Loan Information

Finding the Right Lender

Financing a home in the Bay Area can seem complicated. I’m happy to help you navigate through the process. The first thing to determine is what type of lender you need. Are you purchasing a high end luxury home, land or investment property? Do you need to sell one property before you purchase another? Each type of property best benefits from a specific loan product. Each client has their own individual financial considerations and needs as well. If we look at trends during the last five years we see that many buyers are competing against offers that are all cash purchases. Don’t be discouraged! Though 2020 has brought challenges to life in general, it’s also provided many opportunities in the housing market. One of these is more flexibility with offer terms, choice of financing and historically low interest rates. As your agent I’ll make sure that you take advantage of that!

Loan Brokers are lenders who shop your loan with many different financiers in order to get you the best deal possible. The benefit to using a Loan Broker is that they have numerous resources to find you the perfect loan product.  One downside to using a Loan Broker is that they are not financing the loan themselves. This means that there is an additional layer of review and approval required during increasingly tight escrow periods. There are also Direct Lenders. Using a direct lender means that you are getting full underwriting on your loan up front by the company that is going to finance it themselves. This gives you an advantage because there is less risk that a hiccup will occur later in the loan process. A disadvantage to using a Direct Lender is that they will only offer you loan products that their particular company provides, limiting your choice and value. 

 

Finding the Right Loan Product

There are many types of loan products available.  Looking at the most common types of purchases, we can consider what type of product may work best for you. If you are buying a Single Family Home in average or good condition you have many options for loans. Most lenders will finance the average Single Family Home. Things get a bit trickier if you have a legal ADU (Accessory Dwelling Unit) or unwarranted au-pair or inlaw unit space. When I represent a client who is selling or buying this type of property, it’s important that we use a lender who understands what is needed to get approval for this additional space. 

My clients who are looking to buy a luxury property can run up against Loan Limits. Unless you have a large down payment you will likely need a Jumbo Loan product that puts you in a different rate bracket. Likewise, if we are looking to use a loan to finance a fixer we need to know exactly how much work you are willing to put into a property.  Helping a client break into a lucrative housing market is a moment of pride for a Realtor. I love finding clients their dream home but it’s even better when we can find a way to put money in your pocket at the same time! Are we looking for something that needs new flooring and paint or more structural repairs? FHA loans are great for first time buyers but they do have strict requirements with regards to condition. As your agent I know exactly what triggers a loan review and which properties will both pass review and make you money. 

Are you ready for a more challenging rehab property but need to use a loan to finance it? The best bet for you may be a Hard Money loan from a private lender. This type of loan has less stringent condition restrictions but will cost you more. Most likely you are looking to sell this type of property relatively quickly. If so, giving you a competitive edge by allowing you to close quickly while giving the seller confidence is your best bet. 

I know how overwhelming it can feel to have to sell your home before you have funds to purchase your next property. Lining up the timeline can feel daunting. Let me help! I work with lenders who offer Bridge Loans that offer you money to purchase your new home while your current home is For Sale. Some of these lenders also offer additional funds to help you prepare your home For Sale. Using the right lender can make all the difference in the world.

Are you a buyer looking to purchase a rental property as an investment? Maybe you are considering how renting one unit of a duplex can offset the cost of living in the other. Both of these purchases have different financing needs. Years of being a real estate investor have helped me to develop strategies for purchasing rental property. The right loan and rental structure can limit or eliminate the cost of you living in your rental property. It’s important to understand that lenders have more restrictive requirements when evaluating this type of property. Intricate calculations are used to determine whether the property you are interested in can be purchased with a loan. Let’s make sure that you have a plan that will make you money before you head out the door to look for a rental property. 

 

Costs and Savings

2020 is an election year. History has shown that the year of and the year after an election can have a huge impact on both interest rates and other factors that can make or cost you money. I want to be sure that you are paired up with an industry professional that stays on top of where the market is and where it is headed. 

Do you understand all of the costs associated with obtaining a home loan? The Mortgage Calculator on this site is a great way to get a general guideline as to what your mortgage may cost you. What first time buyers may not understand is the entire cost of using a loan to finance their purchase. When we work together I’ll be sure that you work with a lender that explains all of the costs you can anticipate when closing both your loan and home purchase. 

The good news is that home ownership has historically also offered many tax benefits. Trust me when I say that all lenders are not created equal. When was the last time you worked with a lender that gave you a general guideline on what your home can offer you in savings?  Owning real estate comes with rights, responsibilities and benefits. Let’s make sure that you work with a lender who not only wants to save you money but also to maximize that savings. 

 

Finding the Right Loan

Finding the right loan will take time and will differ depending on your financial needs. There are many different factors to consider. Here are a few things to think about.

