In the wake of the 2008 financial markets meltdown, it’s well-known that the mortgage loan industry took some of the blame for the secondary mortgage market turmoil. In response, regulators seized the opportunity to tighten standards and, in a lot of cases, go back to lending parameters of years past. The process of obtaining a mortgage may not have changed significantly but the level of scrutiny has. Fortunately, in Cordillera Ranch, there are still quite a few mortgage brokers and bankers actively making lot, home construction and home acquisition loans. Their financial support and endorsement of Cordillera Ranch as one of the communities in which they’ll provide mortgage loans has helped sustain healthy home construction and overall real estate sales in Cordillera Ranch in light of a softer overall real estate market.
We polled some of the professionals and lending partners that understand our clients’ needs so well to give their expert opinions of the changing real estate finance dynamics and “what you need to know” in financing your next home or lot purchase. The panelist of contributors includes Brett McDowell of Hill Country State Bank, Cat Mandell of Sage Capital Mortgage (Cordillera Ranch resident and club member), Lance Lemoine of RPM Mortgage, Mike Schultz of the Boerne Banking Center and Justin Boerner of Jefferson Bank. All of these lending experts are Boerne-based and have provided several million dollars in mortgage loans in Cordillera Ranch over the years- they understand our buyer and excel in making your home or lot purchase an enjoyable and hassle-free experience. You’ll find some enlightening insight below in their responses to some of the questions we posed:
1. How has the loan application process changed in the last five years and how have you helped clients deal with these changes to get a deal done?
CAT MANDELL: I do not feel the process has changed much. However, the level of scrutiny of the application information has returned to the more traditional approach of yesteryear but can be compounded by the fact that we are dealing with an unprecedented level of investor-specific overlays. Submit the file neat and complete the first time and use the “if this was my own money would I lend it?” rule of thumb.
LANCE LEMOINE: The application process and requirements have not changed all that much. The disclosure, processing and underwriting requirements have changed quite a bit. When the major disclosure changes took place in January 2010 with the Mortgage Disclosure Improvement Act (MDIA) we put in a place a team of experts (the GFE Desk) specifically to enhance the speed, accuracy and delivery of documents both electronically and in paper form for our clients.
2. Specifically, what are underwriters looking more closely at now?
BRETT MCDOWELL: In the secondary market, underwriters are looking at everything very closely to make sure it fits within the secondary mortgage “box”. And the “box” is definitely smaller these days. Fortunately, community banks (like HCSB) with in-house mortgage options, can take a more common sense approach when underwriting mortgage loans. Therefore, find a bank that has options.
JUSTIN BOERNER: We have noticed that credit scores, liquidity, and income are very important.
MIKE SCHULTZ: The main issues are 1) does the request make sense; 2) is there sufficient cash flow to service the debt, and 3) who is the client and how well do you know him or her and their history.
3. What real estate transaction trends have you experienced in your business in the past six months?
JUSTIN BOERNER: Over the past six months we have notice an increase in business from interim construction loans and business loans. Trends are looking very positive.
CAT MANDELL: I have seen a return of some niche products which has opened the door for our jumbo loan markets to return and self-employed borrowers. The lot loan market has also been brisk in both refinances and purchases here in Cordillera Ranch. And of course, I would be remiss if I did not mention that I have NEVER seen interest rates this low!!!
LANCE LEMOINE: It appears to me that the purchase market has heated up. One trend that I have heard has been an issue with appraisals performed by out-of-market appraisers. Thankfully, at RPM we have our own affiliated appraisal company that uses local appraisers and that has not been an issue for us.
4. What advice do you have for a prospective buyer of property in Cordillera Ranch that may be interested in financing their purchase?
BRETT MCDOWELL: Find a banker that can work with you from start to finish. There is a lot of value in selecting a lender that can do it all, from lot loan to construction loan and from construction loan to permanent financing. For secondary market jumbos (those over $417,000), be prepared to have 20% equity/down payment for permanent financing, as well as adequate liquid reserves to qualify. Some secondary market jumbo lenders are requiring up to 12 months liquid reserves after down payment to qualify, depending on the borrower’s scenario. Once again, find a banker that has in-house mortgage options, as well as secondary market options, so you can find the best financing to fit your specific needs.
LANCE LEMOINE: I think anyone looking at purchasing property in Cordillera Ranch should look at financing options, even if they are planning on paying cash. Interest rates are at historic lows and the ability to arbitrage that liquidity for a greater return than the cost of borrowing is high if you can borrow at 4% or so.
MIKE SCHULTZ: Mainly the market and the real estate values in Cordillera Ranch have maintained themselves during this downturn. It speaks to the perceived value in Cordillera Ranch and whether you have been there along time or considering buying for the first time, you should feel comfortable as to the market being consistent.
5. Is your company actively providing lot loans and if so what are some general current lending parameters, assuming solid liquidity and supportable and sustainable income stream?
JUSTIN BOERNER: Jefferson Bank requires 25% down on the purchase price of the lot. We offer two options. Option one is if you are going to build in the next 12 months we offer an interest only product for 12 months. Option II would be a 15 year amortizing loan with a five year balloon and principal and interest due monthly.
CAT MANDELL: We are doing a very brisk lot loan business at this time – turnaround time is 21 days, 80% LTV, rates below 5%.
MIKE SCHULTZ: If the lot purchase includes the possibility of building in less than 12 months we can look at a LTV of 85%, interest only, and a rate in the upper 4’s. If the lot is a longer term investment, then LTV of 75%, rates in the high 4’s to the lower 5’s, P&I with a term of three to five years, based on a 15 to 20 year amortization.
6. Does your company offer an interim-to-perm “one-time-close” home loan product? If so, how does your process work and what parameters does this program have (i.e. time period of rate lock etc.)
CAT MANDELL: Interim-to-perm or construction loans have made a real comeback. The application process is the same and is typically 85% LTV interest only during construction.
BRETT MCDOWELL: HCSB does offer both interim and permanent financing, however a one-time close facility is not available.
7. What is your outlook for mortgage rates over the next 6, 12 and 24 month periods? Can you forecast where you think 30 yr mortgage rates will actually be?
LANCE LEMOINE: Our executive team believes rates will remain very attractive in to 2014. There is too much volatility in the economy and in Europe.
CAT MANDELL: The election in Greece this summer and the election season here in the U.S. certainly will affect consumer sentiment and, therefore, the markets that drive our interest rates. My advice in our volatile market is to lock something if you like it – no sitting on the fence. The interest rates are phenomenal- get them while they are here!
MIKE SCHULTZ: Our crystal ball says that we could see an increase in rates in the next 6-12 months but they will be slow in coming and slow in increasing. Home mortgages continue to be good investments for investors and rates will continue to be in the good to great range over the next 12 months.