Author Archives: Athena Paquette

4 Myths About Loan Types

4 Myths About Fannie, Freddie, and FHA Loans

When trying to get the lowest down payment and the best loan rate, you’ll hear a lot about Fannie Mae, Freddie Mac, and FHA loans.  However, people are often confused about these loan types.

Myth #1: FHA loans are only for low income people:

Not true!

A FHA or Federal Housing Administration loan is not for low income people.

It is a loan backed by the federal government that allows home buyers, with a low credit score or with little money to put down on a home, to qualify for a loan.

In fact, FHA loans don’t have any income limits, and if are interested in purchasing investment property, and you plan on living there FHA will allow 3.5% down. YES 3.5% down on units!

Myth #2: Fannie Mae and Freddie Mac are government agencies:

Not true.

Fannie Mae (FNMA) and Freddie Mac (FHLMC) started out as government agencies but are now privately held mortgage companies that work closely with the Federal Government and carry an implied government guarantee.

The government originally established FNMA and FHLMC to create a more stable mortgage market and grow home ownership by buying mortgages from the banks. This is called “securitization.” Securitization freed the banks to lend out more money and incur more risk.

Fannie Mae was converted into a privately held company in 1968, and Freddie Mac was converted in 1989.

Myth #3: Fannie Mae and Freddie Mac give loans to low income people:

Not true.

You cannot get a loan directly from Fannie Mae and Freddie Mac.

However, historically, Fannie Mae and Freddie Mac have helped low and middle income buyers purchase homes; not because they give them the loans directly, but because they allow the banks to take on more risk.

That is, by purchasing mortgages from the banks, Fannie Mae and Freddie Mac allow the banks to give loans to people with less disposable income.

Myth #4: Fannie Mae and Freddie Mac are not conventional loans.

True and Not True.

Remember you cannot get a loan directly from Fannie Mae or Freddie Mac, however, the banks want to free up their cash by bundling their loans and selling them to Fannie Mae and Freddie Mac.

To do this, the lenders have to follow the rules that Fannie and Freddie set for loans; and they pass these rules on to you.

Because of this, the terms “Fannie Mae,” “Freddie Mac,” and “conventional” are often used interchangeably.

You can qualify for a loan on a fixed income

Getting A Loan When You Are On A Fixed Income

A question I am often asked is, “How can I qualify for a loan when my only source of income is retirement income?”

It is a common misconception that retirees can’t qualify for a loan because they don’t have a job.

Here are 3 facts about qualifying in retirement:

1. If you have a stable income, such as social security, a pension, or a monthly check from your IRA; and this income will continue for 3 or more years, it is considered income.

2. If your income is not taxed, we can use it as a “net” check and figure out what the gross income equivalent would be. This way you wind up having more “income” than you thought you had.

3. Often, if you take your income from all regular sources that total is often the equivalent to a salaried person.

What if you don’t receive social security?

If you do not receive social security, we have a program called asset based lending.

Imagine you have a small pension but a large IRA that was your old 401k; and let’s say you haven’t needed to take any money out from that account. Most lenders would only use the small pension making it difficult to qualify.

However, asset based lending takes a certain percentage of the balance in your IRA account and divide it by a number of years, and that will be your qualifying income.

A Success Story

I recently helped a newly retired client buy a home.

He had no proof of his new income and was turned down by his bank and then his credit union before being referred to me.

Based on the definition of asset based lending, we took his 7-figure IRA x 60% and divided it by 15 years, and that was his qualifying income.

He was able to buy the condo he wanted, simplify his life, and have money to travel!

Another Option: Reverse Mortgage

Reverse Mortgage is another way for retirees to qualify for a purchase or refinance.

This loan has been around for a long time and is a powerful tool for those who are on limited income, but need or want a mortgage to own or stay in their current home.

Reverse mortgages allows you to convert part of the equity in your home into cash.

To qualify, you need to be over 62 and live in the home as your primary residence.

No credit or income qualifying is required.  And the amount of the down payment and the loan is based on your age.

With a reverse mortgage, you can get the money you need, and you can you can still pay the monthly payment if you chose. You are also still responsible for the property taxes, insurance, and maintenance of your home.

