Higher interest rates in 2022 and 2023 have meant that buyers and lenders have needed to get creative with loans. We spoke with local lender Jeremy Kingsbury at Vellum Mortgage and Lisa West at Movement Mortgage to offer some tips on which options to discuss with your lender in the current market. As of this writing, see below for several creative loan options available at the beginning of 2023:
- Vellum Mortgage, is currently offering an ideal 100% FHA financing option with 0% down payment, no first time home buyer requirement, a liberal debt-to-income ratio requirement of 57%, 600 minimum FICO score, generous income limits up to $227,680, and a maximum mortgage amount of $726,200
- Temporary 2:1 buydowns enable you to temporarily buy down your interest rate (it’s like prepaying the interest on your loan), and you can still refinance later.
- Bridge loans allow you to be able to buy your next home using the equity from your current home without having sold it. A bridge loan can be a great solution for some, but as Jeremy notes, the problem is that in order to qualify you’ll have to be able to carry your current mortgage, a new mortgage, and the payment on the bridge loan – that’s a lot! Have a serious conversation with your lender to make sure you can qualify to carry all of this debt.
- Some retirement plans allow for a short term loan without any penalties, so if you can’t qualify for a bridge loan this is a helpful tool. You and your lender could look into a short term loan from your 401k or IRA as long as the plan is to then sell your current house and pay the loan back quickly into the account. This is another avenue to avoid a home sale contingency (which is unattractive to many sellers). You’ll need to check with your plan provider to see how much/what you can access from your account and what the terms are, but generally this short term solution is not as scary as you think!
- Jumbo loans are actually priced better than conventional loans under the current market conditions. However as rates drop, conventional rates will probably drop further than jumbo loans, and jumbo loans won’t make a lot of sense. Furthermore, Wellsfargo/Chase are cutting back on jumbo loans so in general jumbo rates will probably increase as these two big players are out.
- As a workaround for jumbo loans, Movement Mortgage offers portfolio loans for 20% down. These are specialized loans (above $726,000) kept on the books of an investor, but they operate much like jumbo loans. The catch is that portfolio loans have very tight restrictions and a very small number of ppl who qualify, however, this ensures that if you do qualify, you’re able to get a better rate.
The bottom line: with higher interest rates, we’ve all had to get more creative with financing options. Luckily rates have slowly begun to decline, however, if you have any questions about financing we are always happy to sit down and chat or put you in touch with one of our trusted and knowledgeable local lenders.