The Regan Team - Petaluma Homes & Mortgage Blog - PetalumaLending.com

Bank overlays (aka an additional layer of guidelines) are the main reason why you can ask 10 loan officers the same question and get 10 different answers.  Every single bank and investor has their own overlays over the standard Fannie/Freddie/HUD guidelines.

So why the additional layers? 

Investor appetite for risk.  Some are ultra conservative and have so many additional guidelines only the “perfect borrower” will qualify for a loan through them. Generally I’ve found these investors while being the most restrictive have the best pricing. 

Other investors want a certain type of transaction and will favor those with fewer overlays which in turn drives that type of business to them.

An example with FHA loans in the past, when FHA didn’t have a minimum FICO requirement, some investors had a 580 FICO overlay while others had a 620. 

In other cases you’ll see the same property and borrower be denied a loan at one bank and approved with another. 

These overlays can be frustrating for borrower, real estate agent, and loan officer alike but can’t be avoided.

So next time you ask a loan officer why another bank can provide financing and they can’t, you can bet it’s because of overlays.  

 

In these turbulent times many people have been laid off and some have been fortunate enough to find new jobs.  With the low rates and low home prices many of these previously unemployed people are looking to purchase a new home. 

So how does unemployment affect financing?

As usual there’s not a cut and dry answer but in general 6 months is the magic number.

If a borrow was laid off for a period of time and then got a new job in the same line of work, 6 months job seasoning is the norm.  There is some flexibility if the borrower immediately secured new employment in the same field. 

If a potential home buyer was laid off and then started a new job in a different profession six months is the rule.

The big caveat is if the borrower was W2’d and is now self employed, they’ll need a 2 year history of self employment income before being loan eligible.

 

Flipping has been always been a part of the real estate landscape.  Investors buy a home for a considerable discount and then sell it immediately for a profit.  While there is nothing wrong with this there are a few things to be aware of. 

The following tips may or may not be Fannie/Freddie/HUD guidelines, as with most loans today investors have their own overlays and these are the common ones. 

-If you intend to sell the home less than 90 from the acquisition date and you do nothing to the property, you’re limited to 20% appreciation if you’re taking an offer that includes GSE (government sponsored entity) financing.             

-If you’ve upgraded the home you can expect up to 40% appreciation through a few FHA investors.

-Expect any sale where the property in question has less than 12 months seasoning with current owner to require 2 appraisals and the lower of the 2 values will be used.

-On FHA flips under 90 days some investors require a lender ordered home inspection.  If your property has issues, fix them, take cash only offers, or wait 90 days to accept an offer. 

-If you buy a property with defects, list those issues in MLS, and give a credit for them instead of fixing them, be aware that you’re going to make financing that property extremely difficult.

The question I’m asked consistently is why are flips so restrictive?

For good or bad the simple answer is the investors want to be assured that the buyers of these properties aren’t going to run into issues with the home that will cause them to default on the loan. 

 

On October 4, 2010 FHA is changing the mortgage insurance structure which will result in borrowers qualifying for less.

All FHA case numbers will be affected.

The changes include:

-The current up front mortgage insurance premium will be reduced from 2.25% of the loan amount to 1%.  Sounds good right?  Not so fast! 

The monthly mortgage insurance for terms greater than 15 years:

LTV's <= 95% will increase the monthly fee from .5 to .85

LTV's >   95% will increase the monthly fee from .55 to .9

 

An example of how this will affect borrowers:

$400k loan amount under the old program at 5%:

3.5% down = $14,000

Upfront MIP = $8685

Total loan amount = $392,685

Total loan payment = $2108

Monthly MI = $180

Insurance = $60

Property Taxes = $417

Total payment = $2765

 

$400k loan amount under new program at 5%:

3.5% down = $14,000

Upfront MIP = $3840

Total loan amount= $387,840

Total loan payment = $2082

Monthly MI =$291

Insurance = $60

Property Taxes = $417

Total payment = $2850 or $85 MORE a month than the previous plan. 

