Understanding Conventional Conforming Loan Limits

Conventional loans are those which are uninsured against loss by a government agency. These are the most common types of mortgage loans which may be used to purchase or refinance a home. There are both conforming and non-conforming conventional loans, both with different guidelines.

A conforming conventional loan is one in which the guidelines for qualification are set by Fannie Mae and Freddie Mac, the two non-governmental insurance agencies which are responsible for insuring most mortgage loans. A mortgage loan that is “non-conforming” does not follow these guidelines.

Where to Find Information on Loan Limits

Conventional loan limits are set on an annual basis by the Federal Housing Finance Agency (FHFA) in compliance with the Housing and Economic Recovery Act of 2008 which was signed into law by then-President George W. Bush. This legislation was specifically designed to address the housing crisis of 2008 which caused major disruption to millions of families across the United States.

The conventional loan limits are established based on the average home prices in a county. The limits range from $484,350 to $726,525 for single-family residences, depending on various factors. These numbers reflect the amount of a mortgage which is insured by one of the insurers.

Using Loan Limits to Make Decisions

Across California, loan limits vary depending on which county you intend to attempt to purchase a home. There are also different loan limits which are dependent on the type of property you intend to purchase. For example, those who are purchasing a single-family residence in Ventura can mortgage up to $713,000 and still have their mortgage insured. A four-family unit in Ventura can be insured for a mortgage of up to $1,371,150. However, a person who is intending to purchase a home in Fresno will not be able to secure an insured mortgage for any mortgage loan exceeding $484,350 for single-family residences, or $931,600 for a four-family residence.

Why Loan Limits Matter for Buyers

Typically, a lender will be more likely to lend money on a conforming mortgage because there is less risk for them. Having a mortgage which is insured by either Fannie Mae or Freddie Mac means that in the event the borrower should default, the lender is able to file a claim with the agency and will not lose money.

Another reason why loan limits matter is for the terms of the loan. Borrowers who can stay within the guidelines of a conforming loan will typically be able to get more favorable terms, including lower interest rates, fewer points, and better loan terms. Many conforming loans are offered with fixed interest rates and loan terms of 30 years. Conversely, a non-conforming loan may carry an adjustable interest rate and may be for a shorter time. The stability of a fixed-rate mortgage can be very helpful to borrowers since they know every month exactly how much their housing expenses will be in advance.

Individual Owners and Investors Treated Differently

One issue to be aware of is there are still significant differences in conforming loans for those who are purchasing a single-family home for their primary residence versus an investor who is purchasing the same home. Generally, investors will pay slightly higher rates, they may be required to put down a larger down payment, and their loan terms may not be as favorable.  There are also some loan insurance programs, such as Federal Housing Administration (FHA) for which investors are ineligible.

Whether you are an individual buyer or an investor, Pacific Mortgage Group can help you identify a loan that is right for your needs. We have extensive experience helping individual buyers and investors across California find the right mortgage loans, whether you are purchasing a new home or refinancing an existing mortgage. Contact us today at 1-800-691-1665 or fill out our pre-qualification application online today.


3 Ways to Prepare for Mortgage Approval

You have been wanting to move into your own home for quite some time, but are not sure where to begin. In order to work towards mortgage approval, here are three things you need to do to really invest in the future you want. Remember, if you are not able to move into your dream home right away, you can always move later. The point is to get started!

Know What You Can Afford

Do you have a household budget? If not, please sit down with pen and paper or spreadsheet and create one. You will amazed how much disposable income you actually have at the end of the month. Look at everything, including your Starbucks habit. Work hard to account for every penny. It seems like a daunting task, but it really isn’t. It’s the first step in your mortgage approval process. Here is a short list to get you started:

