Second Mortgages

Eeeeps! Many lenders for second mortgages and home equity lines of credit (HELOCs) are retreating from the marketplace. The old days of cheap 'n easy seconds are fading fast.

Thanks to the Fed, Prime Rate has recently fallen to 7.5%. This usually immediately helps lower the interest rate on many seconds. (Different story with first mortgages, though.) Unfortunately, due to losses and the subsequent pressure to raise underwriting standards, some lenders have dropped out of this line of business and others have eliminated stated income loans and reduced their combined loans-to-value limits. They have also generally raised their margins over Prime and are directing interest rate penalties to borrowers with less than stellar credit scores.

If you are contemplating purchasing residential real estate with less than 20% down, you should consult with a mortgage broker (I happen to know a good one!) immediately to research what the best course of action may be: second mortgage or mortgage insurance. The particulars of your situation need to be taken into account: ability to fully document income or need to go stated; credit scores; employment history; volatility of your area's housing market, etc.

One should also consider the strategy of obtaining mortgage insurance instead of a second and having a motivated seller help pay some or all of your mortgage insurance premium. Another possibility is to ask the seller to pay your closing costs to enable you to put more money down. Or ask for both -- it's a buyer's market in many areas! Make sure these types of seller concessions do not exceed the lender's limits -- generally 6%.

If you are planning on taking out a standalone second mortgage behind an existing first, then be sure to shop carefully. The fine print of an advertised offer may show a 10 or 20 year amortization instead of 30 years, and the pricing may go up after a short teaser rate period. There may be substantial closing costs and a prepayment penalty. Also, if your credit scores are not in a lofty range, the lender may change the offer to a higher rate. If the amount of cash you wish to obtain with a second mortgage is sizable, it may make more sense to do a cash out refinance of your first mortgage.

Mortgages explained and demystified. Call 408/483-2730.

Preparing to Sell

Wow, with the high inventory of homes on the market these days, is it wise to put one's home up for sale?

Some areas are doing better than others, but sometimes one just needs to sell no matter what the market conditions, due to a job change, divorce, job loss, or just wanting to buy another house.

Realtors can offer lots of specific advice about preparing your home and yard for sale, and most of that is common sense. However, if they suggest some "freshening up" that you think is frivolous, make sure that your ego is not getting in the way!

There is another part of preparing to sell that people generally don't think about in advance. Unless you are planning to pay cash for the entire amount of the next home you purchase, you will need real estate financing. As we have been hearing nonstop for the past few months, the mortgage market has changed. You absolutely positively must get preapproved for your next purchase BEFORE you list your property for sale.

What if you didn't? Here is a really rotten scenario that could very easily occur: You list your property for sale and accept an offer. Then you get serious about looking for your next place, and contact a mortgage broker and realtor. The mortgage broker informs you that you will either have to put down more money than you planned on, or offers you a much higher rate than you expected, or tells you that lender guidelines have changed drastically since you last took out a mortgage, and that it will be difficult to find a lender for you. GACK! What now? You're in contract. Don't risk that situation. Get preapproved before you list your home for sale.

Mortgages explained and demystified. Call 408/483-2730.

Assistance programs for first-time buyers -- gone?

Not at all! Some of the best are offered by the State of California through CalHFA. This source has excellent first-time homebuyer programs, with very realistic loan and income limits for high cost counties.

CalHFA also started a wonderful program for teachers in California's high priority schools, called Extra Credit Teacher Program. If you teach in a school that is currently in the lower ranges of API scores, there are some very tasty incentives.

The ECTP provides a deferred-payment junior loan, for down payment assistance – from $7,500 to $15,000, depending on the location of the property, or 3% of the purchase price, whichever is greater. This junior loan is only available when combined with a CalHFA first mortgage loan. If the first mortgage loan is CalHFA’s 30-Year Fixed Mortgage, the interest rate on the first mortgage will be at a special reduced rate. Interest on the junior loan is deferred and may be reduced to zero if the borrower meets continued eligibility requirements.

These programs have interest rates and costs set by CalHFA, so whether you wander from bank to bank or work with a knowledgeable broker, the cost limits and interest rates are the same. Individuals can not apply directly to CalHFA, though it has a very good website with tons of information: www.calhfa.ca.gov

If you are wondering about your eligibility for these loans and would appreciate some help in explaining and advising about first-time homebuyer programs in California, please give me a call (408/483-2730) or shoot me an email: financing@judymcdowell.com