Facing stricter lending and government guidelines, those buying or refinancing a home have fewer options, but some are still out there.
By Sherene Tagharobi / Special to The Malibu Times
The troubled economy and changed real estate scene have made borrowing money much more difficult than in the past. Now, those looking to purchase or refinance are coming up with creative ways to do so, but still have to abide by stricter government guidelines.
Malibu resident Corinne Barthell recently refinanced her Broad Beach home.
“It’s really a pain in the butt anyways, and with the new regulations I wasn’t really sure what they were going to ask for,” Barthell said.
After a rollercoaster ride with a larger bank at the end of which her loan was denied, Barthell redirected her efforts to a private brokerage house.
“I have just found it favorable to deal with somebody smaller,” she said. “I got a lot more attention. I was able to reach somebody every time. She [my loan officer] stayed on top of it and kept me informed.”
There have been some efforts from the federal government to help people get loans. This year, the Federal Housing Authority raised the maximum loan limit for Los Angeles County from $271,050 to $729,750 for a single-family residence, according to its Web site. But this does not necessarily help Malibu borrowers unless they’re making a large down payment in purchase transactions, or they owe less than $729,750 in refinance transactions.
For people looking for a million dollar loan, for example, options are slim but not impossible to obtain.
One option is a jumbo loan, or any loan greater than the conforming loan amount, $417,000, set by Fannie Mae and Freddie Mac. Loans greater than a million dollars are generally called super-jumbo loans. Because they’re higher risk, these loans come with a higher interest rate, usually three quarters of a point more than it would be for a conforming loan.
But there are ways to circumvent the higher interest rate. By putting more money down to lower her balance to the conforming loan amount Barthell was able to secure a loan at a lower rate.
“It’s just a relief because my payments are lower,” she said.
George Caramihai, an account executive for First Cal Mortgage Company, said jumbo loans are hard to come by these days.
“You’re kind of stuck right now unless you can qualify for that loan,” he said. “You have to make a lot of money to qualify, and you have to be able to document your income. That’s basically what’s hindering a lot of people from refinancing.”
Caramihai said few banks are offering jumbo loans because it ties up capital at a time when money is scarce. He said getting a loan is not what it used to be.
“Back in the good old days we would do 90 percent combined loan to value [ratio]; 80 percent first and 10 percent second,” he said. “But now secondary financing has almost vanished.”
Instead, at First Cal jumbo loans are now capping out at 60 or 70 percent, meaning the borrower would have to put 30 to 40 percent down, Caramihai said.
But those numbers vary daily and from bank to bank.
Bank of America, for instance, is offering 70 percent loan to value up to $3 million, and 80 percent loan to value up to $1.5 million, at 6 percent interest for a 30-year fixed rate loan, a representative said on Monday. (A person buying a $3 million dollar home with a 70 percent LTV would need to make a $900,000 down payment; $300,000 down on a $1.5 million dollar home at a 80 percent LTV.)
Bank of America is also offering balloon loans at a slightly lower rate. These loans allow the borrower to pay interest only payments for three, five or seven years, at the end of which he or she pays a lump sum. Ultimately, the lower payments translate to more purchasing power.
Qualifying for these loans, or any, is another story.
KJ Margolis, a private mortgage banker with Wells Fargo’s Malibu branch, said many of her former clients don’t qualify anymore, even though they have the income.
Margolis said to get a loan now, whether you are purchasing or refinancing, not only do you need a superior lending score, but also asset and income documentation.
She said self-employed people are having an especially tough time documenting their income.
“Unlike several years ago when you could get away with stated income, stated assets and minimum lending scores, the underwriting process has swung significantly the other way,” Margolis said.
Margolis’ advice to anyone looking to buy is to “make sure they get pre-approved prior to going out and shopping for their new home.
“It’s really disappointing and a waste of time to go out and find a house, and then find out you don’t qualify for it,” she said.