  • Begin with your paycheck. What is your monthly take home pay? If you have a partner, you need to include their information, too.
  • Deduct all fixed, monthly payment amounts, such as: rent, car payments, student loans, charge cards, utilities, child support, and anything else you may have.
  • Deduct all non-fixed monthly expenses. This part is more difficult. How much do you spend on gas, clothes, and dining out (even if you charge it), coffee, etc. The list may be long, but this is also something you have control of and can curtail if necessary. This is your disposable income. If it is higher than you thought, congratulations! Although, you may still want to tweak it, and you will see why in a minute. If it is lower than you thought, or perhaps you had no idea what it might be, you really need to take some drastic changes. These are not tweaks, these changes may include pleasure points you will have to limit yourself to. Did you ever think about how much you give Starbucks in a week? The cost of a White Chocolate Mocha is $4.75 without taxes. If you have one each day on your way to work, you are spending $23.75 weekly, $95.00 monthly. Let it be a weekly treat to yourself and you are still saving $76.00 a month. A 48 ounce serving container of Folgers, bought at Walmart averages $9.98, and that’s without a coupon, see the difference? Put your money back into your pocket.

Review Your Credit Report

Have you actually looked at your credit report? Do you know your credit score? This is taken very seriously by mortgage providers and significantly affects your chances for mortgage approval. Why, you ask? Because this determines how much money lenders feel comfortable lending you, and how high your interest rates will be. The lower the number the higher the rate, and of course the opposite is true: higher score, lower interest rate. Know your numbers, and if they are low, take steps to improve them. One sure way to improve them is to pay down or off your credit card debt. If you have any judgments, find out what they are for, and how you can get them removed; these bring down your score, fast. It may take a while to get this resolved, but in the meantime, you are taking other positive steps in procuring your home.

Save For a Down Payment

Now we go back to budget. You must make a down payment or in many instances, at least be able to pay closing costs. The positive steps you take in amending your budget will help you get to house shopping sooner than you realize. Earmark that money for a single purpose. Sometimes it is easier if you open a separate designated bank account, and immediately transfer it each pay period. Do not touch it; watch it grow. Were you able to find $100.00 a month? That’s $1200.00 a year. Good job! You are now much closer to buying your home.

Pacific Mortgage Group is here to help you get moved in to your home ASAP! Licensed in six states so far, and working with over 100 lenders, we are more than happy to assist in getting financing for your home loan. Contact us to see if you qualify for $0 closing costs. Let’s make you a homeowner.


Get Yourself a Cash-Out Debt Consolidation Loan for the Holidays

As you plan for the year ahead, have you thought about refinancing your home to get out from under high-interest credit card and personal debt?

If that seems to be throwing good money after bad, and risking your hard-earned equity, consider the benefits of a cash-out refinance to consolidate your debt.

The Real Estate Boom Benefits Your Home Value

The real estate market has recovered from the recession, and housing prices have been steadily rising for several years. Even if your home value dipped during the worst of it, chances are good that it’s not only bounced back, but that you’ve seen an increase of 5-10 percent each year. In simple math, if your home was worth $250,000 in 2008, it may well be worth over $330,000 today. And assuming your mortgage balance was $225,000 back then, by now it should have amortized down to $220,000, to be conservative. In this example, your equity has ballooned from $30,000 to around $110,000. So if your cards and other loans add to up $40,000, you’ve still got a solid equity cushion in the house, and there’s no need to fear you’re at risk with a cash-out debt consolidation loan.

The Math Is Better With A Cash-Out Debt Consolidation Loan

Interest rates on mortgages are still at what are considered historic lows–under 5%. Now go look at your credit card statements, and try not to cry. If you’re paying under 20% in interest, you’re one of the lucky ones–many cards carry interest rates of 24% or higher–whatever the limit is in your state. If you’ve got personal loan debt, that’s well over 10% as well–so if your balance for all your high-interest debt is over $25,000, you’re paying over $5,000 each year in interest payments–and if all you pay is the minimum, you’ll never pay those cards off.