More questions? Contact me today

Now That I Am Separated Can I Afford To Keep My Home?

Life is uncertain. And it’s typical to think that just because you’re separated, divorced, or even widowed that you’ll have to sell your home.

But not necessarily…

Cheryl had owned her home with her husband for 10 years when they decided to part ways.

There was a lot of equity in the home, and Cheryl wanted to keep it.

Cheryl didn’t know how much money she would have to give her husband, whether she could afford payments on her own, or if she would qualify for the new loan.

She didn’t want to be a renter again, and she loved her garden and genuinely wanted to stay.

She looked at rentals in her area, and for a similar home, she would pay $500 more than her current mortgage.

Her attorney suggested she come to see me, and when she did I walked her through the numbers.

Based on the comps and then a formal appraisal on her house, she would owe her husband $105,000.

They owed $224,000 on the loan they had taken out in 2010 during the last refinance, and their interest rate was 4.875%.

Based on a new 30 year loan, an interest rate of 3.5% she could not only qualify to pay his portion of the equity to him, but also have the house in her name, do some minor repairs and re-decorating, and have cash reserves.

She was so relieved, because not only did she qualify on her income alone, but she could also afford the monthly payment with ease.

This could be your story too, but you need to know the numbers.

Contact me today for a free 90 minute consultation. It will be worth your peace-of-mind.

Should You Invest in Real Estate or Stocks?

I am asked this question quite a bit.

When looking to invest, you need to consider your goals.  That is, do you want appreciation (the asset to go up), cash flow (income from the assets), or both.

Real Estate has 4 advantages over stocks and bonds

With real estate, you get leverage, control, tax benefits, and the tangibles aspects that stocks and bonds don’t give you.

Advantage #1–Leverage: You can buy real estate with only 3.5% down if buying for yourself to live in or 20% down if you are buying the property as pure investment.

Hypothetically, this means you would control a $200,000 asset with only a $7,000 to $40,000 investment (down payment) and enjoy the benefits of it increasing in value over time, creating income or both.

With stocks and bonds you may have a margin account (ability to borrow against the value of the asset) but only after you paid 100% of the price. If the value of the asset goes down they can call the margin loan due and payable.

If you like control, but don’t want to spend too much of your money real estate wins this one.

Advantage #2—Control: Unlike securities, real estate allows you to take over a problem, say an old apartment building, fix it, and profit from your efforts.

Rarely will a company, where you own stock, allow you to come in and tell them how to improve their bottom line…that is unless you are Warren Buffett.

Real Estate, gives you the opportunity to own a tangible asset, see and fix a problem, manage people and finances, and profit from it immediately or over time.

This is called being a value buyer.

Advantage #3—Tax Breaks: Real estate gives you some tax advantages that stocks and bonds don’t.

Real estate can earn money and be offset by a tax write off called depreciation.

Depreciation is the tax incentive that the government gives for you to maintain and improve the property over the years.

Whether you spent money or not they assume you are. This is a paper loss or phantom loss.

So if the property has $300 per month in cash flow you may keep this income tax-free, as your tax liability may be offset by the depreciation.

Real estate and securities both have a tax treatment called the “exchange” that can defer income into eternity, so they are equal there.

To learn more go to http://www.IRS.gov and look up IRC 1031 and 1033.

Advantage #4—The Tangibles: Real estate also fulfills a need for altruistic “feel good” endeavors.

You can make a positive difference in the world knowing that you are providing quality housing for others.

By owning rental property, you are improving the tenants’ lives and neighborhoods in which they live. Improved neighborhoods mean more money for schools, and better schools means increases in property value.

Usually you wouldn’t get those “feel good” feelings by investing in stocks.

When you buy a beat-up 14 unit building in a low income area, clean it up, get rid of the nuisances, and maintain it, you know you have done “good.”

If you’re interested in knowing more about investing in property, then contact me today for your free 90 minute consultation.

“The Good Life is Within Your Reach!”

The above illustration is for demonstration purposes only and is not a true case study. Investing in any asset involves risk and you should therefore consult tax, legal and financial experts before investing as individual results may vary. 

the home buying process, simplified

9 Steps to Buying Your First Home

Let’s Get Started!

Buying a home can be overwhelming, especially if you’re a first time home buyer.

