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Seller Credits: How They Work, How They Benefit you in the Home Buying Process, How Much you Really End Up Spending on Your New Home?

September 30, 2019September 30, 2019 loansbyjoanna

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Imagine trying to buy a Starbucks Frappuccino and having to separately compute what it costs to make the coffee, to pay for the coffee bean collectors, distribute the inventory, and stock the store. Wouldn’t it be nice if houses came with a bottom-line price tag, from upfront fees to ongoing monthly expenses, so that a buyer could easily compare “all-in” costs?

The costs of buying a home can very quickly add up. After you decide that homeownership is your best bet, you’ll need to convince a lender of that too. That means that your credit is in good shape, you aren’t struggling with debt, and you have a sizeable cushion for expenses that may arise.

For financed deals, in addition to a down payment, you pay loan-acquisition costs and for services used during the escrow process. You may ask the seller to credit you a specified amount at closing to help with many of the expenses.

Homeowners anxious to sell their homes will sometimes entice buyers with seller credits. These credits are a loan option that allows buyers to finance their closing costs and be able to purchase their home with less cash down. The seller concession must be included in the sales contract, and the amount and terms of the credit can be negotiated.

Homeowners anxious to sell their homes will sometimes entice you with seller credits. These credits are a loan option that allows you to finance your closing costs and be able to purchase their home with less cash down. Here are 4 things that you should do (and know) as a buyer:

1.) Review closing costs

To settle the transaction, you and the seller will pay your own share of closing costs including escrow fees, title insurance, and property taxes. The allocation of fees depend on market customs. Buyers are typically required to pay only the fees that are considered customary and reasonable for a particular market, and the seller credit covers fees that fit the description. Lenders cap the amount of fees a seller credit may cover at 3-9% of the loan amount.

2.) Negotiate the terms

If you are the buyer, you and the seller will typically negotiate the terms of a seller credit early in the transaction. You will request an amount, as a percentage or dollar amount, in the offer to purchase. The seller may accept, reject, or counter the seller credit. The seller pays the credit as a lump sum at closing, and limitations to what the credit covers may apply.

3.) Enjoy The Benefits

Seller credits can be beneficial to both sides of the transactions. As a buyer, you may be offered seller credit that can reduce your out-of-pocket expenses at closing. You can even request a seller credit, and increase the sales price to entice a seller to accept. A seller credit allows you to finance your closing costs into the new loan amount, however, your lender must approve the credit, and the value of the home must merit the increase in sale price.

4.) Know The Limitations

Limitations on what the buyer and a seller credit can pay for are placed by lenders. Prohibited items are known as non-allowable fees. If you overestimate our closing costs, a credit surplus may occur. Then, you should renegotiate the sale price for the unused amount so that the seller does not end up with more net proceeds at closing for the unused portion.

Whether the seller markets the home with an offer to credit some of your closing costs, or you request that the seller assists in your offer, the process for applying the credit is generally the same: the amount of the credit is noted in the sales contract as a dollar amount or as a percentage of the offer price, then, it’s added to the offer price.

Because the buyer adds the concession to the offer price, he increases the amount he pays for the home. For example, a buyer who needs $3,000 in concessions for a $100,000 home requests 3 percent seller assist and offers $103,000 for the home. Although the buyer is paying $103,000 for the house, the seller nets only $100,000 – the remaining $3,000 is loan money the buyer applies to his closing costs.

Sellers often feel as though they’re “giving” the buyer the amount of the assist. However, the assist amount is built into the offer price. The buyer is offering the seller $100,000 but asking the lender to originate a loan based on a $103,000 purchase price.

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A Simple Guide to Home Possible Mortgage Loans

February 26, 2019February 26, 2019 loansbyjoanna

What is a Home Possible Mortgage?

Home Possible is a Freddie Mac mortgage program which allows first-time homebuyers with moderate incomes low down payment mortgage options. These programs only require 3-5% as the minimum down payment and features private mortgage insurance (PMI) that can be canceled once your home equity reaches 20%.

How can Home Possible help me?

The Home Possible and the Home Possible advantage programs are geared toward first-time homebuyers with limited funds available for down payments, but meet the rest of the lending criteria. The purpose of both programs is to finance or refinance the purchases of primary residences, 2-4 unit owner-occupied homes, and eligible manufactured properties. Home Possible programs, with backing from Freddie Mac, are able to offer reduced mortgage insurance rates and premiums, more flexible credit terms, and refinancing options for existing homeowners.

What are its Main Advantages of Each HP Program?

