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.


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.


How Much to Put Down on a Home Loan

Whether or not to buy a home is, for many, the single most important financial decision in their life. The second is how much to put down on a home loan. Your down payment plays an important part in the home loan approval process.

The down payment influences:

  • Loan-to-value ratio,
  • Private mortgage insurance,
  • Debt-to-income ratio,
  • Housing expense ratio, and
  • Interest Rate.

Loan-to-Value Ratio: This is the percentage a financial institution lends compared to the value of the property. If a home’s market value is $100,000, and one borrows $80,000 to purchase it, the loan-to-value ratio is 80 percent. While special loan programs exist, in today’s marketplace, one should expect to need a down payment of 20 percent for loan approval.

Private mortgage insurance: This is an insurance policy paid by the borrower. In case the homeowner defaults on their mortgage payments, and the financial institution is unable to recover costs through the foreclosure process, private mortgage insurance offsets the lender’s losses. You can avoid paying this cost with a 20 percent down payment.

Debt-to-income ratio: One’s debt-to-income is the percentage of your monthly income that goes toward paying their debt. This includes credit cards, car payments, child support, legal judgements, and more. One’s potential housing expenses are also included.

Each financial institution, and depending on the type of loan, has their own requirements. However, exceeding this ratio will negatively impact loan approval. The down payment affects the payment and, therefore, one’s debt-to-income.

Housing expense ratio: This is sometimes referred to as the payment-to-income ratio. It is the percentage of your monthly income going towards housing: mortgage payment (principal and interest), private mortgage insurance, homeowner insurance, property taxes, et al. The housing expense ratio becomes difficult to understand for some home buyers.

An example is a bank requiring no more than 33 percent of one’s monthly income going toward housing expenses. However, these expenses are added into one’s debt-to-income calculation. The percentage limit decreases with the more debt one owes. As with the overall debt-to-income, your down payment lowers your loan payment and affects the housing expense ratio.

Interest rate: The interest rate represents your cost to borrow the funds for the home purchase. Your down payment is your initial investment. It creates instant equity in the property and lessens the lender’s risk. For this reason, many financial institutions will give a better interest rate with a higher down payment.

If you would like more information or to talk more about how much to put down on a home, please contact us.


How FHA Streamline Loan Refinancing Works

If you have purchased your current residence via an FHA loan and have thought about refinancing to a lower rate to free up money for other purposes, FHA Streamline Loan Refinancing could be just the thing you need.

Features

Streamline loan refinancing through the FHA has several features that make it attractive to homeowners. These include:

  • Appraisal waiver, allowing you to use the original purchase price of your home, regardless of its value today
  • No income or credit score verification
  • No employment verification

The appraisal waiver is a particularly popular feature as it allows unlimited loan-to-value (LTV), an important feature for homeowners whose houses lost value during the economic downtown.  When applying for a Streamline Loan Refinance, homeowners can be jobless or have fair to poor credit and still receive approval, factors that prevent refinancing under other programs. If homeowners want to roll their closing costs into the loan, however, they must obtain an appraisal, otherwise, those fees must be paid out of pocket.

Eligibility

The only homeowners who are eligible for the Streamline loan are those who currently have FHA mortgages. Homeowners who want to refinance to an FHA mortgage from another type of loan must go through the normal FHA refinance process.

To obtain an FHA Streamline Loan Refinance, other factors are required. You must not have more than two, 30-day late payments on your mortgage in the last 12 months  and payment history must be perfect for the last three months. You must not have completed an FHA Streamline Refinance in the last six months. Finally, the refinance must show a net tangible benefit, meaning the new loan must reduce the total monthly mortgage payment by 5% or more. Refinancing to free money to pay bills is not acceptable.

For more information on how we can help you obtain an FHA streamline,  contact us or come visit us at Pacific Mortgage Group.


Making Room for Fitness

With your busy, constantly on the go schedule, you need fitness to be as easy as possible. If you can take care of your daily workout in the comfort of your own home, that’s greatly preferable to having to go to the gym every day. Unfortunately, making room for fitness equipment in your home can be a challenge. It’s clunky, takes up a great deal of space, and doesn’t fit with the existing decor of your room. Fitness equipment, however, doesn’t have to take over your home in order to be effective.

