SAN FRANCISCO BAY AREA REAL ESTATE NEWS

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!

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.

Contact Me

What Is A Private Money Loan?

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