Here is a comprehensive check-list list and resource guide that will help to get you started on the path to property ownership.

1. Do some preliminary research. The best place to start is on the Home Buyer’s FAQ page. There you will find answers about PMI, Minimum Credit Scores, No-Cost Loans and so much more.

2. Gather your documents. If you’re not sure what you need, then visit our Loan Checklist page. There you’ll see a list of preliminary documents that you will need when applying for a home But don’t stress-out about getting every single one, this is just to get the ball rolling.

3. Come in for your free 90 minute consultation. Now that you have some or all of your documents, you probably have a ton of questions that you want to ask. So that’s the time to pick up the phone and give me a call. I will sort through all of your documents, get you in-touch with the right people, and help you understand the loan process.

4. Leave the consultation confident to buy your property. That’s right, after just one visit I promise that you’ll leave informed, relaxed, and confident about buying your new home. Even if your credit isn’t so great, we can develop a plan that will help you get started on the path of home ownership.

5. Get pre-qualified or pre-approved for your loan. This is an important step in buying your home. Essentially it lets your Realtor know how much you qualify for, and it lets the seller know that you’re serious about buying.

Being pre-qualified or pre-approved can make the difference between getting your dream property or not getting it.

6. Find a Realtor. Sometimes people are so anxious about buying a home that they find a Realtor before understanding their financial situation. This can lead to disappointment. So definitely come in for a consultation first. If you don’t have a Realtor I can help you find one that’s right for you.

7. Start looking. This is the fun part. Start looking for your new home. You’ve done all the work, and you have your documents in order. So let your Realtor do his or her job and help find you the perfect home.

8. Making the winning bid.  With all of the preliminary work done you are now a prime candidate to purchase your home. Make the right bid and you’ll be irresistible to the seller.

9. Enjoy your property. Viola! You did it. You’ve reached for the good life and now you’re living it.

Congratulations!

Contact me today for your free 90 minute consultation!

14 questions to ask any lender

14 Important Questions To Ask a Lender

Buying a home or investment property can be overwhelming.

To help make the process easier, here is a list of 14 questions to ask your lender:

1. How fast can I get pre-approved a loan?

2. Is the loan guaranteed?

3. What is the guarantee?

4. When is the rate locked-in?

5. Will you give me the locked rate in writing?

6. How long is the rate locked-in for?

7. Do you offer a rate float down and when? (A rate float down will protect you if you lock in a loan and the rates drop).

8. Do you guarantee your fees?

9. Are you related or get paid by the realtor or their broker?

10. Do you offer a ZERO cost loan?

11. How long have you been in the business and with this company?

12. Do you have another job?

13. Do you own a home and for how long?

14. Do you underwrite/approve the files in-house or does my file go to another location?

To know why these questions are important, and my answers feel free to contact me.

how to fix your credit score

How to Fix Your Credit Score

If you or someone you know is concerned about their credit score, then this article will help.

I have outlined the Do’s and Don’ts for creating good credit. And following these rules will also help you fix your credit score.

If you have any questions, comments, or concerns then please contact me today at 310-218-6855 or email me at athena@athenapaquette.com.

Do Not:

• Close accounts. You will not be able to improve your credit if you close accounts with balances on them.

• Do not open new accounts within 12 months of applying for a mortgage loan.

• Do not open a new account for balance transfers.

• Do not do a balance transfer from credit card to credit card; especially within 90 days of applying for a mortgage loan.

• Do not pay off any collection accounts. Unless you have a letter of deletion, or a letter confirming that the reported date will remain in the past and not brought forward. This will gravely deduct form your points.

• Do not co-sign for anyone.

Do:

• Pay your bills in full every month, even if it’s a small amount like $20. If you do this for a year prior to applying for a mortgage, you may gain 20 points on your score per card.

• Do keep your balances under 30% of the credit limit.

• Use 1 card per month to avoid the ding for too many accounts with balances.

• Do pay on time or before the due date.

• Do use national banks and avoid department store credit.

• Only do balance transfers if necessary up to 30% of the account high credit limit.

• Remove any addresses on your credit that are not yours.

• Remove any name variations that are not yours, especially if you have a common name.