Now, let’s say you’ve consolidated your debts into a cash-out debt consolidation loan, and your new loan-to-value (LTV) on your house is 88%. With reasonably good credit, your new interest rate is around 5%. Suppose your house payment on a $225,000 loan is $1300 monthly. A cash-out refinance loan, with a new balance of $280,000 and a rate of 4.85%, carries a monthly principal and interest payment of $1131, with an estimated $350 for taxes and insurance. That totals $1481 for all your monthly debt, since you’ve eliminated the five hundred or so dollars you’ve been paying in high-interest debt.

Getting Started With The Refinance Process

When you refinance your house, it’s very much like the process you had when you bought your home, only there’s no realtor involved. You’ll complete an application and get pre-qualified–our loan officers will then present you with your loan options, and you’ll work together to figure out which one is best for you. You’ll upload any documentation, and we’ll order an appraisal, title search, and payoff from your current lender. Your loan officer will also get the payoffs on those cards and other loans for you, so all you have to do is take out your scissors and cut up the cards.

Special Loans And Cash Out Refinancing

Most mortgages are conventional loans, but if yours is an FHA or VA mortgage, don’t worry–you can get a cash-out debt consolidation loan under those programs, too.

A VA refinance is pretty straightforward; provide your Certificate of Eligibility and meet the lender guidelines, and you can tap into up to 100% of your equity. You are subject to VA loan limits, however, and they vary by area.

If your current mortgage is FHA and you want to stay with that loan program, you can get a cash out FHA refinance. If your credit score is on the lower side and you don’t qualify for conventional financing, you can borrow up to 85% LTV with an FHA loan. As with VA, FHA loan limits are based on your location.

Start the new year off debt-free, with a cash out debt consolidation refinance.


3 Reasons Why You Should Refinance This Summer

Whoever coined the phrase, “Make hay while the sun shines” was onto something­­­­—summer is the absolute best time to tackle those projects (or vacations) you’ve been putting off.

And while there are many valid reasons for delaying said projects, a lack of funds shouldn’t be one. Especially when we’ve come up with 3 sure-fire reasons to act now.

 

Eliminate PMI

 PMI, or Private Mortgage Insurance, is a form of insurance lenders implement to reduce the risk of loss on low down payment mortgages. By removing PMI, you can save hundreds, if not thousands of dollars each year.

However, you must have at least 20% equity in your home to do away with PMI. You can ask your lender to remove the PMI when you’ve paid down the mortgage balance to 80% of the homes original appraised value.

If you aren’t quite at 80%, it might be a good idea to refinance. Not only can you remove the PMI, but you might be able to lower your monthly mortgage payments and still pull out some equity for a project or a much-needed vacation. Score!

 

Fund Your Remodel

First things first: You must make sure the refinance plus the remodel doesn’t cause your mortgage payment to increase or extend your payments past your existing pay-off schedule. Then and only then should you take to your kitchen cabinets with a jackhammer in hand.

For example, you have $10,000 in mind for your remodel and currently have a 30-year, $200,000 mortgage at a 6% interest five years ago. As it stands, your monthly payment is ~$1,200, (excluding insurance and taxes) with a remaining balance of $186,109.

Here’s where the magic happens­­­­—you would take a mortgage out for $196,109 with an interest rate of 2.5% for 25 years, making your new monthly loan payment $982. And voila, you not only pay your home off as scheduled but also save money while doing so.

 

Say Goodbye to Debt

Debt is completely normal and something that many homeowners accumulate over time but becomes a serious problem if your monthly budget is affected. But fear not, having equity in your home can put you on the right track to becoming financially comfortable again.

Similar to the example above, you can pull out $10,000 to pay off debt while simultaneously lowering your mortgage payment and still pay it off on time. Have significantly more debt? No problem! You can withdraw more money and break even on your mortgage.

No matter the situation, your home equity can do the work for you. Your home is an investment and now is the time to cash in on the rewards of home ownership.

Contact us today to see if a refinance makes sense for you. We can work with you on countless scenarios and find the best solution that works for your situation.


