“Creative financing on steroids” best describes some of the mortgage programs you will learn about in this column, courtesy of a mortgage expo I attended recently in Irvine.
Because this expo wasn’t open to the public, I’m not going to name the lenders. Ask your mortgage originator for details if you are intrigued by any of them.
Number one on my list is a loan program for condo complexes short on master insurance coverage.
Typically, these are complexes blacklisted by Fannie Mae for not having 100% insurance replacement coverage, also known as non-warrantable condos.
In this case, the lender may fund purchases and refinances where the insurance coverage runs short. This is a big deal, with hundreds of complexes being added to Fannie Mae’s unavailable list each month.
Mind blowing is another loan program not requiring the source of funds for large bank deposits. Large bank deposits are considered larger than a paycheck.
For example, say you are buying a $1 million property. You deposit $500,000, provided by someone else, into your bank account. You use the $500,000 as the down payment, making your loan amount $500,000.
Was this a gift from someone? Was it a loan? Are you a straw buyer for someone who is not worthy enough to be approved for this amount of mortgage credit? Was it money laundering?
These are the typical concerns when we see large deposits. Lenders require a paper trail on the money and a letter of explanation … but not with this particular program.
Here’s another interesting loan program: No seasoning for someone new going on the title. In other words, you can be added to the title today and get a new cash-out loan tomorrow.
This usually occurs with a close family relationship.
Say, somebody wants to give/sell the property to someone else. Instead of going through the larger expense of a purchase escrow, or maybe the seller/donor’s income is needed to help the property recipient qualify, they just add the buyer or gift recipient to the title, then take out a new loan.
Afterward, the seller/donor is removed from title via a quit-claim deed.
Keep in mind, if you transfer property as a refinance, you may still be reassessed, according to the Orange County Assessor’s office.
As it concerns the possibility of federal income tax, check with your tax adviser to make sure this is kosher with the IRS.
Another creative program uses the highest credit score of all borrowers as the basis for loan pricing. Normally, lenders use the lowest middle FICO score of all borrowers.
For example, let’s say a homebuyer has a 500 middle FICO score. It’s too low, so the borrower would need somebody to help them qualify. In this case, that somebody does not have to occupy the property in question. That somebody has an 800 middle FICO score. And, that somebody makes more income than you. You will get excellent mortgage pricing using the 800 score. With a 500 score, you’d be rejected outright for not meeting minimum standards.
Something else. Let’s say you are a big-time real estate investor with low mortgage rates on your existing rentals. Obviously, you don’t want to mess with refinancing from a lower rate to a higher rate.
I found a non-owner occupied second mortgage that goes up to $500,000 cashout. Qualifying is based on not having negative rents.
In other words, the rents your tenant pays must be $1 more than the total of your house payments (first and second lien, plus monthly property tax, insurance and any HOA) on the rental property. Conceivably, you can leverage $500,000 of equity from each rental property to buy more rentals, assuming you have substantial equity in the properties.
For fix and flip fans, one lender is willing to go with just 10% down on the purchase price. In the past, I’ve seen lenders ask for 20%-25% of the purchase price.
How about a borrower without any FICO credit scores? One lender will arrange funding for that borrower, so long as they are putting 35% down.
Another lender is willing to fund non-warrantable (Fannie Mae won’t lend) condos with just 10% down. Typically, non-warrantable condos require 20% down.
I found a lender willing to fund assisted living homes and vacation rentals. Another lender is willing to make raw land loans with just 35% down.
I left the expo totally enamored with all the creative financing tools available for mortgage shoppers.
If a mortgage lender tells you that you can’t qualify, make sure you contact at least two other lenders. Don’t stop trying unless you are getting the same rejection answer from at least three lenders.
Freddie Mac rate news
The 30-year fixed rate averaged 6.81%, 5 basis points higher than last week. The 15-year fixed rate averaged 5.92%, 3 basis points higher than last week.
The Mortgage Bankers Association reported a 1.1% mortgage application increase compared to one week ago.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $806,500 loan, last year’s payment was $114 more than this week’s payment of $5,263.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.99%, a 15-year conventional at 5.625%, a 30-year conventional at 6.5%, a 15-year conventional high balance at 6.125% ($806,501 to $1,209,750 in LA and OC and $806,501 to $1,077,550 in San Diego), a 30-year-high balance conventional at 6.875% and a jumbo 30-year fixed at 6.75%.
Eye catcher loan program of the week: A 40-year fixed rate mortgage, interest-only for the first 10 years at 6.75% with 1 point cost.
Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.
