Maybe your client is just getting started on their own, have always been a renter or for whatever reason, have just not been able to save much for a down payment for their own place. Many mortgage providers want their borrowers to put 20% or even more down to qualify. In a market like California, that can be $100,000.00 or more! Sierra Lending has a solution that may be right for your clients. Our EquityFlex program can get a borrower into a home with as little as 5% down, only pay interest for the first 5 years (or 10 years), and can borrow up to 95%* of the equity on their house at any time in the first 5 (or 10) years simply by writing a check! And, it works for investment properties, too!
*Actual % of equity depends upon creditworthiness of the borrower as well as other factors

What is EquityFlex?

Simply put, EquityFlex is much like a Home Equity Line of Credit (HELOC) with some important additional features. It is set up as a line of credit so that you can draw on it up to 95%* of the value of your home. This draw period is available for either 5 or 10 years. After the draw period, the loan reverts to a regularly amortized loan for the remaining 10-20 years. During the draw period, you have the option to only pay interest, which can significantly lower your monthly expenses.

How is it different than other HELOCs?

EquityFlex is different in a number of important ways that give the borrower more flexibility than other HELOCs. We already mentioned that the borrower can choose to pay only the interest during the draw period. Another important difference is that up to 95%* of the equity in the home is available! This is because EquityFlex is set up as a 1st Lien or simply a 1st. Other HELOCs are set up as a 2nd Lien or 2nd behind a conventional mortgage and are only available for a fraction of the equity in the home, traditionally around 10%.

What other ways does EquityFlex enhance a borrower’s options?

Unlike some other HELOCs, borrowers can draw up to 95%* of their equity during the draw period as mentioned earlier. A key difference is that should a borrower find they have positive cashflow for any period of time, they can accelerate paying down the loan balance and reduce their interest payments. But here’s the real kicker: should they need that cash again later, they can draw up to 95%* of the home’s value at any time during the draw period! For example, let’s say a borrower starts with a $500,000 loan on a house worth $527,000. For the first two years, the borrower has some extra cash flow and decides to pay down their loan balance so that now they only owe $450,000. Great – the borrower only has to pay interest on $450,000! The borrower now has even better cash flow since the monthly interest is on a $50,000 smaller balance. Now, let’s say a few months later, the borrower has twins and needs to remodel a bedroom, or finally wants to get around to remodeling the kitchen. No problem: the borrower can tap the equity in their house for $50,000 simply by writing themselves a check!

Are there other advantages to EquityFlex?

EquityFlex can have lower fees than many other mortgages. For example, even though you can borrow 85%*, 90%* or even up to 95%* of your home’s equity, mortgage insurance is not required. And, depending on your state and other factors, lender fees charged by banks may be lower.

What about investment property?

EquityFlex is available for investment properties as well as property that is occupied by the borrower. For investment property, the line of credit is up to 85%* of the home’s value.

What kind of Borrower can benefit from EquityFlex?

Many kinds of borrowers can benefit from EquityFlex. Some examples may be:

• Borrowers who have positive cashflow in their monthly expenses and want to pay down their mortgage faster than a conventional 30-year mortgage would normally paydown, but want to be able to access their equity from time to time
• Business owners whose income varies from time to time may want to pay down principal when their income is high and pay only interest when it’s a slow time in their business cycle
• Entrepreneurs who want to pay down principal from time to time but may want to access their equity for business expansion
• Borrowers who have positive cash flow but know that in the future they may want to remodel or pay for large expenses like college with the equity in their home.

These are just a few examples: any borrower who wants to combine the flexibility to control access to their equity together with the flexibility to pay their mortgage off sooner is a borrower who should consider EquityFlex.

Contact us directly at 213-315-4335 or realtorinfo@lendsierra.com to learn more!

For business and professional use only. Not for consumer distribution.

*Actual % of equity depends upon creditworthiness of the borrower as well as other factors

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What is “Hard Money” or “Subprime”?

