainly having a positive impact on the entire, local economy.
  6. The Silicon Valley 150 is up almost 25% in the last 6 months.
  7. According to Altos Research, median prices seem to be up accross the board..!
Based on what we’re seeing, especially with all of the pre-approvals that we’re writing, it seems to be a very good time to be a seller.
*Does not constitute tax advice.  Please seek tax advice from a qualified professional.