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New loan allows 85% cash out with less documentation
By Jeff Lazerson
What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.
Rate news summary
From Freddie Mac’s weekly survey: The 30-year fixed averaged 4.35 percent, down two basis points from last week. The 15-year fixed rate averaged 3.78 percent, down three basis points from last week.
The Mortgage Bankers Association reported a 3.6 percent increase in loan application volume from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $14 higher than this week’s payment of $2,411.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at a zero point cost: A 15-year FHA (up to $431,250 in the Inland Empire, up to $484,350 in Los Angeles and Orange counties) at 3.50 percent, a 30-year FHA at 3.625 percent, a 15-year conventional at 3.625 percent, a 30-year conventional at 4.125 percent, a 30-year FHA high-balance (from $484,351 to $726,525 in L.A. and Orange counties) at 4.0 percent, a 15-year conventional high-balance (also $484,351 to $726,525) at 3.875 percent, 30-year conventional high-balance at 4.25 percent, a 15-year jumbo (over $726,525) at 4.125 percent and a 30-year jumbo at 4.75 percent.
What I think: Hot off the press! A brand-new second mortgage loan program allows up to 85 percent equity cash-out using bank deposits as qualifying income for self-employed borrowers.
I wrote six months ago about a then-new stand-alone fixed-rate second mortgage that allows you to take every penny of equity out of your house — a 100 percent cash-out in industry parlance.
Typical home equity-lines and fixed-rate seconds tend to max out at 75 or 80 percent combined loan-to-value. And, borrowers generally find that the lenders provide a conservative appraisal.
Who needs this new, easier qualifying method?
Self-employed borrowers who can’t qualify in traditional ways to finance home-improvements or who want to pay off high-interest credit card debt. Or those wanting to pull equity out for business reserves or to purchase an investment property.
Self-employed borrowers who don’t want to touch their existing, super-low-rate first mortgages and who don’t show enough tax return income to qualify under today’s very tough second mortgage and home equity line of credit standards can now qualify more easily.
This solution is available for independent contractors or those who own at least 25 percent of the business for at least two years. You can sidestep the need to provide tax returns by using bank deposits as proof of income. As a bonus, if any other primary borrowers are wage earners, then you can count their pre-tax gross W-2 wages.
For self-employed borrowers, 24 months of business or personal bank deposits will be averaged to calculate income. Transfers from another bank account don’t count. If business bank statements are used, a business expense calculation will also be subtracted.
Single-family residences, condos, townhouses and second homes are eligible. This can be used for new seconds or to refinance an existing second, but can’t be used when buying a home.
The maximum loan amount for this 20-year fixed-rate amortizing loan is $500,000. There is no prepayment penalty.
Along with no charge for the appraisal, interest rates start at a very respectable 7 percent. You will probably have to pay a few points for this loan.
You need a minimum a middle credit score of 700 and reserves for making payments for just three months, vs. the typical 12-month of reserves required for the typical first mortgage.
Jeff Lazerson - Mortgage Columnist since 2011