“Hard Money” is an industry term used to describe a lender who will provide a mortgage to borrowers who do not qualify with a conventional lender. As an example, if the borrower has low credit scores or has had a bankruptcy, conventional lenders will not qualify them for a mortgage. Such borrowers’ credit is sometimes referred to as “Subprime”. As a result, they usually pay higher interest rates than “prime” borrowers, and/or they may not be able to borrow as much against the value of their property. Where a prime borrower can typically borrow 80%, 85% and 90% of the value of their house, many hard money lenders will only lend 60% or even 50% of the value. Another reason a borrower might end up with a “Hard Money” loan is that they were not able to prove how much income they made. This is especially true for independent contractors and small business owners who don’t earn their income on a W2. These borrowers might also deduct many legitimate business expenses on their tax returns making it look like they earn much less than they actually do.

How to get out of a “Hard Money” or “Subprime” Loan

One of the most important things to do to qualify for better mortgage terms is to pay all your debts on time. It is especially important to do so for your current mortgage. Many “Hard Money” borrowers who pay their debts and mortgage on time for 24 months or more find that they may qualify for better terms on a new mortgage. It is also important to be able to document how much income you earn. Lenders like Sierra are comfortable examining a borrowers bank statements over the last 12 to 24 months to determine and verify income instead of relying on tax returns or W2s.

Can I take Cash Out When I refinance?

As mentioned before, “Hard Money” lenders typically only loan 50-60% of the homes value. But by refinancing with better terms due to improved credit, it is possible to borrow as much as 80% of the loans value. This can provide the opportunity for a borrower to get cash out of their home and use it remodel or improve the home, or pay off other debts.

Adjustable vs Fixed Rates

Many times, “Hard Money” loans are Adjustable Rate Mortgages (ARM). These mortgages are often designed to dramatically increase the interest rate charged when the loan adjusts a few years later. A higher interest rate means a higher monthly payment, which can be an unwelcome surprise. This increase can happen even if interest rates overall have not changed! For this reason, it may make sense to refinance to a Fixed Rate Mortgage where the interest rate, and the payment, stays the same over the life of the loan, even if overall interest rates increase.

Interest rates

Over the last 24-36 months, interest rates have generally declined. In fact, they are the lowest in two years! Borrowers may not know that after paying their mortgage on time over this time, they have improved their creditworthiness. This might allow them to re-finance their “Hard Money” loan into a loan with an interest rate that is significantly lower than their current loan. This can save a borrower hundreds and in some cases even thousands of dollars a year. In some cases, borrowers are able to refinance to a lower interest rate, take cash out, and still have a lower monthly payment than they had before!

Must I live in the home?

The short answer is “No”. Cash-out refinancing can be provided for primary as well as secondary homes. The key is getting your credit improved to qualify for these much better terms.

As you can see there are easy ways for folks to refinance a “Hard Money” loan.

Interested in learning more? Contact Sierra Lending today and let us explore options with you!

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What Do I Need

The approval process for Foreign Nationals is similar to conventional borrowers. Income, assets, creditworthiness, etc. are all reviewed to determine how large a loan can be provided.

Income and Assets

As with any mortgage on a residence, a borrower needs an income and/or other means to support the monthly payments and other expenses associated with owning a home. The income would also be sufficient to support any other expenses you have. Foreign Nationals, unlike conventional US borrowers, have the added wrinkle of income or assets that may be earned or custodied outside the US. Your assets may also be denominated in non-US currency. Sierra is experienced with these issues and is used to working with borrowers with these circumstances. Sierra will translate any necessary documents such as wage statements, tax returns, bank statements, etc. to English. Sierra will also do currency conversions to US$. This allows Sierra to verify the your income and other assets to ensure you have the means to make the necessary payments, as well as any necessary reserves.