Find space in a closet. There’s plenty of fitness equipment that will help you stay active or get back in shape without taking up valuable floor space. Hand weights, bands, and pull-up bars will all fit in a box or crate in the closet when not in use, then come out for you to use them when you need them.

Choose fold-up pieces of equipment. There are plenty of treadmills, elliptical machines, and other workout equipment that are designed to fold up and slide out of the way when they’re not in use. They’ll fit behind the couch, beside a bookshelf, or anywhere else that you’d like to slide them when you aren’t actively using them.

Clear some floor space. The one thing that exercise does require is enough space to move around in. Shift your furniture around to provide plenty of open space in the center of the floor. While you can move the furniture in order to exercise, you’ll discover that you’re much more likely to actually make time for that workout when space is already there and all you have to do is take advantage of it.

Think about what you’ll need. Do you prefer exercise videos to a regular cardio workout? Do you like to have music playing while you exercise? If you need a television, stereo, or other devices handy throughout your workout, make sure the room you intend to use contains all those critical items.

Fitness equipment doesn’t have to take over your home when you start making exercise a priority. In fact, it can blend in so well that most people won’t even know it’s there unless you tell them! Looking for more ways to help make your home perfect for you and your family? Contact us today for more information.


FHA Loans

The trick with Federal Housing Administration (FHA) financing is that it’s a mortgage insured by the federal government. The way the FHA manages to ensure the loan is that they require the borrower to pay for mortgage insurance. The mortgage insurance protects the lender in case if the borrower defaults on the loan.

FHA mortgages must be obtained from FHA-approved lenders. The FHA has standards that have to be met before the FHA is willing to insure the mortgages.

Because the FHA is behind the loan and the risk to the lender is less, interest rates can be very favorable and less down payment may be required. Because the lender is protected by the insurance, the lender is less cautious about making loans to riskier customers and those with lower credit ratings. For many people, the FHA loan offers the only way they can obtain a mortgage in today’s market. Many first-time home buyers take advantage of FHA loans.

To get a mortgage with a down payment as low as 3.5%, the borrower needs a FICO credit score of at least 580. Those with credit scores of 500 to 579 must make down payments of at least 10%. People with credit scores below 500 are generally ineligible for FHA loans except for special circumstances. The low 3.5% down payment floor is a major attraction for many home buyers. Some special minimum down payments of as low as 3% are also sometimes available.

FHA borrowers pay for their down payments out of their own savings. However, gifts from family members can also be used. Grants from state or local governments down-payment assistance programs are also sometimes available. Closing costs can also be covered by lenders, builders or lenders as an inducement to purchase.

The borrower can use a relative as a non-resident co-borrower to help support qualification for the loan using blended debt-to-income ratios that equally blend the borrower’s and non-occupant co-borrower’s income and monthly payments to qualify for the loan.

Because the government is involved, lenders do find some additional paperwork involved. The appraiser has the additional duty to evaluate and report any health or safety hazards that could affect the insurance. They can require that concerns be repaired before the loan is closed.

The FHA mortgage insurance consists of two payments. The “upfront premium” is paid as part of the down payment. It is 1.75% of the loan amount (a $100,000 loan would cost $1,750 upfront). The annual premium (paid monthly) vary by the size of the down payment and the length of the mortgage.

  • If you take a 15-year mortgage with a down payment of less than 10%, the insurance would cost .7% annually. On a $100,000 mortgage, this would mean $7,000 per year or $583 monthly added to your mortgage payment.
  • On a 15 year mortgage with a down payment larger than 10%, the insurance may cost only .45% or $375 monthly.

On longer mortgages, risks are greater and the insurance premiums are slightly higher.

  • On a 30 year $100,000 mortgage with very low down payments (less than 5%) the annual insurance premium would be $8,500 or $708 per month.
  • If the 30 year $100,000 mortgage were started with a down payment of 5% or more, the annual premium would be at $667 per month.

