This is because the algorithm used by the credit bureau's to calculate your credit score looks at the amount you owe versus what credit you have. Obviously the ratio is much better if you owe $0 on a credit card with a $5,000 limit than if you owed $2,000 on the same card. 

So the key is to NEVER close any credit card that does not have an annual fee.  By doing so, all things being equal you will see your credit scores improve over time.

Another tip: make sure you use all your open cards once each 90 days so they register as "active" as this is also factored into your credit scores. You can charge as little as $1 to make this happen.

If you have any questions regarding CALIFORNIA refinance or purchase mortgages feel free to call me on (925) 951-8896.

One of the most difficult parts is that, let's say you go through a mortgage broker and they get paid $5,000 BY THE LENDER, then that $5,000 appears to be charge to you! 

Actually, it is not a charge because you are then given it back as a credit.  Sounds simple enough but on a no-cost loan where you are already getting lender credits it gets confusing because the credits are all lumped together.

The easiest way to figure it out is not to focus on the erroneous "charge" but to highlight all the non-recurring closing costs and the cost mentioned above and then highlight all the credits. When you take one from the other you will have your total closing costs (if any). On a no-cost loan this number should obviously be zero. Don't forget to take into account the cost for the appraisal which you may have paid for outside escrow.

If you have any questions regarding California home purchase or refinance mortgages please call me at (925) 951.8896

1. Costs are higher.
2. Standards are stricter making it more difficult to get a loan.
3. The Homeowners Association (HOA) fees can make it more difficult to qualify for a mortgage as they are factored into your debt-to-income (DTI) ratio by the lender.
    

These issues affect people who either wish to buy or refinance, and in California HOA fees can be very high.

The reason costs are higher is that lenders perceive condo's to be a riskier proposition and more difficult to sell, because it may be difficult to find a buyer who can get a mortgage on the property. Whenever a loan is perceived as being more risky lenders will mitigate that risk with higher costs.

One of the issues you will run into when trying to buy or refinance a condo is the fact that not only do you have to qualify but the condo association has to also. If the association is having financial or legal issues or a certain percentage of condo's in the complex are non-owner occupied or owned by one person the complex will be outside many, if not all, lenders guidelines.

You may find it more difficult to qualify for a a mortgage due to those often high HOA fees and nother painful part about those fees is that they are not tax deductible unlike mortgage insurance and property taxes are (at the time of writing).

Bottom line with condo's – be very cautious before buying and make sure your mortgage broker or bank does some due diligence on the condo associatin before you put in an offer.

If you need any advice regarding California residential purchase or refinance mortgages please do not hesitate to call me on (925) 951-8896

If you have a credit limit of say $20,000 on a credit card and you owe say $15,000 that equates to a 75%  (line limit to debt) ratio and will drag down your score. You’d be much better to spread the $15,000 out over say 3 cards in  total and try to keep the ratio to no more than 30% on each card. This is a simple fix that can produce big results. More tips to follow………..

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I specialize in helping people refinance and purchase real estate in CALIFORNIA. If you need a CA home mortgage or have CA mortgage questions let me know.

And then it happens: your banker informs you they can’t go forward.  There’s a million reasons  why this could (and frequently does) happen, but now you are scrambling. You have ten days to close the loan and you have to go from bank to bank explaining the issue that came up. None of them will give you a definitive answer as to whether the deal will fly with them.  All they say is: “I suggest you apply but ultimately it is up to the underwriter”. And you can’t just give them copies of your last application. You need to sign all 20 or so disclosures with each bank. What a nightmare!

If you’d gone through a broker for your CA home mortgage then life would have been much easier. They can use the same application and disclosure for any lender and they will understand the issues and how to explain them to another lender much more clearly than you can. There may be some scrambling involved but not nearly as much and when your loan does close you will love that loan officer forever!

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Questions about California home mortgages? Want an interest rate quote? Call me on 925.951.8896. I’m here to help you.

Having said that there are exceptions for seasonal workers. So if someone works in an occupation in which seasonal work is the norm (for example workers in ski resorts) and it is typical for workers to get laid off at the end of the season and then re-hired once the new season begins it MAY be possible to use unemployment income.

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If you need a help with any California home mortgage related questions: purchase or refinance please call me at (925) 951.8896

As a starting point you should know that although most CA mortgages are underwritten using Fannie Mae guidelines they are only guidelines and many lenders have their own overlays. What this means is that while you may not qualify (or qualify for the lowest mortgage rates) with one lender you may qualify with other lenders.

One of the reasons is the way your debt-to-income ratio (DTI) is calculated varies from lender to lender.  We’ve previously discussed how a Home Equity Line of Credit (HELOC) can affect your ability to refinance because some lenders use 1% of the available LIMIT to calculate your payment (even if you have a zero balance).  A seasoned, experienced mortgage broker will know the guidelines for each lender and only send your CA mortgage loan application to a lender whose guidelines are best suited to your unique scenario.

