MORTGAGE RATES REPORT

Can I Get A Mortgage If I Was Formerly Self-Employed But A Wage Earning Borrower Today?

I received this question today:  "Brian, I was self-employed, for 7 years as a IT consultant.  Basically, I worked for 4 different companies, maintaining their networks, and was paid as a 1099 contractor.  Last winter, after losing two of those customers last year, I accepted a position with my biggest customer (now my employer).  I am paid a steady salary and want to buy a home but all lenders tell me I need a W-2 form, from this employer.  Can you help me get a mortgage?"

Sure I can but, as always, there are some conditions:

You need two years employment in the same industry or "line of work".  If you were a self-employed shepherd and suddenly decided to be an IT consultant, I couldn't get you a loan (unless you were going to schooll, to be an IT consultant, while herdinh sheep).  In your case, you were an IT consultant then, and are an IT consultant now, so we're in good shape.

You need to have six months employment with this employer. As long as we can prove that (which we can, from your YTD income, on your most recent paystub, and a letter of verification from the employer) we can fund that loan.  We still have to look at your tax returns, from the past two years, even if the income is poor or was declining.

The underwriter may ask you to write a letter of explanation.  Many lenders will tell you to write some sort of sob story which, in my opinion, is silly.  We'll just lay out the facts and present the case for approval.  Most underwriters "get" your situation because many of them were "contract underwriters", and self-employed, before they were hired full-time by the bank.

N.B--We'll probably need to show that you have closed your business.  If you were incorporated, we;ll need to see some sort of termination document.  If you were a sole proprietor, we might need to show a closed bank account.  If you're still operating the business, while working full-time, the undewriter may want to see a profit-and-loss statement, for that part-time business.

Mortgage Rate Quote Expiration Dates

Looking at mortgage rates on the internet?  Maybe your shopping in the Zillow Mortgage Marketplace, on Lending Tree, or even in the newspaper.  One thing you should understand is, unlike milk, the mortgage rate quote "purchase on or before" dates do not extend for 3-4 days.  Mortgage rates change as often as 2-5 times each day.  Why is that?

READ: You'll NEVER get the lowest rate on your mortgage.

Mortgage rates are a dynamic market, based on mortgage -backed securities.  The volatility in mortgage bond markets is wildly erratic, especially in financial crises.  With European countries facing bankruptcy, perpetual war in the Middle East, and a debt-riddled US economy, things change...a lot...and more than once or twice a day.

We used to be able to "eat" those price movements, if they weren't too erratic, after we quoted your rate and before we locked it in for you.   A new federal rule, Regulation Z, prohibits us from adjusting our compensation, to your benefit, when the market changes.  If the market changes for the worse, you get stuck with the higher costs.  Conversely, yoou get rewarded with the lower costs if the market improves.  Essentially, you bear the risk and I am protected.  So much for the "consumer protection"of regulations.  Don't get me started down that path or I'll digress into the politics of mortgages.

What can you do to protect yourself? 

Well, if you have three quotes, and you are pretty sure that you've narrowed it down to 2-3 lenders, ask each lender to e-mail you a good-faith estimate, all at the same rate, at a specified time.  Then open your email, find the best one, call the winning bid, and lock-in the rate.

The key thing to remember is that the good faith estimate you receive is probably only valid for 2-8 hours.  If you're on-the-ball, act quickly, and are dealing with an originator who follows this market like a hawk, you'lll get a great deal.

Mortgages For Condominium Complexes With Commercial Businesses (Mixed-Use)

Some mortgage lenders eschew condominium complexes which have a portion of the complex leased to commercial businesses.  For example, in Pacific Beach (San Diego), there is a property with 8 units on top of a 2200 square foot, retail business.  Why won't lenders make a loan there?

Both FHA & conventional financing permit a certain amount of the property, to lease commercial space.  Fannie Mae allows for 20% of the property to be leased to commercial ventures as does Freddie Mac.  FHA allows for up to 25% of the square footage to be leased commercially.

If the commercial space is more than the permitted percentage of the project, or it's being advertised as a condo-tel, or the public liability insurance doesn't cover the commercial spaces that are owned by the HOA, the loan can be funded.

In our Pacific Beach example, each of the eight units is approximately 975 square feet, for a total of 7800 square feet.  The retail space is 2200 square feet.  The commercial lease is 22% of the toal square footage of the complex.  It is not eligibile for Fannie mae or Freddie Mac financing but is eligible for FHA financing.

