Real Estate Trade Secrets

Real Estate News and Tips for Buying and Selling Real Estate in the San Francisco Bay Area

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How to Avoid the Most Deadly Lending Landmines…

June 5th, 2011 · No Comments


Here are some tips I learned from a seasoned California mortgage banker who successfully funded over 100 loans during the tough 2010 real estate market. These tales from the trenches can prevent your deal from the shrapnel of a loan decline or last minute tighter “prior to document or funding” conditions:

  •  Most conventional (up to $417k) and non-conforming (Jumbo) loans above $417k require Desktop Underwriting approval
  • Conventional secondary financing is very difficult to obtain. A maximum of 90% loan-to-value (LTV) ratio should be relied upon from the buyer
  • Jumbo interest rates are currently at least 1% higher than conforming loan interest rates
  • Secondary “seller carry-back” financing is a great sales tool strategy. In some cases 100% total loan-to-value will be allowed with the first loan at 80% LTV or less
  • Beware of “declining market” underwriting guidelines –
    • A 5% reduction on the guideline is required by most lenders, so if the buyer is applying for an 80/10/10 loan, the underwriting guideline would have to meet or exceed 85/15/5 underwriting guidelines
    • Be sure to work out these important details in advance during the loan “pre-approval” stage instead of in the middle of a transaction!
    • All of California is now considered to be in a “declining market”- check with your lender to see how your local market is rated
  •  Credit scores of less than 620 will not pass

  • Appraisal reports are submitted to underwriting
    • Underwriting runs an Automated Value (AVM) which almost always comes in low
    • Desk/Field appraisal review is then ordered
    • Make sure the appraisal is always signed off by the underwriter within a reasonable amount of time

 One more thing…don’t forget to wear your flack jacket in this ever changing lending environment.

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