In addition, for those with credit scores above 639, the FHA supports a Housing and Urban Development (HUD) lending program called a 203k. This program guarantees loans to renovate or repair homes.

  • The loan must be made by an FHA lender.
  • You have to have at least a 3.5% down payment on the home.
  • You can have no other FHA-approved loans outstanding.
  • The loans can range from $5,000 for minor repairs to sufficient coverage to virtually reconstruct the home.
  • The loan is based on the value of the home after the repair or improvement is made.
  • The loans are subject to certain basic energy efficiency and structural standards.

Pacific Mortgage Group can help you lock in the most competitive rates. If you are ready to start looking for a home loan or home quotes give us a call and we can help you every step of the way. Please contact us to learn more.


What is a reverse mortgage? What are some of the pros and cons?

You’ve probably seen one of the many commercials on TV for a reverse mortgage, and you’re probably wondering if you should get one for yourself or, for your older loved one. In this short article, we’re going to talk about what exactly a reverse mortgage is, and what are some of the pros and cons of getting a reverse mortgage so you or your loved one can make an informed decision about getting one.

A reverse mortgage is sometimes called a home equity conversion mortgage (HECM). This type of loan doesn’t require the homeowner to make monthly mortgage payments (though they are still responsible for the property taxes, homeowner’s insurance, and HOA fees if any),  but it allows the homeowner to access the equity they’ve built up in their home.

Here are some of the pros of a reverse home mortgage:

  • It allows people on a fixed income to remain in their homes until their death, without worrying about the financial burden of a mortgage.
  • The homeowner keeps their home, regardless of their financial straits.
  • The money can be disbursed in a variety of ways (such as a lump sum cash payment, or a monthly payment of funds).

Here are some of the cons of a reverse home mortgage:

  • The interest rate on a HECM is higher than on a traditional home equity loan.
  • When you die, your heirs are responsible for either paying off the balance of the reverse mortgage or selling the home in order to cover the balance.
  • If you haven’t lived in the home for a year or more, you may not qualify to get the reverse mortgage.

Contact us today to see if a reverse mortgage is right for you or your loved one.


How Do VA Loans Work?

How Do VA Loans Work

Purchasing a home is probably the biggest financial decision you’ll ever have to make. If you’re a veteran, you can  apply for a VA loan to buy an existing home, construct your own house or purchase a condominium or townhouse.

What’s more, VA loans can also be used for making home improvements such as installing storm windows, insulation and other features that promote energy efficiency. Here’s how VA loans work, along with some of their benefits.

Who Qualifies for a VA Loan?

Besides veterans, VA loans are also for people who are currently serving in the United States military, along with their spouses. However, there are some qualifications need to be fulfilled.

For example, anyone interested in buying a home must have served for at least 181 days during peacetime or must have completed 90 days of active service during times of war. Another requirement is having a record of six years of service in the National Guard or the Reserves.

Advantages of VA Loans

VA loans offer several benefits. One of the main perks is that you don’t need to put down any money as you would have to do when getting a conventional loan. This makes buying a home easier for people who’ve served their country.

Also, you don’t have to pay a monthly fee for PMI or private mortgage insurance, which saves you a considerable amount of money. Consider that with a conventional loan, you could have monthly payments that are as high as $65 for the first three to five years.

Another advantage is that you have less closing costs. VA loans have interest rates that are very competitive. In fact, the rates for VA loans are almost always lower than those of conventional loans. Also, if you pay off your loan early, you don’t have to pay a penalty.

