When you are considering purchasing, the lender is one of the first decisions you’ll make. This decision can affect your interest rate, your payment options and even the escrow process. There are 3 types of lenders – direct lenders, banks and mortgage brokers. (See table below for pros and cons)
Direct lenders (aka mortgage bankers) loan their own money. They are by far the most flexible to approve you for a loan and typically the loan rep will have a close relationship to the underwriter*. Companies include Movement Mortgage, New America Funding and Caliber Home Loans. The UPSIDE in a competitive market (like LA’s) is that they can close the loan quickly, do 10% down with no PMI**, provide more options for hard to finance borrowers BUT tend to have higher interest rates (1/8 – ¼%).
Conventional banks are deposit institutions, meaning they take deposits in the form of checking and savings accounts, and include Chase, Bank of America and Citibank. These companies are the most familiar and have the best interest rates. Some of my clients prefer to work with these institutions as they are known entities and also because they have long term relationships with the banks and their employees. Some conventional banks are not well suited for a few reasons including ability of the loan rep to work with the underwriter which helps in the approval process, slow loan approval, and strict lending criteria. However, if you are not in a competitive bidding process, these lenders work well.
Finally Mortgage brokers have a set number of loan programs that they can lend on however if you don’t fit any of the parameters, you can’t get a loan. Mortgage brokers have the same problems that the banks do in regards to closing in a timely fashion and ability of the loan rep to affect the loan approval.
*The underwriter basically makes sure you can repay the loan and that your application meets all the lending requirements
** PMI is private mortgage insurance. If you bring in less than 20% down payment, you will need to pay this insurance
Lots of controversy on this one!
Because of the lack of inventory and the serious housing crisis, the State of California passed a new state law that allows homeowners to add an accessory (second) dwelling unit on their property. There has been considerable push back from certain communities but the law has mostly received praise as communities are reeling from the lack of housing. The downside, according to the movement against the law is two-fold. First there is a concern of higher density in some otherwise less populated areas that have R-1 zoning (only one housing unit per parcel). Second is the increased pressure on parking as it’s somewhat unclear about how the parking requirements are allowed. According to the LA County website the parking requirements (1 space per bedroom) can be waived if the property is within ½ mile to a bus or other transit location. That is welcome news as the City continues to become more transit friendly.
The upside for homeowners is considerable. Because land is expensive, the idea of building a second house to rent has a nice return on investment (ROI). The ROI does NOT include a land expense. Second you get rental income OR a place for extended family members to live.
Check out this link for more details.
The California Association of Realtors is currently gathering signatures to qualify a ballot measure for the November 2018 ballot. They are seeking to expand Prop 13 for homeowners by allowing "individuals 55 years of age and older to transfer their property tax basis to any home in the state, to purchase any price home, and to transfer their basis as many times as they wish”
Many homeowners purchased their homes years ago and as a result pay very low property taxes. When they sell and downsize, they have been able to keep their same property tax rate as long as they are over 55 years of age. This transfer only moves once with the owner. However this new measure would allow the owner to move the tax multiple times as long as it’s their primary home.
I will keep you posted as more news becomes available.
Crissi Avila will teach you how to buy smart. We’ll look at location, development, and turnover so you can spot opportunities long before most even start considering them.