As interest rates rise, lenders offer creative mortgages, incentives

Virtually anyone can get financed if they have decent credit and 20% down.

By Jeff Lazerson | | | May 14, 2022

A combination of post-pandemic cabin fever and a 75% reduction in new mortgage applications drove thousands of Southern California mortgage loan originators with nothing but time on their hands to the recent California Mortgage Expo in Irvine.

It was so surreal, it felt like I was part of an ant farm.

Amid all the people and speakers, I was struck by how creative and aggressive lenders have become in solving the income puzzle for homebuyers. The region’s median home price has risen $105,000, or nearly 17%, since March 2021. And mortgage payments have steadily risen, too, jumping to a record-high $2,738 for the median home price of $735,000. That’s an increase of 8.8% in a month and 31% in a year.

As Freddie Mac’s fixed mortgage rates soared to 5.3% as of May 12 from 3.22% in early January, rate-reduction refinancing is all but gone. As the Mortgage Bankers Association reports an uptick in application volume, I suspect there are many pre-approved homebuyers who still can’t get under contract, and many mortgage borrowers are going nowhere fast.

Here are some of the alternative mortgages and incentives lenders shared at the expo.

Certainly, the most aggressive loan program I came across was a way for self-employed borrowers to income qualify using the most recent three months of business or personal bank account statements to qualify. The program adds up three months’ worth of deposits, including transfers from other accounts, and divides that by three.

Barring a good CPA letter explaining lower business expenses, most business owners will have to take a 50% haircut to cover overhead expenses — should you use business bank statements. For example, say your most recent three months of business deposits and transfers added up to $300,000. Take 50% of that ($150,000) and divide by three months. Qualifying income lands at a generous $50,000 per month.

This loan works only for the purchase or refinancing of a single, owner-occupied home with loan amounts up to $3 million. Rates are in the 6%-7% range. Ouch.

In another example, one lender allows income qualifications based on liquid assets.

Let’s say you have $1 million between your bank account and stock market holdings. Divide that by three years and you come up with $333,333 in annual income. The maximum loan amount on this deal is $4 million with interest rates ranging from 6.5% to 8.5%.

Perhaps the key difference between now and the meltdown mortgage days of yesteryear is this lender requires 30% equity or down payment. Back in the day, there were wild loans with little or nothing down.

And who says you need your own money to buy rental properties? One program I came across allows 100% gift funds (let’s say Mom gives you a wad of cash) with a FICO score as low as 620. Can you say straw buyer?

Mortgage loan originators also are continuously being pressed by real estate sales agents to close fast in order to help their homebuyers.

A lender offering a fast-closing guarantee caught the attention of Lake Forest-based attendee and mortgage originator Ed Personius.

“We can offer (from the lender) a $2,500 guarantee the purchase will close in a fast 15 days,” Personius said. In other words, if the lender has everything it needs upfront but can’t close in 15 days, then it will give the buyer a $2,500 credit at the closing.

Pivoting to vacation investment properties, one lender has made it easier to qualify for a purchase or refinance by using the average vacation rents instead of average neighborhood rents.

Let’s say vacation rental income is double that of annual long-term tenant income. For example, $100,000 per year (vacation) vs. $50,000 (year-long tenant). You can use 80% of that average vacation rental income ($80,000) to income qualify, as opposed to using $50,000.

Does financing acreage with a home or no home on the property interest you? How about a winery? Or a farm? Hideaway home on a huge plot of land? All it takes is a 30% down payment with one lender. With few exceptions, most conventional mortgage lenders shy away from lending on parcels where most of the value is in the land.

Building from the ground up? There is a construction loan available for a buyer contributing as little as 15% of the completed value. If the appraiser concludes the completed value will be $1 million, then your investment is a cool $150,000.

Deals also included instant homeowners’ insurance quotes. One online vendor offered 20% off the first year’s homeowners’ premium. The system purports to print evidence of insurance in minutes. Not bad, especially for first-time buyers who may not have an agent.

Just how busy was the expo?

“There were just under 2,000 attendees,” said originator connect expo organizer Vincent Valvo, CEO of American Business Media. “Non-QM (exotic mortgages) were the hot topic.”

For better or worse, walking away after the show got me thinking that virtually anyone can get financed if they have decent credit and 20% down.

Freddie Mac rate news
The 30-year, fixed-rate averaged 5.3%, three basis points higher than last week. The 15-year, fixed-rate averaged 4.48%, four basis points lower than last week. The 5-year ARM averaged 3.98%, two basis points higher than last week.

The Mortgage Bankers Association reported a 2% increase in mortgage application volume from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was a whopping $886 less than this week’s payment of $3,594.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 4.625%, a 15-year conventional at 4.375%, a 30-year conventional at 5.125%, a 15-year conventional high balance ($647,201 to $970,800) at 5.375%, a 30-year high balance conventional at 5.375% and a jumbo 30-year purchase, fixed at 5%.

Note: The 30-year FHA conforming loan is limited to loans of $562,350 in the Inland Empire and $647,200 in LA and Orange counties.

Eye catcher loan program of the week: A 30-year jumbo adjustable mortgage, locked for the first five years at 3.75% with 1 point.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or His website is

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.

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Jeff Lazerson - Mortgage Columnist since 2011