What We Know About the HARP Refinance Program, As Of November 28,2011

The HARP Refinance loan program is still unclear but the basic gist of the plan is that, if a borrower is refinancing into a fixed-rate home loan, there will be no equity requirement.  Stated differently, the appraised value won't matter; the government loan program wants to help borrowers get fixed-rate loans which they can afford.  If the new loan is an adjustable rate mortgage (ARM), the maximum LTV will be 105% of the appraised value. 

An Automated Valuation Model (AVM) will be the preferred valuation determination but a full appraisal may be required.  There are no restrictions to the amount of negative equity . A home owner could owe $400,000 on a home that is only valued in today’s market for $300,000.

Income verification is required for the HARP refinance program. If  the original mortgage was underwritten and funded,  as a a stated income loan, the borrower will have to provide proof of income to be approved for a new HARP loan.

There are substantial "risk-based" origination fees, for new loans with a term exceeding 20 years.  Those "risk-based" origination fees are waived for terms of twenty years or less.  The reasoning behind that guideline is that a lower rate, with a lower term, should not have a material impact on the payment amount when compared to the existing payment.  The accelerated amortization however, should establish equity for the home owner more quickly and reduce the risk to the government-insuring entity.

If the existing loan doesn’t require PMI (Private Mortgage Insurance), the new loan won’t require it either.  If  the existing loan requires PMI , there will be no change to that PMI however, the “transfer” of your mortgage insurance policy may require an extra step. Make sure that I know that you currently pay PMI and tell me that amount.

FHA , USDA, and VA loans are ineligible for HARP.  Only loans, which were sold to Fannie Mae or Freddie Mac, prior to May 31, 2009 are eligible.  This means that it is highly likely that loans closed,  in 2009 or thereafter, are ineligible.  To determine if you are HARP ekigible, check these two sites:

http://www.FannieMae.com/loanlookup/ 

https://ww3.FreddieMac.com/corporate/

HARP is not designed to delay, or stop, foreclosures. It’s meant to give homeowners who are current on their mortgages, and who have lost home equity, a chance to refinance at today’s low mortgage rates.  Home owners may not have used the HARP program before and must be current on thier mortgage to refinance via HARP.  Borrowers may not have had any late payments in the last six months.

Only rate-and-term refinances are allowable. No cash out refinances are allowed.  Borrowers can refinance an investment property or vacation home with HARP, even if the home was once a primary residence.  Condominiums can be financed on the HARP refinance program but the lender will require that all warranties from the HOA are satisfied.

HARP refinances first liens only. All junior liens must be subordinated to the new first mortgage. Mortgage balances can be increased to cover closing costs but loan amounts may not exceed the local conforming loan limits ($625,000).

If you are HARP-eligible, you must close on your mortgage prior to January 1, 2014.  Please call me today, at (858)-777-9751, so we can determine your eligibility, qualify you for a HARP refinance, and take advantage of the program as soon as it is authorized for fundings.

San Diego Housing Approaches Rent Vs. Own Parity

Should you buy a home or rent one, in San Diego? 

As always, that depends.  If you're looking for a home in La Jolla, you may never find a one which is less expensive to own than rent, in today's dollars.  The physical beauty of the seaside burg is stunning and La Jolla has traditionally traded at a steep premium to rent v. own parity.

Nick Timiraos suggested that buying conditions are getting better for San Diego, in the Wall Street Journal:

Home ownership is also looking more affordable because after several years of declines, apartment rents will rise by around 4% this year, says Mr. Nadji. He says rents are poised "to pick up even more momentum across the country next year."

Rising rents are one reason a would-be home buyer should consider purchasing a La Jolla home rather than waiting for prices to reach parity there.  If inflation kicks in, and onc day it will, rents could increase a level far above what the mortgage payment, for a La Jolla home, would be today.

Even cities where it is still cheaper to rent than own have seen big boosts in affordability. In San Diego, the monthly cost of owning a home has averaged around 83% more than renting over the past two decades. During the third quarter, owning was 22% more expensive than renting, according to John Burns Real Estate Consulting

Take note of this figure.  In many San Diego sub-markets, (mostly the beach cities), housing prices will never reach parity with today's rents.  Like the La Jolla example, inlaftion may cure that in 2-3 years.  Still, some San Diego County markets have already reached parity meaning, it's cheaper to own rather than rent.  Even in some beach cities, like Oceanside or Imperial Beach.

