SAN FRANCISCO BAY AREA REAL ESTATE NEWS : Phil Caulfield Jumbo and FHA Mortgage Loans California (Pre-Approval, First Time Buyer, Fixed Rates)

Do you need a loan to complete construction in California? I may be able to help you. I have access to private money that will loan to complete construction on a wholesale basis, as well as working directly with borrowers.

There are several reasons why you may need a loan to complete construction. First, perhaps you were funding construction out of your own savings, and have run out of funds that you want to commit to the project.

Second, the project may have become more expensive due to upgrades or unforeseen circumstances.

Third, you may have a loan, but your construction lender may have gone out of business! Ouch!

No matter what the circumstances, if this happens, you need a loan to complete construction. Here are some of the parameters that my private money source in California requires:

First, the loan amount must be between $1 million and $5 million dollars. This source for a loan to complete construction likes the high-rent districts!

Second, the maximum loan-to-value percentage is 65% of the future completed value.

Third, the maximum term is three years. However, most of the time, a loan to complete construction will be one year.

Fourth, the minimum credit score must be at least 640. The credit score used is the middle score of three credit scores supplied by the three credit bureaus.

To apply for a loan to complete construction, there are three parts of the approval process.

The first part of the approval process is qualifying the borrower. This part of the qualification process is similar to applying for a loan to finance a completed home. A loan application, income documentation, and asset documentation must be provided.

The second part of the approval process is qualifying the contractor. The contractor must provide adequate insurance and a resume of completed projects to demonstrate his ability to complete the job in a workmanlike manner.

The third part of qualifying for a loan to complete construction is providing project documentation. This documentation consists of plans, permits, a construction contract, cancelled checks and receipts for work completed, and a list of building materials.

Trying to get a loan to complete construction can be stressful! My best advice is to be organized as best you can with your documentation, starting with the first receipt you have from the beginning of the project. Organization will help minimize your stress level.

Do you feel like lenders are doing everything they can to not make loans instead of make loans? I do. Many of them tease you with a loan approval, but then, GOTCHA! They have a condition attached that makes it impossible to get the loan done.

This series will examine some of the conditions we mortgage originators see that sabotage otherwise strong loan files. I will try to point out the steps to take so that these gotchas don't happen to your clients. I encourage other mortgage originators to contribute to this series. We can either re-blog each other's articles and/or add each other as contributors to our ActiveRain outside blogs so that we can educate our real estate agents and have content to provide to our readers.

The first gotcha I would like to prevent is when the lender tells my client that their money is not their money. This can happen to self-employed clients. 

Many business owners have business bank accounts. When a client is a business owner, and wants to use funds from their business bank account, lenders usually have a condition that reads something like this:

"Applicant to provide letter from tax preparer stating that the applicant has 100% access to the funds from the business bank account, and that the withdrawal of these funds will not effect the functioning of the business"

Here's the problem: clients are having a very difficult time getting this letter from their tax preparer. Understandably so. Tax preparers do not want to be liable for making the statement required by the lender.

So, you ask, what is the solution? The solution is to prepare early. Lenders do not require this statement from a tax preparer if the funds are in a personal account of a self-employed applicant. If the applicant transfers the funds needed to a personal account, and keeps it in this account for two to three months (depending on the requirements of the lender) then these funds will be considered seasoned funds, and they can be used for the down payment, closing costs, and/or cash reserves.

It seems kind of silly, doesn't it, when a sole proprietor has to play this game. Suppose I had a bank account called "Phil's Mortgage Business". I am a sole proprietor, and the lender is telling me that this is not my money to use? Well, now that we know the rules of the game, let's play by the rules of the game.

My advice to real estate agents is to ask your self-employed clients at your first meeting if they are planning to use funds from their business account. If they say yes, e-mail them this blog post!

 Financial Advisors, CPAs, insurance agents, real estate agents, estate planning attorneys, and in-home care providers in California need to know that there is a reverse mortgage alternative available.

The reverse mortgage alternative is called Equity Access. Equity Access provides monthly income to homeowners above the age of 60 (the youngest homeowner must be at least 60) in return for a share of the future value of the home.

Here are some of the features:

• There are no closing costs to enter into an Equity Access Agreement
• No debt is incurred with an Equity Access Agreement
• The homeowner does not have to pay off their mortgage(s)
• The homeowner decides how long they want payments for (from 10 to 25 years)
• The homeowner decides how much equity they want to share
• An attorney is required to review the Equity Access offer to protect the homeowner
• There are no income requirements

1. The age of the youngest homeowner
2. The value of the home
3. The amount of mortgage balance(s)
4. The type of mortgage(s)
5. How long they want payments
6. How much equity they want to share

All of this information is placed into the Equity Access calculator. The calculator then determines the monthly payment.

