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San Francisco Refinance Stories: A Challenging TIC Conversion

Six years ago, three couples purchased a 3 unit building together on 24th and York Streets. They had only put down 10%, and they knew they would need to wait years to build up enough equity to refinance, not to mention waiting to see if they would ever win the TIC Lottery. One member of the group figured out a way to fast-track their conversion, and they were finally ready to refinance in March of this year. We started the process, and one of the owners changed jobs, so the process was delayed while he gave notice and received his first paycheck at the new job. As we moved through the process, two more of the owners switched jobs, which meant more documentation and patience on everyone’s part. (Actually, the last person who switched jobs didn’t remember to tell us, and we had no idea until we were performing our final audits!)   The entire process took about 75 days, but by the time we were ready to lock in their interest rates, they had gone down, so it was all good!

San Francisco Home Buyer Stories: A Crazy Loan Story!

My wonderful clients who live in Truckee have a believe-it-or-not story to tell about their loan! The couple has been married almost 30 years, and the wife has been using her married name the whole time. The problem is, she never notified Social Security of her name change. When we performed our due diligence, we discovered her name in the social security records didn’t match her name on the loan application. Unfortunately, that was a show stopper for the lender. My poor clients couldn’t find their marriage certificate, so they had to go drive down to San Francisco City Hall, obtain a copy of their marriage license and provide that to the kind people at Social Security in order to fix the problem.

Now you know how painstakingly thorough lenders can be these days!

San Francisco Home Buyer Stories: Parents to the Rescue!

Our wonderful clients lived in Truckee, but had rented an apartment in the City for the past 25 years. Their adult kids had been living in the apartment while attending college, and learned the landlord planned to demolish the building. Our clients were worried their kids would be homeless since it’s so hard to find rentals, and housing is expensive to buy. They happened upon a listing in the Sunset hosted by Dave Cunningham at Zephyr, decided it would make a great rental property for their kids and made an offer the next day. Their total payments are under $3,500 per month, and they will enjoy the tax benefits of owning a rental property. Also, they will sleep well at night knowing their kids won’t be sleeping in their cars!

Should I Cancel My Credit Cards Before I Buy a House?

To many potential home buyers thinking about mortgage pre-approval, it seems logical to pay off and cancel their credit cards to “make room” for a new mortgage.  While paying off cards is a good idea, canceling them is not.

Many people don’t know that when you close down a credit line, you are actually erasing part of your credit history and potentially lowering your credit scores. The FICO scoring system focuses on your current credit more than anything else, and FICO is looking for active accounts with an excellent payment histories.  Don’t cancel those cards – if you are no longer using a particular credit card, I  suggest that you cut up the card, but don’t cancel it.

This advice is even more crucial if you will be applying for a jumbo loan (in the Bay Area, that’s a loan over $625,500).  Jumbo lenders require that you have at least three credit lines open and active, so it’s really important to keep those cards open and to use each one at least occasionally, say every six months or so.

Saying good-bye to their FHA mortgage

Happy news for my lucky clients, Gail and Mike who bought their secluded house in West Marin in 2011:  we just helped them save almost $600 a month.  In 2011, they purchased their house in the woods with 5% down, using an FHA loan of $703,000.  Their rate was 3.75%, which was great, but their mortgage premium of $639 per month was hefty. Only three years later, with the Marin housing market in full recovery mode, their equity position has increased:  from 5% equity to 15% equity, which enabled them to refinance out of their FHA loan.  They just refinanced into a new 30 year fixed rate mortgage at 4.25% plus an equity line, making the total loans 85% of the appraised value.  Even though the interest rate is higher, getting rid of the nasty mortgage insurance has saved them over $590 a month!  Hip hip hooray!

Alameda Townhome

A shout out to Brooke, a busy PG&E executive, who purchased a great townhome in Alameda.   Brooke is a first-time buyer who felt like she was getting priced out of the market and wanted to find something quickly.   Her agent was the mighty Tim Gullicksen of Zephyr Real Estate.  The place was perfect:  2 bedrooms, 2.5 baths, access to a pool and spa and peaceful views of the bay.  They put in their offer and then waited. And waited some more.  Finally, after a week of patiently waiting, Tim got the go-ahead and we closed escrow in 22 days.  Brooke now has a great place to call home and will be moving in soon.

Excelsior Gem

Congrats to my wonderful clients Jessica and Joe, who just purchased their first home in the Excelsior District.  A bit of a story here:  they were originally in escrow to buy another house in the same neighborhood.  It was what we call a flip:  a contractor purchased a fixer upper, remodeled it and then put it on the market very quickly.  The house looked great on the surface, but inspections revealed shoddy work performed without permits by an unlicensed contractor.  Their terrific realtor, Marylou Castellanos at Sotheby’s, found them another home right away that had not been formally listed yet, and they just closed escrow last week.  Happy ending!


A blogging confession . . . .

Am I a kick-ass mortgage broker?  Hell yes!  Am I an accomplished writer who can put together a fascinating weekly blog chock full of interesting mortgage industry updates?  Hell no!  I wish I could, I really, really wish I could, but I just don’t have time to: 1) research 2) write 3) edit 4) revise 5)edit 6) copy and paste the final, polished version into WordPress (which is not the most user friendly blog platform for non-techies.)

My blogging confession is this:  I just can’t do it.  My hat’s off to those busy, successful mortgage brokers who can keep their clients happy and also write blindingly brilliant blogs.  I hereby formally (with my right hand raised) swear that I am giving up the idea writing the blog I had originally envisioned.