Creditworthiness

Another difference between conventional borrowers and Foreign Nationals is how credit history or rating is determined. In the US, borrowers generally have a standardized credit score, usually referred to as a FICO-score. Many, but not all, other countries have their own credit reporting agencies. For example, in Mexico, Sierra finds that the credit report actually is more comprehensive than that used by US reporting agencies. Sierra routinely works with other countries’ credit reporting agencies to determine credit worthiness. In the case where a country does not have standard reporting agencies, Sierra can work with a your credit line providers directly to determine creditworthiness. As with income verification, Sierra will translate any necessary documents and convert the currency to US$.

Down Payment

Most loans require you to put up a down payment. Foreign Nationals should be prepared to make a down payment of 25% towards the purchase of their home. Additionally, the down payment funds must be held in a bona fide financial institution. Sierra will translate and perform currency conversion if necessary. While the funds to be used as the down payment can be held in a non-US bank in any currency, you will eventually need to wire those funds as US$ to an escrow company when the purchase of the home is finalized.

Borrowing Power

Lenders look at your “ability to repay” the loan as one of the most important indicators of whether to extend a loan to you. In fact, the US Consumer Finance Protection Bureau requires lenders by law to ensure that borrowers can repay their mortgage. One of the most important tests of your ability to repay is your history of paying your rent or other housing expenses. We will examine statements, cancelled checks, etc. to determine that you have been paying your housing expenses on time. If you have been paying your housing expenses on time, we will further determine your ability to repay using something called the Debt to Income Ratio. The debt to income ratio, or DTI, is a formula that lenders use to see how much of your income you are using to pay off existing debt. Simply stated, it’s all your debt divided by all your income.

Must I live in the home I buy as a foreign national

The short answer is “No”. A family member living there instead of yourself or you use the property only occasionally are two of the most common examples. In some circumstances, Sierra will also allow the property to be rented out.

As you can see there are easy ways for Foreign Nationals to buy property in California or Texas.

Interested in learning more? Contact Sierra Lending today and let us explore options with you!

The post How to Buy a Home in California or Texas if You Earn Income or Live Outside the USA appeared first on ITIN, Foreign National, Self-Employed & Jumbo Mortgages.

Due to regulations, especially since the financial crisis, lenders must stick to certain criteria in determining borrower creditworthiness.

Not All Borrowers are Alike

All borrowers need to demonstrate their credit worthiness. The key issue here, of course, is that not all borrowers are the same.

Although many mortgage applicants today are still traditional W-2 employees who work directly for an employer, the number of contract workers, small business owners, and others who typically use a 1099 for tax purposes has been increasing steadily for years, and this trend is very likely to continue. One problem for these borrowers is that lenders usually judge credit-worthiness from tax returns. For self-employed and small business owners such as yourselves, tax returns may not give a complete picture of cash flow. Bank statements may be the best way for you to demonstrate the cash flow you have available for housing.

Mortgage lenders like Sierra Lending have been working hard to develop new risk assessment models for people like yourself, and the lending environment is becoming more favorable than it once was.

We are leading the charge to make our business processes more quick and flexible, with the goal of offering a loan to credit-worthy borrowers who can demonstrate the cash flow to be able to repay what they borrow.

Self-Employed Borrowers: Putting your best foot, or application, forward

Like anything else in life, you need to put your best foot forward when you are applying for a mortgage. If you are an independent contractor or small business owner, you can take steps to make your application more attractive to lenders.

In most cases, the down payment, income available after debts are paid (debt to income ratio), and credit requirements to qualify for a mortgage are virtually the same for W-2 borrowers and the self-employed. The difference is that as a self-employed borrower you typically have a significantly higher documentation burden.

Employed applicants generally only need to provide W-2 forms to prove income, but as a self-employed borrower you will often be required to produce two years of tax returns, including all Schedules.

The problem is that using tax returns may significantly underestimate your income. We have seen that self-employed workers often still have a problem qualifying for a mortgage based solely on returns. That’s because self-employed tax-filers frequently write off expenses that W-2 employees cannot. Therefore, your net income after the write-offs is much lower than it would be without the write-offs.