• Do contest any late payments that are more than 2 years old. Most creditors purge their records every two years and would have difficulty proving that you were late.

• Check all reported dates on late payments or collection accounts as they may reflect a more recent date than the actual event. This will hurt your credit score.

Keep these do’s and don’ts in mind to help your improve your credit score and increase your chances for a loan.

If you are planning to purchase a property within the next year, then contact me today for your free 90 minute consultation.  

VA Loan Limits for California

Borrowing From Your 401k

It’s your money, so can you or should you, borrow from you 401k?

Next to owning a home, your 401k may be your greatest asset… and yes, you can borrow from it to make a down payment on a new home.

How it Works

Most 401k’s (check with your plan administrator) will allow you to borrow up to 50% or $50,000 of the account value, whichever is lower.

Usually the interest rate you pay is the prime rate, which at this time is 3.25%.

The term is usually 15 years for a home purchase. When you’re borrowing money for personal use, the term is usually 5 years.

There are three advantages to borrowing from your 401k:

1. The rate you get is usually pretty cheap.

2. The money you borrow is not taxable.

3. The interest due on the loan is paid back into your 401k account.

However, there are serious drawbacks to borrowing from your 401k:

1. If you quit your job or you are fired, your employer can no longer take the loan payment out of your paycheck, so the loan becomes due and payable.

2. If you have to cash in your 401k to satisfy the loan,you will be liable for tax and penalties.

3. Although you can rollover your 401k to a new employer, your tax penalties cannot be rolled over.

4. You lose some of the growth in your account. It’s likely that to afford to pay back your loan you will have to cut back on your withholding’s. So rather than putting more money into your 401k, (buying more share), you are paying back your loan.

5. You are losing compound interest that you could be earning on that money.

6. You are paying back your account with after-tax money, rather than paying into your 401k with pre-tax money.

Another Option

You can liquidate up to $10,000 as a first time buyer. Under a 401k plan, this is considered a hardship withdrawal.  However, you will be penalized a 10% tax in addition to your regular income taxes. There may be other penalties also.

For more details contact us and a qualified tax advisor.

what's the difference between a pre-qual and pre-approval

Checklist for a Successful Loan Approval

Getting a loan is all about “proving” that you are a trustworthy and reliable borrower; that the bank will most likely receive your monthly payment on time.

To help increase your chances of getting a loan and at a good rate, I’ve put together list of Do’s and Don’ts.

Contact me if you have any questions or concerns.

Employment Don’ts

Do not change jobs.

Do not change compensation arrangements (i.e. salary to commission).

Do not change your bonus to a cash payment.

Do not go part-time.

Employment Do’s

Do disclose any cut back or furlough in hours.

Do tell your mortgage broker about any gaps in employment in the last 2 years.

Do tell your mortgage broker about any company name changes.

Funds/Bank Accounts Don’ts

Do not cross out your bank account numbers or any other information on your statements when submitting it to your mortgage advisor.

Do not move your money from account to account.

Do not accept gift funds without telling your mortgage advisor (even from a spouse or parent).

Do not accept “borrowed funds” without telling your mortgage advisor.

Do not borrow from credit cards without telling your mortgage advisor.

Do not deposit “cash.”

Do not borrow from 401k without telling your mortgage advisor.

Do not pay off a debt without telling your mortgage advisor.

Do not give us incomplete bank statements (if it says 4 pages we need 4 pages).

Funds/Bank Accounts Do’s

Do explain any other names that appear on your bank statement.

Do explain and document ANY and ALL deposits that are not your payroll.

Credit Don’ts:

Do not close out accounts.

Do not take out new accounts.

Do not add to debt.

Do not pay off debt without telling your mortgage advisor.

Do not pay off debt with borrowed money.

Do not borrow from 401k without telling your mortgage advisor.

Credit Do’s

Do disclose any new debts not on credit report.

Do disclose all properties owned (even in other states or other countries).

Do explain any inquiries into your credit. Your broker has to explain to the underwriter why someone ran your credit and if any new credit came from it.

Do explain all tax liens make sure that they are satisfied.

Do list all student loans that are deferred less than a year. You must have an extension, or they will be counted against you.

Do disclose child support.

Do disclose spousal support.