Juicy Estates: Mortgage Blog

Archive for June, 2009

Case Shiller “Less Worse”…Rates On The Move

The S&P/Case Shiller home price index decreased less than expected signaling a bottom in housing market.  This “less worse” news has pushed Treasury and Mortgage Backed Securities prices lower and yields higher.

As the housing market and economy recover expect mortgage rates to move up.  If buying or refinancing are in your future then perhaps sooner is better than later.

See the full story from Bloomberg here.

Hand Crafted Jumbo Loans – The Key to Luxury Home Sales

As I mentioned in my post  “The Rise of The Regionals ~ Filling The Funding Gap” some smaller more nimble lenders with true private mortgage banking offerings are providing the financing solutions needed to complete transactions in the luxury housing market. The feedback I have received from that original post has been very positive however many readers were not familiar with the solutions that are offered by portfolio lenders to facilitate transactions in the luxury market, solutions that the big box lenders do not offer.

Below is a list of the most common techniques, and their associated definitions that we are currently utilizing to help facilitate transactions in the luxury home market.

Bridge loan: a bridge loan is typically a line of credit or in some instances a mortgage secured by a buyer’s current home to be utilized for the down payment on a new property. Once the purchase of the new home is completed the original home is sold and the proceeds are used, in part, to pay off the bridge loan balance. (Also see cross collateralization)

Asset dissipation: this technique is used when additional qualifying income is needed for a buyer. Through the use of an assumed rate of return and time frame we can calculate a hypothetical monthly cash flow that a buyer could derive from their liquid assets and use this income for qualifying purposes.

Cross collateralization: is the use of two or more properties and/or assets owned by the same party as the security for a mortgage. By using multiple properties we can lower or even eliminate the down payment requirements and/or secure better terms on the mortgage for the property being purchased.

Collateral substitution: collateral substitution is the removal of one property as the security for a mortgage in favor of a new property. Substitutions of this nature are offered for existing clients with portfolio loans and alleviate the need for a new mortgage thus lowering closing costs on the new property.

Pledge assets: the pledging of stocks, bonds or other liquid asset as additional collateral for a new mortgage. In addition to the property itself, pledged assets can be used to secure a lower down payment requirement and/or more favorable terms on the mortgage.

Many potential buyers of luxury homes are being discouraged from taking advantage of the tremendous values that are available in the housing market by lenders that either do not offer solutions of this nature or simply are not aware that these solutions exist.

If you would like to learn more about the flexible finance options that are available for luxury home buyers please feel free to call or write.

305-476-5539

jvenney@gibraltarprivate.com

FAR Misses The Jumbo Mortgage Mark

The Florida Association of Realtors Early Bird News is typically a source of relevant and accurate industry news for Real Estate professionals and consumers alike. However, recently this publication has been the source of some misinformation that needs to be clarified.

On Friday June 5^th Early Bird News included a link to a short article indicating that move up and luxury home buyers were holding off on purchasing homes “because they don’t want to pay jumbo mortgage rates“. If any buyer is not taking advantage of the incredible deals in Miami and Florida housing markets because they think jumbo rates are high then they are talking to the wrong mortgage banker.

Jumbo mortgage money is readily available and at rates that are below historic lows and in some instances even below conforming rates.

Here is a brief indication of current jumbo rates assuming loan amount greater than $1,000,000 with no points.

*10% Down – 5/1 ARM 6.5%   7/1 ARM – 6.75% 10/1 ARM – 6.875%

20% Down – 5/1 ARM 6.125% 7/1 ARM – 6.375% 10/1 ARM – 6.625%

35% Down – 5/1 ARM 4.75% 7/1 ARM – 5.125% 10/1 ARM – 6.00%

As you can see the amount of the down payment being made can have a significant impact on the rates that are available for qualified luxury home buyers but with credit score requirements as low as 680 and debt to income ratios as high as 50% many are finding it very easy to purchase a new home using a jumbo mortgage.

Why no fixed rates you ask…most buyers of luxury homes tend to be more financially savvy and typically don’t use fixed rate mortgages do to the significant interest rate premium one has to pay to get a fixed rate. That being said fixed rate jumbos are available however, taking into consideration the average lifespan of a mortgage and the cost versus benefit of fixed rates one can see that fixed rate jumbos are not beneficial.

*10% down jumbo financing is available through cross collateralization and/or pledged assets.

$8000 Tax Credit Can Not Be Used As Down Payment

On may 19th I posted about how the original mortgagee letter which allowed the $8,000 first time home buyer tax credit to be used towards the buyers down payment had been rescinded.  (read post here).

On Friday May 29th HUD released a new mortgagee letter regarding the same issue which will allow the $8,000 tax credit to be “monetized” and accessed through several different methods for the purchase of a new home.

However this mortgagee letter did not change is the fact that the $8,000 tax credit can not be used to meet FHA’s requiremnt that the buyer make a down payment equal to or greater than 3.5% of the purchase price from their own funds. In other words the $8,000 tax credit can be used “in addition to” but not instead of the 3.5% down payment. Remember the 3.5% down payment can be a gift from a relative.

The good news is that first time home buyers will be able to use the $8,000 tax credit to make a larger down payment, pay closing costs or buy down their interest rate to achieve a lower monthly payment.

Here are the relevant links:

HUD news release regarding mortgagee letter 2009-15

Mortgagee letter 2009-15