Home Possible

Home Possible Advantage

Income Limits: The borrower’s annual income cannot exceed 100% of the area median income limits (or higher percentage in designated high-cost areas). No income limits apply if the property is in an underserved area.
Eligible Property: A one- to four-unit primary residence or a manufactured home that meets the guidelines.
Eligible Mortgages: First-lien, fully amortizing mortgages; fixed rate and adjustable rate loans are allowed. The maturity must not exceed 30 years.
LTV and DTI Ratios: Max 95% LTV, DTI Determined by Loan Product Advisor or 45% if manually underwritten.

Income Limits: Loan Product Advisor is used to determine whether the borrower’s income exceeds the product advisor limits.
Eligible Property: A 1-unit primary residence. Manufactured Homes not permitted
Eligible Mortgages: First-lien, fully amortizing mortgages; fixed rate loans only. Loan term cannot exceed 30 years.
LTV and DTI Ratios: Max 97% LTV, DTI determined by Loan Product Advisor or 43% if manually underwritten

Table source: http://www.valuepenguin.com

Commonalities:

Borrowers must occupy the property as their primary residence.
Borrowers can not have an ownership interest in other properties.
Mortgage insurance rates and premiums match in both programs.
Mortgage insurance can be canceled after loan balance drops below 80% of the home’s appraised value.
Homeownership education is required for at least one qualifying borrower if all borrowers are first-time homebuyers.

Home Possible Loans Compared to Other loans?

Home Possible vs. FHA Loans

Although each program offers reduced mortgage insurance rates and premiums, which reduces your overall housing expense — with HP loan programs, the mortgage insurance can be canceled once you reach a 78% to 80% loan-to-value ratio. This avoids the expense of refinancing just to eliminate mortgage insurance in the future. In addition, Freddie Mac mortgages aren’t subject to Federal Housing Administation (FHA) county loan limits, which could restrict your purchase options.

Home Possible vs. VA Loans

Unlike loans from the Department of Veterans Affairs (VA), there’s no funding fee on Home Possible loans. Having fewer upfront costs keeps initial loan balances lower, requires lower monthly payments and less interest over the loan term.

Freddie Mac Home Possible vs. Conventional Loans

Home Possible offers more flexible credit terms than most conventional loans and accepts scenarios on a case-by-case basis which increases the chances that your mortgage application will be approved. HP even allows borrowers without credit scores to qualify based on acceptable automated underwriting results and payment references.

**How Do I Qualify for a Freddie Mac Home Possible Mortgage?**

You must meet the debt-to-income ratio requirements for the program. Typically, this means that a maximum of 45% of your gross income goes toward your debts.
Your income must fall within the stated guidelines, based on the location of the home. If you aren’t sure, use the eligibility tool on the Freddie Mac website.
You must also be considered a first-time homebuyer. This doesn’t mean that you’re excluded if you’ve owned a home in the past. There are exceptions for situations like inheriting a stake in a property or acting as a co-signer on a mortgage loan, or if you haven’t been on the title for another property within three years of applying to Home Possible.
You must complete an approved homebuyer education course. Courses are available online and in-person, and provides valuable information.

**How Do I Apply for a Freddie Mac Home Possible Mortgage?**

Select a lender who offers Home Possible mortgage products.
Have the lender calculate your income based on Freddie Mac guidelines by providing the lender with some supporting documentation (like pay stubs, W-2 forms, and bank statements). Going through the preapproval process before home shopping will give you peace of mind.
Once you know how your income will be considered, work with a real estate agent to identify geographic areas you’d be interested in and confirm that you meet the maximum income requirements by using the eligibility tool.
Like conventional mortgages, when you have an offer accepted, your income, assets and credit will be reviewed and confirmed, and the property will be appraised to determine its value.

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10 Things to Consider When Buying a San Diego Home in 2019

January 11, 2019January 11, 2019 loansbyjoanna

Photo Credit: Evolve Vacation Rental Network

#1 – Which San Diego Neighborhood is Right for You?

From Hipster communities, to Business Districts, San Diego has so many unique neighborhoods to choose from. You should carefully consider these communities based on affordability, availability, and just what fits with your lifestyle. Ocean Beach, La Mesa, Mission Valley, North Park each have their own unique personality. Check out our last blog: Neighborhoods in San Diego for help with making your decision.

#2 – Have You Considered Cost of Living?

Right now, San Diego is the 13th most expensive city in America, according to USA Today. In the world, we’re 40th most expensive city. Not to be a Killjoy, but when it comes to money, too many of us consider salary without considering the cost of living. A high cost of living can drastically reduce the effectiveness of your income, and reduce your long-term wealth. Before purchasing a home in San Diego, make sure that your foreseeable day-to-day expenses are manageable.

#3- Do You Have a Mortgage Approval?

Required by the California Purchase Agreement, buyers need to obtain a mortgage approval. Before you go shopping for that great property, get a preapproval letter from a reputable mortgage company or brank. Contact me if you need help with this. It’s important to verify exactly what you can afford rather than waste your time searching for a home that is over your budget.