If the payment is less than what the homeowner would like, there are ways to manipulate the calculation. For example, the homeowner could agree to share a larger percentage of the future equity. Or they could shorten the term of payments to be received. 

There are probably other professionals that could benefit from this information. If you know of a certain type I missed, I would love to know.

Which is better, a reverse mortgage or Equity Access Agreement? Like any financial tool, one product may be more suitable than the other. But it's nice to know that senior homeowners in California now have an alternative.

Spread The Word!

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Jumbo Loan Blog

Normally, homeowners in Atherton don't want a 15 year fixed rate because the payments are too high. Now there is a twist on a 15 year fixed rate that can keep your payment low!

This loan has a 40 year term. Initially it is a 15 year fixed rate. During the 15 year fixed rate term, the payments are interest-only. Because the payments are interest-only, the payment is a lot lower than an amortized 15 year fixed rate. 

Here's the neat part - if you pay principal during the 15 year fixed rate term, the payment decreases because the payment is based on the reduced balance!

After the 15 year fixed rate term expires, the rate adjusts once. The rate is determined by adding .5% to the Fannie May 60 day rate.

The new payment is based on the new rate, amortized over 25 years. Hopefully you have paid off enough of the principal during the 15 year fixed rate period so that the payment doesn't increase! The new rate can't be more than 5% higher than the initial rate.

As you know, homes in Atherton are very expensive. This program works well here because the maximum loan amount is $5 million.

This loan program is available to purchase or refinance expensive homes, such as those located in Atherton. One of the nice features is that there is no limit on the dollar amount of cash-out. Many loan programs are limiting the amount of cash-out to refinancing homeowners.

Another nice feature is that this program can be used to finance second homes at a slightly lower loan-to-value percentage. It is one of the few competitive jumbo loan programs that I am aware of that allows cash-out on second homes.

If you own a home in Atherton or in other expensive areas of California, and like the idea of a 15 year fixed rate with interest-only payments to keep the payment low, contact me to see if this program is a good fit for you.

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Jumbo Loan Blog

When someone buys a home before selling their current home, they may have a problem: if they have a mortgage on the old home, that debt is included in their debt-to-income ratio.

In the old days (pre-2008), home buyers who did not sell their home first had at least a couple of ways to offset their mortgage debt.

Some lenders would accept the income reported on a rent survey prepared by a licensed appraiser. Other lenders would accept a rental agreement.

The lender would subtract 25% of the income obtained by either of these methods off the top to account for expenses and vacancy. They would then subtract out the PITI (principal, interest, taxes, and insurance). If there was a positive balance left after this calculation, it was added to the homebuyer's income. If there was a negative balance, it was added to their debts.

Most lenders still use this method to calculate the positive income or negative debt. Now, however, there is a twist. You need to be concerned with the amount of equity in the old property. In addition, more documentation is required for rental income to be included. 

Fannie Mae now requires the following documentation to use rental income from a primary residence converted into a rental property:

• An executed lease agreement
• receipt from the tenant of a security deposit
• supporting documentation of deposit of the security deposit into the homebuyer's account

Here are ten reasons why you may need a private money loan in San Mateo County:

• Speed - private money lenders can move fast because they can give more attention to the files submitted. They are not processing hundreds or thousands of files per day, like banks do.

• stated income - private money lenders may not require income documentation as long as the file falls within regulation Z guidelines regarding stated income.
• low credit score - private money lenders are more willing to work with clients who have credit scores that fall below what the banks require. Their primary concern is equity in the property. Secondarily, they are concerned with the client's exit strategy, meaning the plan to get the private money loan paid off when it becomes due.
• High loan amount - many banks have reduced their maximum loan amount. Private money lenders can fill the void by funding large loan amounts.
• Unlimited Cash-out - The restrictions on cash-out have been tightened by institutional lenders. Private money lenders have the ability to fund loans that do not have restrictions on the amount of cash-out.
• Vesting - Many lenders do not allow title to be held by a corporation or LLC. Private money lenders are often able to fund loans with the property vested in a corporation or LLC.
• Bridge Loan - If you want to buy a home before you sell your current home, you may need a bridge loan. Private money lenders are often the source for this type of loan.

• Rental property cash-out - This type of transaction is another type that has had its guidelines tightened by most financial institutions. Although the rates are usually higher, private money lenders can fund this type of transaction.
• Incomplete construction - Construction projects sometimes stall because the financing source runs out of money. To complete construction, a private money lender can be a source of funds to fill the gap to finish construction.

