Category Archives: Mortagage Tips

Buy a Home for Your Parents With This Special Loan Program

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As a long-time Mortgage lender in Sacramento, I have used this relatively unknown loan program to help my clients purchase new homes for their parents while avoiding the more stringent rules and higher rates that come with buying an investment property.

It is not uncommon that I get that call from a concerned client, trying to figure out how to help their parents move closer to them, so they can spend more time with the grandkids, or worse case they need emergency help. The challenge of long-distance caregiving can be a significant drain on the family, and this program may be the answer.

Unfortunately, purchasing a second home or investment property often means you need to put up a much larger down payment than you would for a primary residence, and the interest rate might be higher. The benefit of this Family Opportunity Mortgage is that even if you currently own a primary residence, the new loan is subject to the same guidelines and rates as an owner-occupied home! If your parents don’t have sufficient income or cannot work and wouldn’t qualify for a mortgage on their own, this could be the program you could use to help them.

This unique mortgage offers several benefits over traditional second home mortgages. First, no occupancy requirements – For second homes, typical rules require the borrower to occupy the home for some part of the year. There is no such requirement for this type of mortgage however, the parents must live in the property as their primary residence.

Secondly, there are no distance requirements – Some underwriters may require that a second home not be located near your primary residence. This rule has softened, but the underwriter would ask for a strong case of why this home should be considered a 2nd home under standard underwriting guidelines. But thankfully, with this program, there are no distance requirements! The home could be located right next to yours or in a different town; it’s still priced and underwritten as a primary residence, allowing you to secure a home for your parents at a lower cost.

Not all lenders offer this program, so be sure to ask your lender if this is available or give me a call anytime. We can cover this in more detail to see if you are eligible for this unique program.

The above information is for educational purposes only. All data, loan programs, and interest rates are subject to change without notice. All loans are subject to underwriter approval. Terms, conditions, and eligibility requirements apply. Always consult an accountant or tax advisor for complete eligibility requirements on tax deduction.

Why Don’t I Have the Best Rate?

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Without fail, the number one question I get from first-time callers looking to refinance or purchase a new home is “what’s your rate?” I used to stumble a bit when asked this question because there is so much involved in getting an accurate interest rate and one that I can’t answer in a 30-second conversation. I wish it were that easy.

After years of experience, now I don’t hesitate to answer – I respond with, “What rate do you want? “This tactic usually serves to disarm them a bit and allow me to detail the components that go into an interest rate. 

If you are not getting the rate you heard on the radio or the interest rate you read in the Real Estate Section of the newspaper, it’s typically not because of some elaborate bait-and-switch scheme. In all probability, your rate is different because of Loan-Level Pricing Adjustments. Loan-level Pricing Adjustments are not discretionary fees, nor are they a profit source for me or my bank. These are federally mandated fees per Fannie Mae and Freddie Mac to compensate for loans with greater risk.

They work just like auto insurance. With greater risk come higher premiums. It’s an add-on to the base rates set by Wall Street. Here are just a few triggers that will increase your rate or fees:

  • Having a second mortgage or line of credit that you would like to subordinate. (Keep in 2nd lien position)
  • Doing a “cash-out” refinance with less than 40% equity in your home.
  • Having a credit score of 740 will save you almost a full percent in rate relative to a 640 score.
  • Investment property can add up to a full percent or more compared to the primary residence.
  • If you like Macaroni and Cheese, it will cost you. Not really, just making sure you are paying attention.

You can research your scenario at Fannie’s site.

Why Getting the Lowest Rate Might Be a Bad Idea!

I know it feels good to tell your friends that you have a lower rate than them, but you might just be spending more money over time to get that rate because you are paying points (aka extra fees to buy the rate down). And since many first-time homebuyers sell within 6 to 8 years, having that low rate was just for show. I know this might sound counterintuitive, but you may be paying more because of that lower rate.

The one constant in life is that life is continually changing. Folks can’t envision what will happen in years to come because life just happens, and maybe down the road, they need to a cash-out refinance to pay for required maintenance or repairs, or to help with their kids education, a wedding, or help with a new car, the list goes on and on. 

The important thing is to work with a lender who will take a little bit of extra time to crunch some numbers and help you decide whether a buydown or lender credit is better for your long term and short term goals.

The True Cost of Waiting to Buy a Home

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I know shopping for a home today is hard work and very frustrating at times. Inventory is low, and demand is high – It may take many offers, and a few tension-filled bidding sessions, before you land that home. Buyers can quickly get discouraged and say, “I am tired of this. I am just going sign a new rental lease instead and try this again in 6 months to a year”. 

Here’s the thing: you can take some time off, but the market isn’t taking time off, even with COVID. For example, in Sacramento County, the forecasted appreciation is 4.22% in just the next six months; let’s quantify that. A home worth $442,000 today would be worth $18,637 more in 6 months. Being careful with this prediction, even if we cut this estimate of appreciation in half to 2.4%, waiting would require you to get a bigger loan, and pay more every month, or put more money down.

I think the effects of COVID will continue to ripple through our economy in ways we can’t even imagine. If home prices do dip temporarily, the economic value to a person of owning their own home, and taking advantage of today’s super-low 30-year fixed rates, will put them in a much healthier long term financial position than choosing to rent for the next several years. The key is for people to buy homes that they enjoy living in, with a long term outlook. A short term paper loss is nothing compared to the long term economic benefits a homeowner would receive.  

And what about interest rates? Should you wait until rates go down further? No, the monthly savings with a lower rate are nice but small compared to the missed appreciation and amortization. It could take longer for the incremental savings of a lower rate in the future to make up for the money lost by waiting. Should rates drop significantly, you can always refinance in the future. Stick with it, keep shopping, and you will find something! 

 And remember, there’s no guarantee that rates head even lower. It’s essential to weigh the individual options for you, and I’m here to help you do that.

Buy A New Home Just One Day After A Short Sale or Foreclosure? Yes, You Can!

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Flex-Banner_600x315px_mockup5Comstock Mortgage, has been helping buyers into homes for over thirty years. Buyers can qualify for the Flexible Credit Home Loan Program just six months after bankruptcy – and just one day after short sale or foreclosure.

Losing your home to foreclosure or going through a short sale is one of the most disheartening experiences the modern homeowner can endure. Traditionally, a defaulted mortgage has meant years of poor credit and renting rather than buying. Continue reading →