#4- Higher Loan Limits in 2019

As you’ve probably heard, borrowers in San Diego will enjoy higher loan limits this year. Federal housing officials have increased the loan limits for FHA, VA, and conventional mortgage loans. This means San Diego home buyers could have more properties to choose from without venturing into jumbo mortgage territory. As of January 1st, Fannie Mae and Freddie Mac loan limits have increased to $453,100 to $485,350 for a single-family home purchase.

#5 – Transportation

If you don’t own a car, or if you just like to take public transportation to sporting events and giant beach festivals, you might want to consider whether there are bus stops or a trolley station nearby. The San Diego Trolley is a great option for getting around the city quickly and avoiding traffic. You’ll also want to consider traffic near your area, especially during rush hours, and whether an Uber or Lyft driver can get to your area without trouble.

#6 – The San Diego Real Estate Market is Competitive

Although sellers have an advantage, San Diego real estate market is competitive for buyers. In a San Diego seller’s market, it’s important that as a buyer, you are realistic about how assertive and responsive you need to be in order to get the house you want. Sleeping on an offer overnight might not be an option this year.

#7 – Have You Chosen a Buyer’s Agent?

In such a heated seller’s environment, an experienced buyer’s agent, who knows this city, can give you that competitive edge. Hire a BA who’s an expert negotiator. It can make all the difference between getting your offer accepted, or losing out to another buyer and having to start again.

#8 – Demand is Higher at the lower end of the spectrum

In San Diego, the local real estate market is particular active at the lower end of the spectrum. By comparison, pricier properties are taking much longer to sell. If you’re buying a comparatively low-priced home in San Diego in 2019, you should be prepared for competition. This is because there is more demand in the “starter home” price range.

In fact, the fastest homes to sell fall between the $250-$500,000 range. If you’re looking for a property in this price range, jump quickly, and save yourself the frustration of losing out to other buyers.

#9 – Increasing Your Low Credit Rating

When it comes to improving your credit, there really is no time to waste. A low credit score may not seem like a big deal until it’s time to leverage your credit for a mortgage. Increasing your low credit rating will help you qualify for a higher-priced home, at a lower interest rate, making it more likely to purchase your dream home.

#10 – Setting Your Expectations and Formulating Your Plan

To recap, homebuyers interested in the San Diego market, are buying into one of the hottest real estate markets in the country. Therefore, it is important that you become informed prior to your search. Hiring help is always a great idea. Contact me so that I can help you set your expectations, formulate a plan, and ace this process, to make the most of your efforts.

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A Short Review

December 5, 2018December 5, 2018 loansbyjoanna

Hi everyone!

Here is a review of our last brochure. We have a featured city, featured listing, featured loan, and a charity highlight below. Leave a comment and let me know what you think!

Featured City – Sunset Cliffs, CA

Screen Shot 2018-12-05 at 12.57.03 PM.png With its rugged coastline and panoramic views, this area is popular with surfers, ocean-gazers, and folks who like to cruise Sunset Cliffs Boulevard, which runs the length of the cliffs. The drive along Sunset Cliffs Boulevard, which begins at Adair Street and continues south to Ladera Street, offers breathtaking views and the most amazing sunsets that you will ever see.

Featured Listing

710 Cordova St., San Diego, CA 921017 | $2,999,000

Screen Shot 2018-12-05 at 1.32.30 PM.png Instant Equity for the ONLY property along Sunset Cliffs with a PRIVATE outdoor living space capturing views to the Coronado Islands. Recently appraised for $3.2M! This 5BR/5BA ranch-style home, overlooking Sunset Cliffs Natural Park & iconic surf breaks, has panoramic, up-close, ocean views from every room.

Featured Loan- Interest Only Mortgages

Screen Shot 2018-12-05 at 2.49.30 PM.png DESCRIPTION:
The borrower only pays the intrerest on the mortgage through monthly payments for a term that is fixed on an interest only mortgage loan. The term is usually between 5 and 7 years.

After the term is over, many refinance their homes, make a lump sum payment, or they begin paying off the principal of the loan.

PROS:
-Monthly payments are low during the term.

-The borrower can purchase a larger home later by qualifying for a larger loan amount.

-Placing extra money into investments to build net worth.

CONS:
Rising mortgage rates increases risk if it’s an ARM.

-Many people spend extra money instead of investing it.

-The home may not appreciate as fast as the borrower would like.

November Charity Highlight

Family is the main focus of the Nice Guys. The majority of money we raise goes to help families who have somehow “fallen through the cracks.” A medicalbill, a car repair, clothes needed after a house fire, a wheelchair for a young man injured while being a Good Samaritan – this is the type of assistance offered by the Nice Guys. Our goal is always to get people back on their feet and to be, once again, self sufficient. | Donate Here

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Everything You Need To Know About VA Loans

October 30, 2018October 30, 2018 loansbyjoanna

What is a VA Loan?