So, what’s good for your business at tax time may make it more difficult to qualify for the house of your dreams. The deductions from your taxable income make it hard to qualify for a mortgage, as you often do not meet lenders’ preferred debt-to-income ratio (DTI) which today is around 36 to 43 percent.

If you are considering buying a home in the next couple of years, it may be a good idea to talk to a tax professional to discuss alternative strategies relating to various tax write-offs, given the potential for sabotaging your debt-to-income ratio.

You could also set up your self-employed work as a business and pay yourself as a W-2 employee, instead of taking your income from the profits of the business.

Some innovative mortgage lenders like Sierra Lending are now using methods other than tax returns to determine eligibility for self-employed borrowers. For example, if you prefer, we are happy to examine your bank statements as an alternate to tax returns. This can be a great way to determine whether you have sufficient cash flow and income to afford your dream home. Another approach we take is to check if self-employed borrowers have significant cash reserves: we look more positively at borrowers with at least a couple of months’ worth of expenses sitting in a savings account.

As you can see there are multiple strategies and options available to self-employed mortgage borrowers to help them get the home of their dreams.

Interested in learning more? Contact Sierra Lending today and let us explore options with you!

The post How self-employed workers can get the right mortgage appeared first on ITIN, Foreign National, Self-Employed & Jumbo Mortgages.

No Social Security Number

Borrowers without a SSN may still be working and paying taxes. However, their tax returns may not reflect their whole financial picture. Bank statements may be a better tool to determine cash flow available for housing for these borrowers.

Mortgage lenders like Sierra Lending have been working hard to develop new risk assessment models for the growing number of ITIN mortgage applicants today, and some progress has definitely been made.

We are leading the charge to make our business processes more flexible, with the goal of offering a loan to credit-worthy borrowers who can demonstrate the cash flow to be able to repay what they borrow over a reasonable loan term, whether they have an SSN or an ITIN.

Documenting their Down Payment

It is not unusual in these times of low interest rates on savings for borrowers to keep their cash outside of a bank. Or, perhaps these borrowers do not have a bank and their business or employment situation means they deal mostly with cash. In such a case, it is more difficult for them to document where their down-payment cash came from. Sierra Lending can help educate these borrowers on how to provide the proper documentation for their down payment.

Tips for ITIN Borrowers

Like anything else in life, you need to put your best foot forward when you are applying for a mortgage. If you are a borrower who uses an ITIN, you can take steps to make yourself a more attractive borrower.

In most cases, the down payment, income available after debts are paid (debt to income ratio), and credit requirements to qualify for a mortgage are virtually the same for an ITIN borrower as for a conventional borrower. The difference for the ITIN borrower is that he or she will typically have a significantly higher burden of documentation.

A conventional borrower will simply provide two years of tax returns to show income and perhaps their last bank statement to show the source of their down payment. On the other hand, an ITIN borrower will need to show at least 12 months of bank statements or other documentation of income, such as receipts from their business. And, they may also have to provide documentation as to the source of their down payment if not held at a bank.

Sierra Lending will use these alternative income sources to determine how much mortgage payment the ITIN borrower can qualify for. By looking at all the borrower’s debt as well as the alternative income sources, Sierra Lending can calculate the debt-to-income ratio for the borrower. The preferred range for a debt-to-income ratio today is around 36-43 percent.

Last, but not least, mortgage lenders like Sierra Lending are now looking to see if ITIN borrowers have significant cash reserves and look more positively at borrowers with at least a couple of months’ worth of expenses that they have saved up for the proverbial rainy day.

Interested in learning more about mortgage loans for ITIN borrowers? Contact Sierra Lending today and let us explore options with you!

The post How ITIN borrowers can get the right mortgage appeared first on ITIN, Foreign National, Self-Employed & Jumbo Mortgages.