Imagine the frustration of locking a rate with a direct lender, filling out and signing reams of paperwork only to find out several weeks into the process that you don’t meet the lenders guidelines!

1.  If the subject property is for investment then MOST lenders will require landlord experience or they won’t even do the deal. Landlord experience in which property managers were used is fine so long as the property was owned by the applicant.

2.  If the applicant is applying to refinance or purchase a primary residence or investment property and the applicant owns other investment properties then most lenders will use the income (or loss) that is showing on the tax returns.

3.  If the applicant has landlord experience but any of the properties he or she owns are not showing on their tax returns because they were bought in the current tax year then most lenders will use 75% of the potential or actual rents as income.

4. If a borrower owns a piece of investment property that was bought prior to the current tax year but it is not showing on the borrowers tax returns then irrespective of whether the borrower has landlord experience or not most lenders will not allow any of the rental income to be used to calculate the DTI.

You’ll notice I’ve used the word ‘MOST’ a lot because there are some lenders who are more liberal on certain issues than others. A good mortgage broker will know or can find out quickly which lender’s guidelines work best for each unique scenario.

Feel free to call me if you are looking to purchase or refinance in California (the only state I am licensed) and have questions regarding the above or would like information on current mortgage rates.

The response to this post was so great that I am republishing.

Some lenders use 1% of the line LIMIT in the debt-to-income ratio calculation.  Example: if you have a $100,000 HELOC limit and a ZERO balance the lender will use $1,000 in the calculation. This $1,000 when added to the first mortgage payment, property taxes, insurance and revolving debt minimum payments would disqualify many borrowers with that lender. On the other hand, some lenders use whatever is showing on the credit report  for the HELOC (ie: zero if the outstanding balance is zero ).

One reason borrowers find direct lenders frustrating to work is because they don’t know what questions to ask, and after applying for a mortgage find they can’t qualify.  A broker however, can shop many lenders and find one who not only who has great rates but will underwrite your application in a way that will work for your unique situation.

“I have a Home Equity Line of Credit (HELOC). It has a great interest rate but it’s adjustable and I’m worried that it could go up. I’m considering combining my first mortgage and the HELOC so they’re both at one rate for the next 30 years. My first mortgage rate is higher than the current market rate. What are my options?
Answer:

If you combine a first mortgage and a fixed rate second mortgage or a HELOC (irrespective of when you last used it) then this is a ‘cash-out refinance’.  Cash-out transactions are subject to lower Loan-To-Value ratio limits and the rate is about 0.125% higher than that of a ‘rate and term’ refinance.  If your appraisal comes in “low” you can either walk away from the deal – or if there is sufficient equity you can subordinate the HELOC (refinance the first and leave the HELOC/fixed mortgage in place).

To discuss ANY purchase or refinance mortgage issues and FREE *CALIFORNIA* mortgage advice please call me. Cell: (925) 951-8896 / Toll-free: (888) 276-6751

John is exploring refinancing.  His current rate is 5.500% and he is considering a no-cost refinance at 5.250%.  He can reduce his payment by $100 per month.  Because his break-even time is zero (it will cost him zero dollars to do the refinance, and he will save $100 per month) the refinance may make sense to him.

Dave is also exploring the possibility of refinancing his CA home mortgage.  His current rate is 6.500% and he is considering a refinance at 5.000%. The closing costs and points on the refinance are $9,000. If he goes ahead he can reduce his payment by $300 per month.  His break-even time is 2-1/2 years (30 months) because $9,000 divided by $300 = 30. The refinance may not make sense to him because he may be moving house in 2 years time.

As mentioned: the “1% rule” is way over-simplified when you consider that:

Dave may be 1 year into his current 30 year mortgage and John may be 5 years into his.

Dave and John’s loan amounts may be different, and because of the way amortization works the viability (or not) of refinancing will be different for each of them.

In a nutshell: it is a huge oversimplification to say you should refinance your mortgage if you can drop your rate by 1.0% because there are many other factors to consider.  Although I am not a licensed financial planner or CPA I am licensed to originate mortgage loans in California and therefore am happy to take your mortgage related questions.

If you are a California home mortgage consumer you by now know that my goal is to arm you with as much information as possible so let’s get into this a bit more….

Brokers are paid either by you (the consumer) or the lender they send your loan application to. Sometimes it’s a combination of both. It all depends on the interest rate.  For example, after entering your information (estimates of your credit score, loan-to-value ratio, debt-to-income ratio etc.) into their search engine a broker will come back with a range of interest rates and costs or ‘rebates’ from the best (lowest rate) lenders.

For example; with a set of specified parameters the search may produce the following result:

Option 1: 4.750% interest rate  with 1% “cost”. This means that the broker would have to pay the lender 1% of the loan amount (1 point) for that interest rate. Therefore they would need to charge you 2 points (1 point = 1% of the loan amount) to get you that rate and make 1% profit for themselves.

Option 2: 5.000% interest rate – “PAR” – in which case the lender pays zero to the broker and therefore the broker will charge you 1 point to make a 1 point profit.