• Pay off another private money loan - Private money loans are usually written for a short term (1 to 5 years). The private money borrower may not be able to qualify for an institutional loan when their current loan becomes due. Their only choice may be another private money loan.

If you are a borrower or a mortgage broker in San Mateo County, or anywhere in California, I can help you obtain private money financing.

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What Is A Private Money Loan?

Here is the latest about the home buyer tax credit. If you are looking to buy a home in San Mateo County you should probably familiarize yourself with the requirements to qualify.

The home buyer tax credit is going to be extended to move-up buyers. What kind of impact do you think this will have on the real estate market in San Mateo County?

I have had real estate owners in San Mateo County ask me - what is a private money loan? A private money loan is a real estate loan funded by non-institutional sources.

Non-institutional sources of private money loans vary. The source could be an individual. Often it is a group of people who have pooled some funds together. 

There are companies that specialize in the placing and funding of private money loans. These companies serve at least two important functions.

The first function they serve is the marketing of the availability of private money loans. They often post ads on Craigslist, trade publications, and other marketing vehicles to let both the public and mortgage brokers know that they have funds to lend.

The second function they serve for the private money source is similar to a funnel. They receive loan scenarios and toss out the ones they know that the private money source will not be interested in. They package the files that fits the source's interests, present the file, and receive approval.

Why would someone become a private money lender? Generally speaking, a private money lender gets a generous percentage return that is secured by real estate. To the lending source, it is an investment of their money. It is an investment alternative, just like investing in the stock market is an investment alternative. 

Why would someone borrow private money funds? Well, that will be the subject of my next post that will tell the top ten reasons why someone would want or need a private money loan.

The terms of a private money loan are usually much different than the terms that banks offer. One major difference is the length of the term. Generally, private money loans are no longer than five years.

Another difference is the interest rate. Private money rates tend to be higher than the rates banks offer. Higher rates make sense because these loans are usually riskier.

The fees associated with a private money loan are usually higher than bank loans. It's not unusual to pay anywhere from three points to eight points to obtain a private money loan.

With the tightening of underwriting guidelines by banks, private money loans, I predict, will gain market share in the near future. 

If you need help with a private money loan in San Mateo county, or anywhere in California, you can contact me and I will try to help you.

Jumbo Loan Blog

Get Your Mortgage Phil

Many homeowners and home buyers in California have probably heard of a bridge loan but do not know what it is or who should obtain one.

A bridge loan is usually a short-term loan (usually written for three months to three years) that provides funds to buy real estate from a piece of real property that an owner has an intention of selling, but will not close before escrow closes on the new property. 

This transaction is called a bridge loan because these funds "bridge the gap" between the closing of two transactions. 

Let's look at an example of a bridge loan. Bill and Betty Buyer would like to purchase their California dream home for $800,000. The down payment required is 20%. They have enough money saved for the closing costs and cash reserves, but little else saved.

Their current home is worth $500,000. The existing balance on their mortgage is $50,000. They have $450,000 in equity.

Bill and Betty would like to make an offer on the new home non-contingent on the sale of their current home. How, they wonder, can they make this offer?

Enter Bob the Bridge Loan Guy. He tells Bob and Betty that he can help them obtain a $210,000 loan on their current home ($160,000 for the down payment plus $50,000 to pay off their current mortgage). Bob the Bridge Loan Guy has figured out that the Buyers can qualify for both the bridge loan and the purchase loan because their debts on both the current home with the bridge loan and the new purchase loan are less than the maximum amount of debts to qualify.

The Buyers successfully make their offer and close escrow 30 days later. Another 30 days later they close escrow on the home they listed for $500,000. They use $210,000 from the proceeds of the sale to pay off the bridge loan, and use the other $290,000 in proceeds to pay down the new mortgage.

A few important tips you should know if you are considering a bridge loan:

• You must be able to qualify for the bridge loan and the loan to purchase the new home.
• There is no guarantee that your current home will sell quickly. How long can you afford to pay mortgages on two homes?
• A bridge loan is usually more expensive than other types of loans. Consider other types of financing (do you have an equity line of credit available, for example?)
• A bridge loan may be available with stated income under the new Reg Z guidelines as of October 1, 2009.

Stated income loans are still available in Lake Tahoe. As of October 1, the rules have been changed regarding stated income loans. However, Lake Tahoe has many homes that are either second homes or rental properties. Second homes and rental properties are exempt from the new laws regarding stated income loans.

If you own or want to buy a second home or rental property in the Lake Tahoe area, there are stated income loans available for:

• up to $10 million
• unlimited cash-out
• flexible credit scores 
• up to 75 percent of the property value
• bridge financing