Mello-Roos Tax Assessments: What You Need to Know

The Community Facilities Act—also known as Mello-Roos—was enacted by the California legislature in 1982 to enable local governments to create Community Facilities Districts (CFDs) in order to obtain additional public funding . Named for the tax Act’s co-authors Sen. Henry J. Mello (D-Watsonville) and Assemblyman Mike Roos (D-Los Angeles), counties, cities, special and school districts, and other authorities use CFDs to pay for certain public works and services.

The Mello-Roos Act simply provides local governments with another way to obtain funding after Proposition 13 restricted local governments’ abilities to increase property taxes in order to finance public facilities and services in 1978. Mello-Roos differs from Proposition 13 in that in that Mello-Roos taxes are equally applied to all properties whereas Proposition 13 tax limits are based on real property values.

Community Facilities Districts (Mello-Roos Districts)

Property owners in a CFD are subject to a special tax to enable the district to obtain public funding through bond sales for certain infrastructure improvements and/or services.

Tax Uses

Mello-Roos taxes are paying for services and facilities such as:

  • Police and fire protection
  • Emergency services
  • Recreation programs
  • Libraries
  • Parks and open space
  • Museums and cultural facilities
  • Flood and storm protection
  • Hazardous material removal

Facilities purchased with Mello-Roos funding must have an estimated useful life of at least five years in order to qualify.

Tax Assessments

Individuals who purchase homes in a CFD are subject to Mello-Roos assessments which are commonly collected with general property taxes. Whereas the tax amount may vary each year, it may not exceed the maximum amounts specified upon creation of the CFD, which are recorded along with the method of apportionment (density, construction square footage, acreage, etc.). Homeowners will continue to pay these taxes until the bonds’ principle and interest—and administrative fees—are paid, but not longer than 40 years.

Finally, as the Mello-Roos tax is assessed upon the land, changes in property values will not affect the amount if the property is subsequently sold; however, unpaid or delinquent payments require settlement before any sale because the tax is recorded as a property lien.

For more information about Mello-Roos or any other California property questions, please contact us.


What is happening to the Home Loans Market?

A 2013 survey (Belden and Russonello, America-in-2013-Final Report.PDF) showed that the demand for home ownership is very high, in spite of various difficulties experienced by the housing market. Most believe that home ownership is a good investment for them. Seventy percent of renters hope to buy homes within five years. Many people who own homes are looking for larger homes.

Demand for homes:

Qualifying for a home loan is part of the life cycle of Americans. The youngest generation (age 28 to 34) show the strongest preference for mixed use urban communities in the city. They want walkable communities and public transit. When people move into the 35 to 47 age group (the married and child-rearing phase), they begin to prefer to buy single-family homes. The older baby-boomer generation have diversified into a wide range of housing sizes and communities. They generally feel settled, except that some want to move into smaller homes with shorter transportation demand, close to parks and far from neighbors.

The need for home loans is a constant through all the varieties of location and need. According to the survey,

Living in a single-family house is…related…to their stage of in life. It is a goal that Americans move closer to as the age, marry, and earn more.”

Young adults in the millennial generation are heavily burdened by student loan debt.  A Wells-Fargo survey found that a majority of millennials (54 percent) describe debt as their biggest financial concern. Forty-two percent of millennials say their debt is “overwhelming.” Of the millennial generation 64 percent financed their education with student loans. This contrasts with baby boomers, of whom only 29 percent financed their education with loans, during a period when tuition costs and fees were much lower.

Millennials in the marketplace:

When millennials are ready to finance a home, what is the home finance market like for them? In 2013, 30 year-olds were as likely to be stuck in their childhood bedrooms as they were to own their own home. The job market was especially hard on millennials with unemployment rates at 14 percent for that group between 2007 and 2010. For many, saving and handling student debt were very hard.

With  the gradual recovery of the job market, the “household formation rates” (how many new household units–home buying units–are being formed) has reached close to normal levels. Normally this would signal a normalizing housing market. However, the people forming new households are disproportionally not millennials.

