California home loans

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Purchase Loan Topics





100% Financing or 0% Down Loans


Avoid Mortgage Insurance with 80/10/10 Financing


No Cost Purchases


Purchase Pre-Approvals


No Income Documentation Loans


How Much Home Can You Afford?          




Yes, it's true! There is such a thing as 100% financing- with no money down. Borrowers may keep all of the  down payment in reserve (investments) and pledge the assets instead.  The interest costs are higher in this type of loan, but the interest the down payment money earns in the investment may well make this a worthwhile situation. As a rule of thumb, fully leveraging your real estate purchase would make the most sense if your investment returns were better than 3% over the prevailing 30 year fixed rate. 





If you purchase your home with less than 20% down, chances are you will obtain a loan that is insured by ``Mortgage Insurance'' (MI). Private mortgage insurance or MI is a type of insurance provided by a private mortgage insurance company to protect a lender in the event of default on a loan. This type of insurance is generally required when a borrower has less than 20% equity in a home; i.e. the loan amount divided by the property value is 80.01% or greater. As your home appreciates or your loan balance decreases (or a combination of the two), and your equity in the home exceeds 20%, you may petition the mortgage holder to drop the MI. This process may be cumbersome or difficult.

One way to avoid paying MI is to purchase a home with a combination first and second mortgage. The first mortgage would be limited to 80% of the home's appraised value. The second mortgage, which would close in conjunction with the first, would then provide for the difference between the home's purchase price, less the 80% first mortgage, less the down payment available . In other words, if you have a 10% down payment available, your first loan would provide for the 80% mortgage with a second mortgage of 10%. This is commonly referred to as an 80 -10 -10 transaction.

Another way to avoid incurring MI payments is to find a lender that offers self-insured programs. This type of loan would have a higher interest rate in place of the private mortgage insurance premium. While mortgage insurance premium payments are not tax deductible, the interest associated with a self-insured mortgage would be fully tax deductible.

The decision of whether to obtain a loan with mortgage insurance versus the above two options should take into account the combined total monthly payments of the various options, adjusted for the tax benefits of interest deductions.  




In a purchase situation a no closing cost option can work extremely well when the borrower has limited funds available for closing or when the rate market is declining and the borrower may want to refinance quickly. No closing cost loans can be used effectively to free up more cash for the down payment or save for repairs or other uses. If the seller can not credit for closing costs (due to low equity or other reasons), a no closing cost loan is the next best alternative.

In some cases no closing cost loans can give a borrower more cash than is needed for the direct closing costs. As long as this does not exceed the lender's guidelines (typically 3% of the purchase price in overall credits), this cash can be applied to other costs in the transaction. One important item to remember is that a no closing cost loan will not have points, and thus no deduction for that cost. Additionally, the other costs are paid for and no deduction is available. If you are purchasing a home, points and some costs are generally entirely deductible in the year you buy. This is true even if the seller is paying for your points.   





A purchase preapproval is a lender's analysis of you as a borrower without specific property information. In other words, your loan information is submitted to a lender for full underwriting and includes all borrower details, such as employment information, asset information, and credit history. The lender then approves you as a borrower, subject to a maximum loan amount, down payment, and interest rate.

Getting preapproved for a loan is critical in today's real estate environment. Many Realtors do not want to accept offers from buyers unless their home loan has already been approved by a lender.  By going through the loan process prior to being in contract on a home, you can eliminate all of the obstacles to borrowing without jeopardizing an actual purchase transaction. Once your loan is approved, your real loan closing will be quick and subject only to a satisfactory appraisal and title report on the home.

To begin the preapproval process you need to make some assumptions for your purchase price, loan amount, and loan program. Any of these assumptions can change once you've found your home, but it helps to do the following:

    1-   Complete your application for the maximum loan amount and purchase price that you're interested in. You can always
reduce these later.

    2-   Get your loan approved at an interest rate that is higher than what you expect to take. Again, the loan program that you decide upon can differ from what you are initially approved at.

The preapproval of your loan will ensure that your real purchase will go smoothly once you have located the perfect home.  





Often grouped together despite their subtle differences, ``light documentation,'' ``no-income verification'' and ``quick qualifier,'' or ``QQ'' loans are a solution for many buyers who have income from sources that are hard to verify. Usually these loans are used by self-employed borrowers who have difficulty verifying all of their income, or by borrowers with very complex income structures. For example, a borrower who has income primarily from rental properties and investments may be hesitant to verify all sources of income due to the volumes of paperwork this would require. With a no income documentation loan, the borrower can simply state his income on the application, and the lender will use this stated income to qualify the loan. Why do lenders do this? Because they recognize that by charging a slightly higher rate of interest they can rely on this stated income of the borrower and cover the additional risk. Lenders do in fact rely on verifying that the borrower has assets that logically match the stated income, along with excellent credit. Apply for a No Doc Loan

With a higher cash down payment, typically 25% or higher, along with good credit, these loans allow borrowers to buy into purchase prices a lender wouldn't ordinarily qualify them for. Because no-income documentation loans carry a higher interest rate, they should only be used when necessary, not simply to avoid the paperwork requirements of a full documentation loan.  




California home loans