Nov
19
An intro to owning a duplex
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The Denver Post had an interesting read on owning a duplex called: Side by side:
Buying into a duplex is one way to afford a home without breaking the bank. But like any bargain, there are strings attached.
Buying into a duplex is one way to afford a home without breaking the bank.
But like any bargain, there are strings attached.
Duplex owners must compromise on repairs, maintenance and aesthetic issues with their co-owners.
And while both sides typically agree on the proper course of action, a harmonious relationship isn’t guaranteed.
While living in a duplex isn’t for everyone, getting a loan for a duplex or two-unit as your primary residence is no different (to terms and rates) than getting a condo, townhouse or even a single family residence. Moreover, if one of the units is rented, you can use the rent to qualify for the loan.
Jan
17
FAQ: How do I get the best rate?
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From time to time I’ll be addressing client questions that are frequently asked and some questions that are quite obscure. Some questions are mortgage related, some are real estate related, and some are Denver related. My answers won’t be the canned answers you see on most mortgage sites.
Q: “How do I get the best rate?”
A: Let’s assume the following:
- you’re asking about a mortgage on a single family house that’s considered your primary residence
- you’re asking about a first mortgage without a second mortgage
- you have either 20% equity (refinance) or you’re putting a 20% down payment (purchase)
- you have credit scores over 720
- you don’t have any late payments of any kind
- you have assets i.e. money in a checking account, savings account, 401k, mutual funds and/or stocks at established financial institution(s)
- you have statements from the aforementioned financial institution(s)
- you’ve been in the same line of work for quite some time for the same company
- you have a limited amount of debt
- your debt to income ratio is far below the 40% threshold
If you fit this profile you’ll get the best rates because mortgage institutions view this profile as little to no risk. These loans are typically run through an automated underwriting program i.e. computer software that runs an algorerithm (software geek joke) and gives you a loan approval in seconds. Even if you don’t fit this profile 100%, the automated underwriting program may still grant you an approval in seconds. Your history of paying debt (credit score), capacity to pay the loan (income/assets), and the collateral backing the debt (property) all plays a role in getting the best rate.
Oct
14
Raising your “Profile”
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Last year, I met a real estate agent by the name of Ron Buss with Coldwell Bankers. He was referred to me by a friend. I rarely go out of my way to meet with real estate agents mainly because my time is limited and I just don’t want the brain damage. Ron was different. He was a nice guy who seemed to actually care about his clients and the community. It was a good meeting but we went our separate ways.
From time to time, I’ll pick up the Washington Park Profile a local publication when I’m at coffee shops in the Wash Park area. Much to my surprise Ron Buss was featured in an article entitled You Can’t Stop Ugly, But Can You Slow Density? by Paul Kashmann. According to the article, Ron is taking a stand against re-zoning of properties to combat scrapes in the Wash Park area.
Many people have voiced concern in recent years that the accelerated real estate values in South Denver are changing the very nature of the communities in which we live.
Once coveted bungalows are being pop-topped, scraped and replaced by homes that are not only much larger than their predecessors, but also built in a different style, using materials foreign to our early 20th century streetscape.
For well over a decade, community meetings have been called to consider first a plague of haphazardly-designed second and third story expansions (pop-tops) offensive to the eye and disrespectful of neighbors’ sunlight; and more recently, scrape-offs of (frequently) viable homes to allow for construction of much larger residences that often contain multiple units where a single family home once stood.
Rather than continue bemoaning such changes without acting, Ron Buss - a realtor and West Washington Park resident - has decided to take matters into his own hands. Buss is spearheading a movement that could lead to the downzoning of a large portion of 18 blocks of his neighborhood from R-2 to R-1, to prevent construction of multiple-family units: the duplexes, tri-plexes and even four-flexes that have become commonplace in the area.
“The problem is the rate at which change is occurring - and the accompanying change in character and increase in density,” said Buss, noting that, “from December of 2005 to now, duplexes under construction and permitted are equal to the number from the past three years.”
Keep up the good work Ron!
Jul
24
Weekend Highlights
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Here are the real estate and mortgage highlights over the weekend:
- With rates on the rise and a cooling housing housing market, this article discusses how builders are switching their focus from Single Family Residences to Townhomes and Condominiums.
The cooling housing market has homebuilders throughout the nation girding for fewer sales, larger inventories and stiffer competition for people in the market for new homes.
Rising mortgage rates and overbuilding are largely to blame, yet the pace of construction continues as builders rebalance their holdings, move from single-family to attached-home projects, and search for lucrative niches to fill.
- The cooling housing market is also a reason for apartments increasing their rent and their occupancy rate.
The Denver area’s vacancy rate was 7.4 percent for the first quarter, compared with 7.9 percent for the fourth quarter last year, according to the Apartment Association of Metro Denver. The rate has been steadily dipping since the end of 2004, when it hit 10 percent.