Surprisingly, even with improving conditions, the share of adults in the millennial age range living with their parents has continued to rise. The rate at which millennials get married or live with a partner has been decreasing for many years now, independent of the recession. Millennials, employed or not, are more likely than ever to live with parents and not form independent households. The increases in household formation is coming from older adults. Many feel that fewer households entering the home buying market is due to later marriages and not-good-enough jobs, as well as student debt.

Preparing Better Mortgages to Tempt Millennials:

The worry felt by many borrowers has to do in part with hidden costs of the mortgage. Over the last few years, the household lending industry has been borrowing the practice of Total Cost of Ownership from industrial management practice. Total Cost of Ownership (TCO) was popularized for business in 1987. The Total cost analysis in mortgage lending enables lenders to explore what their resources can afford in a home mortgage. This analysis treats home ownership as a cost-benefit proposition.

Looking at all the factors that go into mortgage cost gives purchasers a sense of closure and allays fears of the unknown. As will any Total Cost of Ownership calculation, the total mortgage cost analysis begins looking at all the factors that go into the cost of the mortgage:

  • Mortgage attributes–for a fixed rate mortgage: loan amount, loan term, and interest rates. For a variable rate mortgage: periodic rate cap, lifetime rate cap, months between rate adjustment, etc..
  • Down payment–the larger the down payment, the smaller the total mortgage costs. Recent government regulations permit down payments of 1 percent. What would such a small down payment mean for total cost?
  • Discount points–upfront fees paid to the lender.
  • Other closing costs–a multitude of upfront expenses for inspections, legal and document fees, surveys, etc..
  • Private mortgage insurance–usually around $55 per month for every $100,000 borrowed, until the remaining principle falls below 80 percent of the home’s fair market value.
  • Income tax ramifications–some mortgage expenses may be tax-deductible.

Pacific Mortgage Group makes it easy and stress-free for you to find a mortgage option that truly fits your needs. Our mission is to match you with the best possible home loan package so you can achieve your financial goals. Please contact us to learn more.


Discover Why Conventional Home Loans May Be the Best Option

Have you been trying to figure out which home loan is right for you? Well, if you have good credit, and have taken the time to save for buying a home, then a conventional home loan may be the best option. The main benefit is a conventional home loan will save you money.

The main advantages of FHA home loans and other government-backed mortgages include (1) the qualifying credit criteria is lower, (2) the amount of your required down payment is less, and (3) refinancing is easier. However, these benefits have a cost. You can end up spending much more, both with your monthly payment and over the life of the loan.

Down Payment

FHA home loans require as little as 3.5 percent as the down payment. Of course, the lower down payment means more of the sale price is financed. Your monthly mortgage payment is higher, affecting your payment-to-income ratio and loan approval. The higher financed amount also means paying thousands more in interest over the life of the loan.

Private Mortgage Insurance

When you place 20 percent or more down on a home, you are not required to pay for mortgage insurance. This insurance reimburses a financial institution if the home goes into foreclosure. The premium is added to your monthly mortgage payment, also affecting your payment-to-income ratio.

Mortgage Rates

Since FHA and other government-backed mortgages have lower credit standards, there is a greater financial risk for banks and mortgage companies.  This translates into higher interest rates. Since conventional home loans have higher credit standards, they offer better rates.

More Options

Conventional home loans provide more flexibility with payment terms. FHA home loans have either 15-year or 30-year terms (some lenders can be more flexible). Conventional loans have options that can help you pay your mortgage off earlier and save thousands in interest.

If you would like to talk more about why a conventional home loan may be the best option, or need more information, please contact us.


Tips on Owning a Home: It’s More Than Just the Mortgage!

One of the most common misconceptions about home ownership is that you simply buy a house, pay the mortgage every month, and call it a day. However, the reality of owning a home is that it costs a lot more than just the mortgage!

In this blog post, then, we’re going to go over the full list of expenses that come with owning a home so that you can decide if you’re in the market to buy a home, or to continue renting as you’re currently doing.