  • Your current financial status.
  • How you believe your finances will change over time.
  • How many years you plan on keeping your house/land/income-property.
  • Would you be comfortable if your mortgage payment changed over time?
Let’s take a look at some of the types of mortgages that you may want to consider:
 

 

These mortgages are the most common type of mortgage. With a Fixed Rate Mortgage you will have monthly payments that will continue throughout the duration of the mortgage term. In this, you will be paying down both interest and the principal over time. Sometimes you may incur increases in property taxes and in your homeowners insurance, however, your monthly payments will remain stable.

There are a few different types of mortgages available. There are 30 year, 20 year, 15 year, and 10 year loans available. There are two distinct features of Fixed Rate Mortgages. The first distinction is that the interest rate will remain fixed for the entire duration of the loan. The second is that payments for the loan are structured so that you will re-pay the loan at the end of the term. Both the 15 year and 30 year mortgages are the most common fixed rate loans.

At the beginning of the amortization period of a Fixed Rate Mortgage the majority of the loan payment is used to pay the interest on the loan. As time goes on this gradually shifts to paying more of the principal amount.

ARM loans are considered to be more risky of an investment. There are a few options that can work to fit your individual needs within various markets.

ARMs that have different indexes are available for refinancing and purchase. To take advantage of falling interest rates, you could purchase an ARM loan that has an index which reacts quickly. On the other hand, if you choose an ARM loan that lags behind, the market will allow you to take advantage of lower rates for a brief time as current market rates are moving upward.

Interest rates and monthly payments with an ARM can be different based on adjustments to the index rate of the loan. There are a few different types of ARM loans. Here are the basics, however, it is encouraged to seek additional assistance before signing for a specific loan.

6 Month Certificate of Deposit (CD) ARM
In this program, the loan has a maximum interest rate adjustment of 1% every six months. These loans can react very fast to movements in the market.

1 Year Treasury Spot ARM
In this program there can be an interest rate adjustment of 2% for every 12 months of the loan. This type of loan can react faster than the Treasury Average index, however, it is slower than the CD index.

6 Month Treasury Average ARM
This loan program typically reacts slower in fluctuating markets so adjustments in the ARM rate will lag behind some other indicators. This program offers an interest trade adjustment of 1% every six months.

1 Year Treasure Average ARM
Similar to the Treasury Spot ARM, this program has a maximum interest trade adjustment of 2% every one year. This type of program typically has a slower reaction in fluctuating markets. This allows for adjustments in the ARM rate to lag behind other indicators.

Balloon loans can have different types of maturity rates. The typical Balloon loan has a term of 5 to 7 years if it is a first mortgage. These loans are short term and do not fully amortize over the original term of the loan.

When a balloon loan comes to maturity, there is typically still a remaining balance to be paid off. At this time mortgage companies will require the loan to be paid in full. This can either be accomplished by paying the loan off, or by refinancing. Often, companies also have a conversion feature at the end of the Balloon term. One example of this would be if a balloon loan was coming up for expiration, the loan may convert to a 15 or 30 year fixed loan plus a percentage point in surplus of the loan. The balloon mortgage with a conversion option is often called a 7/23 Convertible or a 5/25 Convertible.

The Cost of Funds Index is a weighted average fund. There are two types of funds for each side of the country. In the eastern states this type of fund is commonly referred to as the 1-Year Treasury Security. In the western states the Cost of Funds Index is typically prevalent with the 11th District Cost of Funds.

The Federal Home Loan Bank of San Francisco continually publishes the monthly weighted average for the 11th District Fund. Over half of the savings and loan institutions in California are tied to this index. It is comprised of different institutions in not only California, but Arizona and Nevada as well.

In an interest rate buy down, a buyer typically pays 3 points above the current market in order to pay an interest rate below the market during the first two years of the loan. Then at the end of the two year term, the buyer would then pay the old market rate for the rest of the term of the loan. This is the most common buy down, called the 2-1 buy down.

For an example, if the market currently is trading a fixed rate loan at 8% and at a cost of 1 point, the buy down would allow the borrower of the loan to pay 6% the first year, 7% the 2nd year, and 8% the third year through the rest of the loan (typically 30 years). The cost of this would be a total of 4 points.

Many mortgage companies have constructed different variations of older buy downs. Instead of charging higher points to the buyer at the start of the loan, they increase the loan to cover yields in later years.

The 3-2-1 buy down is another typical buy down. This method works similarly to the 2-1 method. The difference is that with this note, the interest rate starts at 3% below the present loan rate. For further information on interest rate buy downs, please give me a call so that I may refer you to a specialist!