 

Granted this isn’t the end of the world but for those borrowers on the edge this will have an impact and cause pre-approvals to be adjusted downward. 

Send this blog to your clients and let them know FHA loans are going to get a little more expensive soon and now might be the best time to buy their new home. 

 

Lindberg Circle is located in Petaluma California.  The single family residences are attached and include many upgrades.  Priced in the low 400's, they're one of the few new home options in Petaluma.  If you have any questions please contact The Regan Team Home Loan Group.

Do schools affect home prices?

Recently an agent asked me this question and it got me thinking. 

They had a client that was ready to submit an offer but the home didn’t feed into the “best” school in town.  Because of that the client wanted to offer about $40k less than asking.  The agent was surprised as they had never had a client give that as a reason for a lower price. 

The home was in great condition in a clean and desirable neighborhood and the school it did feed into was considered very good, just not the best.

Their offer wasn’t accepted and while schools are important I don’t see a $40k price reduction being justified in a community like Petaluma California. 

So how much, if any, do you think schools affect home prices?

 

 

 

 

 

 

1768 William Drive listed by Joe Fraguglia of Frank Howard Allen for $785,000 is a brand new home.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1467 Roman Drive listed by Nathan Cleaver of Keller Williams for $500,000 is an upgraded 2800sq ft home.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

211 Wilford Lane listed by Robert Berry of Frank Howard Allen for $269,000 is a short sale in need of TLC; perfect for the 203k.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8905 Old Redwood Highway listed by Kelly Sullivan of Frank Howard Allen for $450,000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

484 Park Place Drive listed by Curtis Proaps of Frank Howard Allen for $349,000 is a clean 3/2.5 condo.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1716 Wynoochee Way listed by Kathy Seibel of CPS for $375,000 is perfect for a 203k.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1043 Mark Drive listed by Doug Hecker of Frank Howard Allen for $379,000 has been partially remolded and needs to be finished; perfect for a 203k.

 

 

 

 

 

 

 

 

 

 

 

 

 

1477 Woodside Circle listed by Shawn Lowe of APEX Realty for $429,900 is a clean 3/2.5 home in a good neighborhood.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1776 Pine Ave listed by Denise Lucchesi of Century 21 for $469,900 is a beautifully done remodel.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1916 Caulfield Lane listed by Jennifer Aument of Century 21 for $477,500 is a flip.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1900 Turtle Creek Way listed by Connie Tudor of Coldwell Banker for $563,000 is a clean 4/3.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1822 Ingram Way listed by Angela Isola of Keller Williams for $589,000 is another 3/2.5 home in Turtle Creek.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

223 English Street listed by Steve Crook of Pacific Union for $410,000 has a great front yard.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

514 Liberty Street listed by Barton Smith of Keller Williams for $549,000 is a great home in a great location.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10 6^th Street listed by Sharon Monticello of Coldwell Banker for $599,900 is a Victorian that needs some TLC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

261 Woodward Ave listed by Ulysses Torassa of Century 21 for $425,000 is another clean 4/2 ready for a new owner.

 

 

 

 

 

 

 

 

 

 

 

12 Haven Drive in Petaluma is listed by Bridget Lyons of Westgate Real Estate for $599,000.  It’s a 4 bedroom, 3 bathroom, 3927sq ft home on 7362sq ft lot.  It's also been recently updated and has stunning 180 degree views of the Petaluma Valley. 

For more information contact Bridget Lyons at 707-477-3191 or heybridget@comcast.net

 

I live in beautiful Sonoma County California and we’re one of the first counties in the nation to have a property assessed clean energy program or PACE for short.  This program allows homeowners to energy retrofit their homes and finance those upgrades through their property taxes. 

Upgrades can range from new dual pane windows to full solar systems.  The cost of these upgrades is paid for by adding an assessment to the homeowner’s property taxes for up to 20 years.  Residential properties as well as commercial can take advantage of this program; the interest rate is about 7%. 