…
The surge in apartment rents and occupancies in the West is the result of rising mortgage rates and home prices, which have pushed potential buyers to rent instead, said Caroline Latham, owner of Novato, Calif.-based RealFacts. Read more - Al Lewis’ column discusses short selling your home when foreclosure is around the corner.
Jan
1
What lenders look for
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Before lenders lend money, they need to be assured that the funds will be repaid. In other words, is the prospective borrower creditworthy? To find out, they ask for various types of information.
Sub-prime lenders understand you may have come upon some hard times in the past and will look at your more recent credit history.
Lenders look at the risk that you will default on the loan, based on several factors. Those include credit score, history of paying your mortgage or rent on time, debt-to-income ratio, occupancy type (primary residence, second home or investment property), property type (single-family, 2-unit, condo), percentage of the property’s value you want to borrow (60%, 70% 80% 100%), and work history, among others.
Lenders will look at an applicants past credit history, income and the value of collateral being used to secure the mortgage. The lenders will compare this information to their guidelines to determine if the applicant is a good credit risk.
With regards to repayment capability, most banks prefer that a borrower has total debt obligations of less than 45% of gross income. Total debt include any monthly obligations the borrower has, including the proposed mortgage payment, property tax, homeowner insurance, automobile financing, credit card installments, alimony, etc. Utility and food costs are not considered debts and are not included in the Debt-to-Income ratio. Some non-prime mortgage lenders allow a Debt-to-Income ratio of up to 55%.
Lenders will look for job stability, credit worthiness, disposable income, liquid assets, debt to income ratios and loan to value ratios among many other things. Sometimes a borrower can be deficient or weak in one of the above mentioned areas but make up for it in others to still be considered for the financing desired. Lenders don’t typically want to see a lot of job changing or career changing happening. Also, obviously the better the credit the better the chance the lender will be repaid on the debt. Disposable income is how much income is left over after you have paid all of your monthly obligations. Debt to income is a ratio that is calculated based off of how much you make divided by how much your obligations are and LTV (loan to value is simply how much of a mortgage you are borrowing compared to how much your home is valued at. These are all very important items that a lender looks at as a part of your whole package.
Reserves is another factor that lenders want to see. Reserves are simply how much liquid cash you have in the bank to make payments with. If you are a first time home buyer the reserves can be anywhere from 2 -6 months worth of PITI (Principle, Interest, Taxes and Insurance). Various lenders will have different guidelines so be sure to ask your Mortgage Professional how much cash you will need to have in reserves.
Your credit worthiness will affect the interest rate and the number of programs that are available to you.
Jan
1
Planned Unit Development
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A development which consists of individually owned parcels and common areas owned by an association in which home owners in the area have access to through their membership in the home owners association.
If a certain percentage of properties/units are not sold or are owned by investors in a PUD the units are considered non warrantable.
This is basically a zoning designation, for a property that has more unit density, then a normal development and usually built around common open areas.
Town homes/town houses are typically classified as Planned Unit Development, Attached, Single Family Residences.
A mortgage lender will normally not consider a single family residence in a planned unit development to be of higher lending risk than a similar such property not under the jurisdiction of a PUD. One exception might be a residence that is located in a PUD in which the homeowners association is in poor financial health or is the subject of pending litigation.
When thinking of purchasing a PUD always look at the title report and see how the property is titled. In some parts of the country, such as CA, some Single Family Residences are Insured as a PUD and Titled as Town homes or Condominiums. This can lead to problems with your lender.
You can run into problems getting financing on these properties if a certain number of the units have not been sold or don’t have purchase agreements.
PUD or Planned Unit Developments come in specific varieties. For example, a DeMinimus PUD is a Planned Unit Development (PUD) in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units.
Jan
1
Jumbo Loans
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Jumbo loans exceed the maximum conventional loan amount established by Fannie Mae and Freddie Mac. They are available as fixed rate mortgages, adjustable rate mortgages, or negative amortization mortgages.
These type of loans facilitate the high-end purchase of expensive homes, vacation homes, investment property and upscale luxury homes. They are very attractive for primary occupants or investors who want to leverage their assets.
For 2006 jumbo loans are home loans that exceed $400,000 for single family homes (amounts are higher in Hawaii and Alaska).
For duplex, the conforming loan limit for 2006 is $533,850, $645,300 for three-family residence, and $801,950 for four-family homes.
Jumbo loans that are sold to investors on the secondary market are not created by the quasi-government agencies Fannie Mae and Freddie Mac. Because of this, the investors perceive these loans as a little more risky and demand a slightly high rate of return. This is why the interest rates on Jumbo loans are normally .25% to 1% higher than their conforming counterparts.
2006 Jumbo loans will start at $418,000
The Jumbo loan limits can change at any time. To know what the limit is at currently, call your mortgage broker.