I searched active Oceanside homes for sale and found one which is listed for $189,000.  With about $7,000 down payment,  and an FHA loan with a 4.88% APR, the monthly mortgage payment would be $1250, some $50-$100 below what it might fetch in rent.  That's one of many Oceanside properties which are at or below parity for the rent V own model.

I also found plenty of similar opportunities while searching for homes for sale in Chula Vista.  There were many more recently built homes, which command premium rents, listed under $250,000.

San Diego entrepreneur Bill Lyons intends to make these home searches easier when he releases his new website, Revestor.com.  Revestor organizes current listings, by capitalization rate or cash flow, to offer homeowners a chance to "rate" properties, by comparing the listed price to current rental data.

San Diego is still selling at a slight premium but this may be as good as it gets.  If mortgage rates continue to stay low, because of the Fed's printing press and quantitative easing, the bubble for low rates will soon pop, and inflation will kick in.  Locking in a price, and a low mortgage rate, might be the best way to insure you won a piece of our sunshiney paradise.

Foreign National Mortgage Financing for California Properties

I am continually asked about foreign national mortgage financing, mostly from Canadian investors looking for a vacation home or rental.  Most of that mortgage capital has dried up but there are two lenders, who will make these loans, at good interest rates, to resident aliens, working and living in the United States. 

The two major conditons are:

1- An I-94 form with an expiration date that is more than two years from the date of property closing or an I-94 form with a "duration of status" (D/S) for expiration.

2- Employment by an American company, with at least one year's history OR, six months history and an employment contract, with at least two years remaining on the contract

Furthermore, the lenders want to see an established banking relationship, in the United States, for at least three months.  Like all other conventional mortgages, the down payment (at least 25%)  and closing costs funds must be verified as seasoned for at least 60 days.  Any large deposits to that account will be required ot be explained and documented.

Generally speaking, a loan will be made for up to 75% of the purchase price and 30-year fixed-rate loans are available.  rates are typically about .125% to .375% higher than a traditional mortgage, made to Americans.

Can I purchase a home, with a new VA mortgage, if I have not paid off my existing VA loan and don’t want to sell the property?

I was asked this question today, from a Naval officer, relocating from the Washington, DC area.  The answer is...maybe.

A veteran might be able to use any remaining entitlement on a new home loan but will be required to certify that the new the home is his primary residence.   In San Diego, our VA loan limit is higher than most of the country ($537, 500 vs. $417,000).  This means that it is quite possible to buy a home, with the remaining eligibility.  Roughly, the veteran should back out the original loan amount, from his old home, from the local loan limit ($537,500 in San Diego County)

In this Naval officer's case, he purchased his home in DC, with a VA mortgage amount of $230,000.  This suggests that he may be able to purchase a home, in San Diego, for zero-down payment, for $307,500.  This looks good but he has two conditions which he must satisfy:

-He has to definitively prove that the old property is not his primary residence.  In this case, the Naval officer can furnish us with an active lease and cancelled checks, from the tenant, to prove he is receiving rent.  Furthermore, we can show that the utilities in the old home are in the tenant's name.

-He has to prove that his relocation was involuntary.  Had he not been active-duty, a job relocation letter might be sufficient if the relocation was due to unemployment.  Since he is active-duty, a copy of his PCS orders sufficed.

A veteran can not get the full entitlement restored, for a VA home loan,  until the VA loan for the other property is paid-off or refinanced into a conventional loan. 

Lower VA Mortgage Funding Fees Implemented November 18, 2011

N.B:  On the day before I published this, HR 674 passed, reverting the funding fee amounts to the “old” levels.  It was updated in VA Circular 26-11-19, published November 22, 2011.  The “new” lower funding fee schedule was in effect for three days, from Nov 18-21.  Sorry for the confusion.

The Veterans  Administration lowered the funding fee it charges, to insure loans made to active-duty or retired military personnel.    The new funding fee schedule distinguishes first-time users and repeat users and between active-duty, reservists, prior military.

Can you use your VA loan guaranty benefit more than once?

Of course you can.  The VA even allows for two outstanding loans (under certain circumstances) but generally, veterans can only have one VA loan outstanding.  A common misunderstanding is that a veteran can only use a VA loan once.  The benefit can be used as many times as the veteran wishes.