Option 3: 5.250% interest rate – 1% “rebate” – in which case the lender pays 1 point to the broker and therefore they can charge you zero points to make a 1 point profit.

Option 4: 5.500% interest rate – 2% “rebate” – in which case the lender pays 2 point to the broker and therefore the broker can process a “no points or fees” loan for you.  In this scenario the broker would pay all your third party title fees (title, appraisal and lender fees etc.) and still have enough money left over from the lenders rebate to make a profit.

The interest rate at which each of these deals are available changes in real time throughout the day. So, as you can see, all a lender or broker has to do to guarantee you a specific rate is to NOT guarantee your closing costs and points.

If you do describe yourself as a mortgage shopper then my recommendation is to learn as much as you can about the mechanics of the market. Specifically, how mortgage lenders work with brokers, why they don’t compete with their own brokers, and what drives mortgage rates.  As you learn more about the last item you will come to the realization that it’s not “who has the best rates?” but who is best at understanding what drives mortgage rates and is the best at TIMING your rate lock. That is the key!

So, the best shopping technique is to establish  a relationship with a seasoned mortgage professional and let him or her know you are using this strategy.  Then go to various websites (their rates are closer to real time rates than say a newspaper) and find a site you perceive to have the best deal.  Then, call your mortgage professional and tell him or her about the best deal you have seen on the web. Being the client-focused person they are will go that website and check it out.   Almost always they can match that deal because that website is also a mortgage broker and therefore will be working with the same lenders and using the same search tools they do.

This strategy gives you the best of both worlds.

In order to make sure I am offering my clients the best deal possible I am constantly researching their options, and so I went to this lenders site to see what they were offering.  On that day I was able to offer a no points or fees conforming loan at a rate of 4.875%. When I went to their website I saw that they advertised the same deal,

This surprised me because lenders don’t normally compete with their brokers. They believe in the “don’t bite the hand that feeds you” philosophy.  I clicked on the Good Faith Estimate and, sure enough there were no fees indicated. So I called them.  The person I spoke to said “yes, there are no fees, although of course you will have the normal title insurance charges and third party fees like appraisal costs (totalling $1,800).

Yesterday I received a call from a referral who had been ‘offered’ a no-points-or-fees deal from his bank on their website, but when he called them they said the fees would be $2,600!

All I can deduce from this is that this must be legal (otherwise the third biggest lender in the nation wouldn’t do it).

From my viewpoint, if I ‘quote’ a client on a ‘no-points-or-fees’ deal then they will literally walk away from close of escrow paying ZERO non-recurring closing costs.

You should also be aware that if you are paying off a Home Equity Line of Credit (HELOC) then, generally speaking, that will trigger a cash-out ‘hit’ also.

An experienced loan professional can help you navigate through these issues and find the best way to structure a deal to help you get the lowest rate and lowest costs for your own personal situation.

To cut a long story short; this mistake cost him his house, his marriage, hundreds of thousands of dollars, and destroyed his credit. He avoided bankruptcy by a hair’s breadth.

In a misguided attempt to save money it had, in the end cost him a LOT more money than he saved.  He had chosen to go with the lowest price versus the lowest overall cost. Rarely do the two go together.

If you are in the market for a mortgage you may want to ask yourself what is YOUR priority?  Sure, you can find plenty of lenders or brokers who offer you very low pricing, but if the loan doesn’t close how much will that cost you in extra payments over the life of the loan?

There are many reasons why making the wrong choice could cause your transaction to be a non event. Therefore you must make sure that there is one person who the buck stops with on your mortgage transaction. You should also make sure that your loan agent has a track record of closing mortgage transactions – especially in low rate environment where lenders and brokers are overwhelmed with applications.

Remember: if your rate is locked the clock begins ticking from the day of the lock, and it needs a lot of competence, persistence, focus, organizational, and multitasking skills for an agent to close your loan.

If you find the right mortgage professional you CAN get the lowest price and the lowest overall costs.

This is because, at the early stages of the application, the lender doesn’t know (or care) what agreement you and the broker have made.    If you applied for a no-cost mortgage with a mortgage broker for example, all the lender knows is that they will be paying the broker for finding the applicant and for processing the application. They do not necessarily know at the early stages that the broker will be crediting the borrower for their closing costs.

If you have any questions regarding CA home loans please do not hesitate to contact me.

Mortgage shopping sites which connect you with lenders who compete for your business are simply lead generation services for mortgage loan agents and brokers.  It’s as simple as that.  They gather your information and then sell it to 4 or more mortgage companies. After hitting the ‘submit’ button on these sites you should get 4 calls fairly quickly. Your goal should be to find someone you feel good about and then check out this person’s website, testimonials and background.

If you don’t have a recommendation of an experienced and trustworthy mortgage broker from a friend or relative, or you have never worked with a loan agent you are happy with, then shopping online may be your next best option.  As always, the most effective way to get the best deal is to find someone you trust and form a relationship with that person.

If you have any questions about California mortgages or refinances, give me a call or send me an email.