Jan
1
How to shop for a mortgage
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Mortgages are complicated. Not only is the process complex and stressful, but it may be the largest financial transaction of your life. It is important that you choose the right loan, the right mortgage banker, and get the best rate. So how do you coordinate all of these things and still manage to close on your home?
When shopping for a mortgage choose the mortgage broker that focuses on your needs and addresses those needs with the right loan program.
Shopping for a mortgage can be overwhelming to an inexperienced loan shopper. The process can be complex and intimidating. It is probably best to work with someone that comes highly recommended by a friend or relative. However sometimes you have to do your own research. In that case, choose a mortgage professional that conveys your needs and understands your unique financial needs. Make sure all of your questions are answered clearly and to your satisfaction.
When shopping for a mortgage learn about the various types of mortgages available–such as 30-year or 15-year fixed rate, adjustable rate mortgage (ARM), balloon etc. Get quotes from at least three lending institutions or brokers before settling on one. Get referrals from your realtor, friends and family members who have recently purchased homes. Request an itemization of closing costs from each lender before submitting an application. Inquire about charges on one lender’s list that are not on others; this may prevent undisclosed fees from surprising you at settlement.
Make sure you are 100% comfortable with the mortgage professional you choose. If at any time you feel out of the loop, this mortgage professional should be willing to answer your questions and/or concerns in a timely manner.
Unless told otherwise, your mortgage broker will always assume your property and situation are plain vanilla. Be sure to inform your loan officer if the property is a single family residence, a unit in a condominium, or other type of property, and be prepared to divulge your social security number and authorization for us to pull your credit report.
Remember your broker takes all your info and uses that to determine the best loan for your situation but you ultimately have the final say in which loan you want.
For first time home buyers, when it comes to determining how much mortgage can you afford, it is important to stay realistic and be honest to yourself. Lending institutions’ qualifying ratios completely ignores your other financial goals, such as contributions to retirement/children’s college funds. Nor do they take into account remodeling expenses.
Today the loan process is so much easier online. Before the Internet the loan process was a hassle. You would typically have to take off work to meet with bankers and present mounds of paper work before you had any idea what programs might be available for your situation. Now you can do your necessary research online in the comfort of you own home.
Getting the best deal depends on more than just finding the best interest rate or lowest closing costs. You must take both of these things into account. You must also be sure that the loan itself is appropriate to your situation. You wouldn’t want a 2-year ARM if you know you will be living in the house for a long time and don’t plan on refinancing. Likewise, you wouldn’t want a 30-year fixed rate mortgage if you plan on moving or refinancing within a year or two. Different loan programs have different interest rates, so you must be sure to get a loan that is appropriate to your situation, or you may pay too much!
Getting a mortgage and getting your vehicle fixed are two very different propositions. But they are alike in the fact that you truly want someone you can trust to perform the needed duties. A good mortgage agent and a good mechanic should have the same goals: to serve the customer in such a way that they will return and refer other business in the future. Go with someone you can trust.
Choosing the right loan for you can be difficult, once you have chosen your mortgage broker their job is to choose the right loan for you and your situation.
Jan
1
Obtaining a mortgage for an Apartment Building can be a totally different experience that obtaining financing for a single family residence.
Property Analysis Fair Market Value and Fair Market Rent will be analyzed. Special use property may require additional underwriting. Age, appearance, local market, location, and accessibility are some other factors considered.
If you have sufficient equity in your home, you may be able to tap this equity to help provide hard money for down payments and operating costs necessary to finance a residential multi-unit rental investment such as an apartment building. Talk to one of our mortgage professionals about cash out refinancing or home equity loans or line of credit products to help get you started.
Depending on the property and the borrower sometimes commercial lenders will allow greater than 80%LTV. One of the most common practices in getting more than 80%LTV is thru cross collateralization, or basically pledging the equity in other properties.
Commercial Lending Ratios Most of real estate lending can be boiled down to the results of three ratios: •
Jan
1
Fannie Mae Explained
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Fannie Mae and Freddie Mac reduce the costs of borrowers, who meet the underwriting requirements of the agencies, and who need loans no larger than the largest mortgage the agencies are allowed by law to purchase. For 2006 the maximum is $417,000. It is raised every year in line with increases in home prices.
There is no company in America, taking bigger strides or that is more committed to providing lending for the purpose of expanding minority homeownership.
The Conforming Loan limits set by FNMA (Federal National Mortgage Association) for 2006 is $417,000 for single family residence, $533,850 for duplex, $645,300 for triplex, and $801,950 for quads. Hawaii and Alaska have Conforming loan limits 1.5 times higher than the continental U. S. Mortgages with loan amounts higher than the conforming limits set by Fannie Mae are referred to as “Jumbo Loans”.
These loans offer the best rates for borrowers. You do not need perfect credit to qualify and they also will take very high debt to income ratios, sometimes as high as 65%.