  • Insurance: many lenders, especially from the so-called “big banks,” will require you to have homeowner’s insurance before giving you a mortgage. This premium varies from state to state, and different environmental factors — such as your area’s propensity for hurricanes, earthquakes, and flooding — can drive the price up significantly.
  • Property Taxes: again, this is an inevitable cost. Now, there are some mortgages that allow this to be built in — and paid — from the monthly mortgage payment, but in the end, this will also drive your monthly payment up to more than you thought before. Like insurance premiums, property taxes vary from state to state, and are dependent on the value of your home.
  • Utilities: you thought you had the “utilities” thing down pat when you were living in your first studio apartment, but the reality is, the utilities go up tremendously when you’re trying to heat, water, and provide electricity to a home with a few thousand square feet. Make sure you budget accordingly!

For more information about us and our services, contact us today.


Discover How to Save Money for a House

Saving money for a house can feel like an insurmountable goal. A down payment and closing costs will be in the thousands. For a traditional mortgage, the target number is 20 percent of the sale price for the down payment and another estimated 5 percent toward closing costs. If your dream home is $200,000, expect to need $50,000 saved.

It seems a bit daunting, doesn’t it? The Consumer Financial Protection Bureau reports, “People often put off saving for [important] goals because they feel like they don’t have enough money to save or they are busy struggling to make ends meet today. They feel like they can’t think or worry about saving for goals, large purchases, or even life events in the future. This can create financial challenges in the future.”

So, how do you start saving the tens of thousands of dollars needed for a home purchase? Here are our tips for saving money for a house.

Set a Goal: Decide how much money you need for the house you want, and set a date to achieve this goal. Moreover, ensure your goal is reasonable, It may take you five years to save $50,000.

Create a Plan: Convert your goal into yearly, monthly, and weekly financial targets. A $178.58 weekly goal is easier to achieve than the lump sum of $50,000.

Cut Spending: Reduce spending on as many items or services as you can. Cut back your cable television from the premium package to basic. Reduce your phone from unlimited calling to a fixed number of minutes. Limit the number of times you eat out.

Boost Savings: Take the money you have saved and invest it into a savings account, certificates of deposit, mutual funds, and savings bonds. Banks and credit unions offer financial products that are safe and boost the value of money saved.

Increase Income: Consider taking a part-time job. The added income will help you to save faster, and will help with other unexpected expenses like automobile repairs.

Revise Goals: If the amount you are saving for a home doesn’t make sense, or your life’s circumstances have changed, adjust your goals. Your goals are not etched in stone. Adjust them so they make sense for you and your family.

If you already saved money and plan on purchasing your first home, or just need more information, please contact us.


Four Benefits of a FHA Loan

FHA loans are government-issued loans by the Federal Housing Authority. Actually, you will still get loans through private lenders but, you will be protected by the government, if you should default on your loan.

Here are some of the benefits of getting a FHA loan.

  • Lower down payments required to get a mortgage. Most loans require at least five to ten percent of the cost of the house as a down payment. Some require even more. With a FHA loan, you only need 3.5% down! Closing costs can be even more expensive and that can be added to your mortgage.
  • Lower mortgage insurance. Mortgage insurance is expensive and is included in your monthly costs. With a FHA loan, you might be able to pay less, essentially paying less money each month with your mortgage payment.
  • Competitive interest rates. When you get a FHA loan, you will get a competitive interest rate, no matter what your credit score is. This allows people who have less than desirable credit to own homes.
  • Higher debt ratio. When figuring out your debt ratio, you are allowed to have more debt with a FHA loan than you can with a conventional loan. If you have a car payment or two, along with credit card debt, you might be better off looking at a FHA loan!

FHA loans are helpful when you are just starting out and you don’t have a lot of money for a down payment. They are also helpful if you don’t have the best credit. They are also helpful when you have a little bit of debt. However, make sure that you can afford your house or you will end up losing your home!

Contact us to see if you qualify for a FHA loan!