Can you still get a zero-down VA home loan, again?

Indeed you can.  The new funding fee schedule, for zero-down loan purchases, is only 1.40% for first-time users who are active-duty veterans and 1.65% for reservist/guardsmen veterans. Zero-down home loans, for the second and subsequent VA home loans, require a 2.8% funding fee for all veterans:  active duty, reservists, and guardsmen.

Can you lower the funding fee if you use a down payment?

Yes you can.  If veteran home buyers put 5% down, with a VA loan, the funding fee drops to .75% for active duty veterans (1.0% for reservists and guardsmen).  For a 10% down payment, the funding fee drops to .5% for active-duty veterans and .75% for reservists and guardsmen.

Here is a list of the current and new VA funding fees scheduled to take effect on November 18, 2011.

Use/Purpose	Down Payment	Active Duty Veteran		Reservist/National Guard
		Old	New	Old	New
First Time	Less than 5%*	2.15%	1.40%	2.40%	1.65%
First Time	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
First Time	10% or more	1.25%	0.50%	1.50%	0.75%
Subsequent	Less than 5%*	3.30%	2.80%	3.30%	2.80%
Subsequent	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
Subsequent	10% or more	1.25%	0.50%	1.50%	0.75%
Interest Rate Reduction	N/A	0.50%	0.50%	0.50%	0.50%
Assumptions	N/A	0.50%	0.50%	0.50%	0.50%

 

Jumbo Mortgage Rates Report--July 21, 2011- MARKET ALERT

LA JOLLA, CA--Jumbo mortgage rates are essentially unchanged since my last report (rate indications offered below) and that worries me.  Wall Street may be overconfident of a debt-ceiling hike deal and that overconfidence is priced into the market. 

In Washington, it can be tough to understand why New York is so sure of itself. While Wall Street is brimming with confidence that a deal will be struck, many Washington officials say the dynamics of this stalemate are different from any other they have encountered. And that means New York traders could be in for a big surprise in early August.

With less than two weeks to go before the Aug. 2 deadline, no deficit-reduction plan offered by the Senate or House has gained a significant amount of momentum. The House GOP’s “cut, cap and balance” proposal is dead on arrival in the Senate, which has yet to move its own budget. 

This means that a failure to extend the federal borrowing limit will catch markets by surprise; we could conceivably see jumbo mortgage rates rise 1-1.5% overnight, in early August.I've worked with mortgage-backed securities traders and I'm amazed at the huge gamble they're taking.  The culture of government bailouts is so pervasive in the financial community that the very flinty-eyed bankers are willing to ignore this risk.

Could jumbo mortgage rates go lower?   I suppose they could but not much.  There is clear and present risk right now.  If you CAN, lock your mortgage rate to avoid this risk.  

Jumbo Mortgage Rate Indications, as of July 11,, 2011:

• 5/1 ARM----------3.875%/4.110% APR
• 7/1 ARM----------4.375%/4.571%APR
• 10/1 ARM---------4.750%/4.917%APR
• 30 Yr Fix----------5.125%?5.557%APR
• 30 Y FNMJmbo-4.500%/4.724%APR
• 30 Y FNMA-- ----4.375%/4.615%APR

Jumbo mortgage rates quoted are for loan amounts from $700,000 to $2,000,000.  Credit, down payment, and income restrictions apply.  Not all will qualify.  Equal Opportunity Lender.  NMLS ID 339261

How Long Must I Wait, After A Short Sale, Before I Can Get A Mortgage?

Mortgages can be approved as early as one day after a short sale but the down payment requirements and terms are onerous.  San Diego private money lenders will make loans the day after a short sale but usually require at least 30% of the purchase price as a down payment.

Agency conforming loans (formerly known as conventional loans) can be secured in as little as two years after a short sale if the borrower has at least 20% of the purchase price for a down payment.  If the borrower has less than 20% down payment, then the waiting period extends to five years.

FHA loans require that the borrower wait at least three years, like a foreclosure, unless the previous loan had no late payments and the deficiency balance was paid-in-full (which sort of defeats the purpose of a shor sale).

VA loans can be secured as soon as two years after a short sale unless the seller is an active-dutymember using the HAP program (offerered to active-duty members who had a permanenent change of station <PCS>)