Whew, that felt good!

What I’ve decided to do instead is give you brief updates on my wonderful clients.  I will share their success stories as well as the setbacks and disappointments which are inevitable in this crazy San Francisco Bay Area housing scene.  And maybe I will share some fun stories about what Sara and I have been up to. . . . or maybe I will pass on gardening tips or fun things to do (Transcendence Theater in Jack London State Park, for example), or perhaps I will share amusing anecdotes (or scary driving stories) about my two teen daughters. Or talk about our new kitten who we named Poppy because she is a tiny black thing about the size of a poppy seed.

So welcome to Natasha’s new blog where the posts will be brief, to the point and won’t require much editing at all!









Why is it harder for home sellers to use their equity as a down payment for their next home?

Last week I talked about how the low housing  inventory is hurting buyers. This week I want to explore one of the  reasons behind the low inventory:  it’s much harder for sellers to tap into their home equity because of lending guidelines changes.  When sellers can’t tap into their equity, they can’t sell their homes.

There are many reasons people decide to sell their homes. The most common reasons are to move to a larger place, to downsize, to leave the City for better public schools, to retire, or to relocate for a new job.  As you can see by these examples, most people who sell are also planning to purchase a replacement property.    And most of them would prefer to select their next home and move into it before putting their current home on the market.  While this seems like a reasonable proposition, in fact, its’ actually quite challenging to accomplish.

Let’s take John and Mary as an example. They own a condo in the City, but now have two school-aged kids and would like to move to a single family home in Marin costing $1,000,000.  Let’s say their condo is worth $750,000 and they only owe $550,000 on it.  They have $200,000 in equity, but only $20,000 in the bank (remember those two kids?).  In most parts of the country, they would simply drive over to the closest sunny  suburb, choose their new home and make their offer contingent on the sale of their condo.  However, Marin County is a competitive marketplace and sellers won’t accept contingent offers.  So . . . what are John and Mary to do?

From about 1998 to about 2007, there was a simple solution to the “buy now, sell later” problem:  John and Mary would take out a “cash out refinance” or home equity line (HELOC) on their condo for $125,000, (90% of $750,000 is $675,000 minus their existing $550,000 mortgage.)  That means they easily came up with a 10% down payment on the new place.   After buying the new place, they would sell their old home, pay off that mortgage with the proceeds, and be done with it.

These days, that scenario is no longer possible.  Ever since the housing market crashed, lenders have been looking for ways to avoid another crash in the future. When property values dropped, lenders realized that they may have made a mistake in allowing people to borrow so much against their homes.  People were easily buying up into larger homes, but were then unable to sell the homes they left behind. Once borrowers started defaulting on those loans, guidelines got tougher.

The landscape now is very different for people who need to buy first and sell later. First, it’s no longer possible to buy a $1 million dollar home with 10% down (15% yes, but not 10%). Second, it’s no longer possible to do a “cash out refinance” or equity line for 90% of the home’s value.  Third, even if you could borrow 90% of the home’s value, lenders now want proof that you have at least 30% equity in the home you will be vacating when you purchase the new place.  Fourth, qualifying ratios have been reduced, so it’s harder to qualify to own two properties at once, even for a short time. Fifth, you need to show six months of cash reserves in the bank for the property you are vacating, which can be an issue for someone who can barely scrape up a down payment and closing costs for a new place.

Because lending guidelines have become more conservative, sellers can no longer easily tap into their home’s equity to purchase another home.  I am not arguing that that the guidelines shouldn’t have been changed.  Obviously, too many lenders were irresponsible in the past, and this contributed to the financial meltdown in 2008.  However, tighter inventory is one of the unintended consequences of the stricter guidelines.

NEXT WEEK:  PART 2:  What happened to stated income and quick qualifier loans?

Why is the housing inventory in San Francisco so low these days?

As mortgage lenders, we hear over and over that inventory in the San Francisco Bay Area is unusually low right now, which is why we have stacks of pre-approvals sitting on our desks, but relatively few in successful buyers in escrow right now.  We all know high demand coupled with low supply is the cause of so much frantic activity, sky-high bids and dejected buyers. Why is demand so high? That’s easy:  the worst of the recession is behind us, unemployment in San Francisco is low (5.6%!), and people finally feel safe buying real estate again The problem of course is that too many people are feeling safe, all at the same time.

But low supply is truly a vexing problem, and has been for the past few years.  (As a comparison, in August, 2011, there were about 1,950 houses for sale; in December 2013, there were fewer than 500.)  The low housing supply seems to have no end in sight, except for the new condos that are rapidly taking over our skyline.  Normally, spring is one time of year when home listings can be expected to surge.  This year, they are up somewhat, but not enough to make potential buyers feel encouraged.  Most of the buyers I am working with right now are pessimistic.  They are afraid to fall in love with a place because the price will be bid up sky high, they are competing against all cash offers or they don’t have 20% down. Good houses sell  quickly, and buyers need to act decisively and aggressively, which many people just aren’t ready for.

There are numerous reasons for the inventory problem, of course, but I would like to focus on how changes in the lending environment may be responsible for the low inventory.

From a lending viewpoint, I see two main issues:

  1. Sellers find it much harder to dip into their home equity as a bridge to their next home.
  2. Stated income and quick qualifier loans are largely unavailable.

NEXT WEEK:  Why is it harder for home sellers to use their equity as a down payment for their next home?