VA loans are the most powerful lending program on the market, and are a lifesaver for the majority of military borrowers. This flexible, $0 down payment mortgage option are available to Veterans, Service Members, select military spouses, and have helped more than 22 million service members become homeowners since 1944. The loans are issued by private lenders and are popular as they are guaranteed by the U.S department of Veterans affairs (VA).

Why Get a VA Loan?

The VA home loan was created by the US government to help returning service members purchase homes without needing a down payment or excellent credit. Today, this program has guaranteed more than 22 million Service Members and their families purchase homes or refinance their mortgages.

In recent years, it has become even more important. Lenders have tightened their requirements in the wake of the housing market collapse, making the VA loan a lifeline Military homebuyers, many of whom find difficulty when faced with tough credit standards and down payment requirements.

VA LOANS

TRADITIONAL MORTGAGES

0% Down

VA Loans are among the last 0% down home loans available on the market today.

Up to 20% Down

Conventional loans generally require down payments that can reach up to 20% to secure a home loan.

No PMI

Since VA Loans are government backed, banks do not require you to buy Private Mortgage Insurance.

PMI Required

Private Mortgage Insurance is a requirement for borrowers who finance more than 80% of their home’s value.

Competitive Interest Rates

The VA guaranty gives lenders a greater degree of safety and flexibility, which typically means a more competitive rate than non-VA loans.

Increased Risk for Lenders

Without government backing, banks are taking on more risk which, in turn, can result in a less-competitive interest rate on your home loan.

Easier to Qualify

Because the loan is backed by the government, banks assume less risk and have less stringent qualification standards for VA Loans, making them easier to obtain.

Standard Qualification Procedures

Conventional options hold stricter qualification procedures that can put homeownership out of reach for some homebuyers.

How do VA Loans Work (What Steps Are Needed)?

Get prequalified with a VA lender to get an estimate of how much house you can afford based on your income, credit, entitlement and other financial factors. You can get a quote with Veterans United Home Loans online at any time.

Get pre-approved. It puts you in the driver’s seat to take action when you find a home you love. Lenders will verify income and financial information (to get a clear sense of your purchasing power) and send you a preapproval letter. The letter shows real estate agents and home sellers you’re a strong and serious buyer.

Put in an offer when you and your agent find the perfect VA loan approved home. It’s important to find a VA loan savvy agent you trust that also knows the ins and outs of VA loans.

Get an Appraisal (and Underwriting): Once you’re under contract, your lender will order a VA appraisal of the property. Underwriters will evaluate your income, financial and related documents along with the appraisal once it’s finalized. If everything checks out, you’ll be issued a clear to close.

Close: You’ll sign all kinds of legal documents and paperwork at your loan closing and get the keys to your new home.

What Are Some Other Important Things to Know About VA Loans?

They’re reusable. Your full VA entitlement can be used over and over again as long as you pay off the loan each time.

They’re only for certain types of homes. They are mainly designed for properties in “move-in ready” condition, including single-family homes, condos, modular housing, some multi-unit properties and more.

They’re for primary residences only. VA loans are for primary residences, not for investment property or a vacation home in Mexico, although you can use this benefit to buy a duplex or another multiunit property, provided you live in one of the units. The VA does offer exceptions to this rule.

They’re not issued by the VA. Instead, the agency provides a guaranty on each qualified mortgage loan.

They’re guaranteed by the government. The agency typically guarantees up to a quarter of the loan amount. The guaranty gives lenders confidence and helps service members secure great terms and rates.

They’re available despite foreclosure or bankruptcy. Service members with a history of bankruptcy or foreclosure can secure a VA loan. Even borrowers who have had a VA loan foreclosed on can still utilize their VA loan benefit.

They don’t have mortgage insurance. The VA’s guaranty eliminates the need for any mortgage insurance or mortgage insurance premium, helping borrowers save even more money each month.

They come with a mandatory fee. There’s no mortgage insurance with VA loans, but there is the VA Funding Fee. This fee helps the VA keep the program going and is required on both purchase and refinance loans. It can be rolled into the loan amount and waived entirely for those with service-connected disabilities.

They have limits on co-borrowers. Ulike other loan programs, the VA loan program does not let you get a loan with just about anybody. Having a co-borrower who isn’t your spouse or another veteran with VA loan entitlement will require a down payment, and not every VA lender offers these.

10. They don’t have a prepayment penalty. You can make extra payments any time you want, saving you a ton of interest. You can even structure your payments to automatically deduct a little extra every month.