If a homeowner upgraded the windows, heater, and insulation in their home and it cost $30,000, if they chose to pay it over 20 years it would add $2791.08 per year to their property tax bill or $232.59 a month. 

This added assessment is like any other school bond etc. and when the homeowner sells their property the assessment is passed on to the new owner until paid off.

This program is truly is a brilliant idea and is a win win for everyone.  Homeowners are able to make their home more energy efficient, they get to write off the cost of the improvements on their taxes, and it has created a lot of good paying local jobs.  I’ve seen more solar and energy retrofit companies started in the past year and a half than I have the last 10. 

On a personal note my parents were one of the first to use this program and replaced all their single pane 1970 windows to new dual pane energy efficient ones.  They’re saving over $200 a month on their PG&E bill. 

Every day we hear or read about becoming a more energy efficient nation and we’re all encouraged to conserve as much as possible.  So you would think a Government entity would support this program.

Of course NOT!  What was I thinking?

On July 6^th 2010 the Federal Housing Finance Agency released this memo:

http://www.fhfa.gov/webfiles/15884/PACESTMT7610.pdf

The person who wrote this seems to believe this program somehow interferes with the lien position on mortgages.  In the memo it states:

“First liens established by PACE loans are unlike routine tax assessments and pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors. The size and duration of PACE loans exceed typical local tax programs and do not have the traditional community benefits associated with taxing initiatives.”

The PACE program is set up just like a routine tax assessment.  As always property taxes are going to take precedence over any other type of lien and this doesn’t change that fact. It is exactly like a school bond, mosquito abatement, or water district assessment that’s added to your property taxes. 

With the mass of foreclosures and property taxes many times not being paid, the PACE assessment would add a small cost to the monthly taxes the banks would be responsible for.  In the above scenario if the previous owner did $30k in work, then $232.59 would be added monthly to the normal tax bill.  Again if a school bond passed and it added $200 a month to the property tax bill, tell me how this is any different?  This is not a valid reason to kill this program. 

The part stating the program doesn’t have any traditional community benefits is confusing too.  So what the person is saying is that saving money, making our homes more energy efficient, and providing local high paying clean jobs doesn’t help our community?

It gets better though.  Fannie and Freddie have been directed to:

-Adjust loan-to-value ratios to reflect the maximum permissible PACE loan amount available to borrowers in PACE jurisdictions

-Tighten borrower debt-to-income ratios to account for additional obligations associated with possible future PACE loans

According to this any homeowner in a PACE county would have their loan to values reduced by say 20% because they could possibly get a $100k PACE “loan” even though they’re buying a home that’s already been fully upgraded and have no use for it.   Makes perfect sense if you’re working for the Government right?!  Hummmm…

The next one is even better.  Tighten debt to income ratios for a borrower because they POSSIBLY could get a PACE “loan”.  What’s next add a $500 monthly payment to a borrowers debt to income ratio because they have an 800 FICO and could POSSIBLY take out a credit card for $50k?  How would they determine the debt to add to each borrower?  This one alone is a logistics nightmare.

The PACE program is very simple and easy to understand if one takes 5 minutes to read the details.  After reading this memo I’m under the impression the person or persons responsible for it failed in their duties to educate themselves before making such a rash decision. 

This is a great program designed to help our old housing stock become more energy efficient and to create clean high paying jobs.  What is wrong with that?  Is it too good for us? 

As a Mortgage Banker in Petaluma, California I have spoken to several people who tried to refinance their current loan and were unable to because the bank required them to pay off the PACE assessment and treated it as though it was a normal loan.  It has also come up during a home sale where the seller had to pay the assessment off in order for the buyer to obtain a purchase money loan. 

I have yet to see any investor memos implementing the new directives and I hope I don’t.

Supposedly the local Politicians covering Sonoma County are working with the powers that be to fix this issue but if a resolution is not met this program and all it’s benefits would be wiped out.