What’s Involved in the Loan Process

  • First, obtain a copy of your credit report through Experian, TransUnion or Equifax, which are the three main credit bureaus.
  • Next, find a lender, comparing the various closing costs. Apply at approved financial institutions and banks that offer home financing through VA loans.
  • The next step is to pre-qualify for your loan as this helps in determining how much you can borrow, as well as gives a lender details, regarding your assets and income. Although pre-qualifying for a loan isn’t required, it’s a good idea because you’ll need to know what you can afford when searching a home.
  • Search for your home. This can be done by using a realtor or other means such as real estate ads in newspapers or online sources.
  • Draw up a purchasing contract, which outlines the specific conditions and terms regarding a real estate transfer. A purchasing contract will also include important data on easements, restricts, property liens, and other items.
  • Ask the Veterans Administration for an appraisal; the amount of your loan should not be more than what the VA estimate of a property’s value. This is needed for a loan to be finalized.
  • Finally, go to the loan closing where you’ll need to sign the loan note, mortgage, and other papers.

Considerations and Warnings

  • You’ll need to pay a fee for VA funding if this is your first VA loan. However, it’s not that much as it’s just 1.5 percent of the amount of your loan. This can be paid at the time of your closing, provided you pay a somewhat higher rate.
  • Your loan may not cover lender closing expenses. These costs, which are paid by either the seller or the buyer, usually include those such as recording fees, title insurance, a credit report, discount points and a loan origination fee.

Let the mortgage professionals at Pacific Mortgage Group answer any questions you may have. For more information about obtaining a VA loan, please contact us.


Thinking Long-Term When Looking at Home Loans

Buying a home is still a dream for many people. For the vast majority of home buyers, they will use home loans in order to buy their home. Many people believe it is a good idea to borrow as much money as possible when taking out a home loan. However, there are many things to keep in mind when it comes to borrowing money over the long term. A mortgage is a huge commitment for anyone to make. It is vital that everyone involved understands how financially important a mortgage is.

Types of Mortgages

A home loan is simply a way to borrow money when purchasing a home. For many home buyers, getting a 30-year mortgage is the way to go. This type of mortgage spreads the monthly payments out over a longer period of time. If the home buyers can afford the higher monthly payments, getting a 15-year mortgage is a way to pay in a lower amount over the life of the mortgage. Buyers should weigh the pros and cons of each mortgage before making a final decision. If you have questions about mortgages in general, contact us today so that we can answer your questions.

How Much To Borrow

One of the best ways to examine how much you can afford to borrow for a home is by looking at the income to payment ratio. The higher your income relative to your monthly payment, the better off you will be financially. Always think long term when borrowing money to buy a home.


When Does Cash-Out Refinancing Make Sense?

Cash-out refinancing is a good option for you if you want a lump sum of money financed at a relatively low-interest rate. You’ll probably qualify for this type of refinancing if you have already paid off a significant portion of your mortgage.

For instance, if you still owed $50,000 on a home that’s worth $150,000, you could ask the bank to refinance $70,000. They’d pay off the $50,000 left and give you a check for $20,000, then you’re responsible for paying off the $70,000 mortgage according to the terms. This is a great deal when you need money, but it isn’t the right move for everyone.

Lower Interest Rates

Cash-out financing makes sense if you can get lower interest rates. When you get a quote from the bank, compare this offer to the current rate on your mortgage as well as the rate you’d receive if you were to finance the extra money a different way, such as with credit cards or a home equity loan. If the rate is higher, though, you’ll end up paying more money in the end.

Lower Payments, Longer Term

When you refinance your mortgage, you can sometimes lower your monthly payment, which is a good move for those who are feeling a financial pinch. The lump sum you receive can pay off debt so that you only have to focus your efforts on the new mortgage. However, you’re also taking on a new 15- or 30-year mortgage. If you have 10 years or less on your original mortgage, the refinance isn’t worth it, since a larger percentage of your current payment is going toward the principal balance. Taking on a new mortgage is like starting over.

Other Things to Note

When you refinance your mortgage, you’ll have to pay closing costs. This can put a dent in the money you were hoping to receive. Home equity loans don’t have these charges. You should also pay attention to whether you’re getting a fixed or adjustable rate mortgage, as this affects how much your monthly payment is over time.

Preparing to Apply

Ultimately, cash-out refinancing makes sense for some people, while others might benefit from a home equity loan instead. A qualified loan adviser can take a look at your personal situation to help you decide which method is right for you. Gather up your financial documents like tax returns and pay stubs and contact us to speak with a loan adviser.