Opening Pandora’s Box of Loans

Since 2008 (and in some cases 2007) we have witnessed the demise of banks and other lending institutions, and watched as the remains of a number of loan programs were scraped off the table. Many buyers found themselves in loans that were suddenly dead-ended: their program was eliminated and they were forced to either start over or accept the end of the road. Suddenly buyers felt the shrinking options in loans, not unlike walking into a Molly Moons to discover that chocolate and vanilla are the only ice cream flavors left. Thus lending criteria tightened as programs slipped into the darkness and the real estate market squeaked along. The motto for the mortgage reps was something like that of the little engine that could: "I think I can I think I can" yet sometimes...they could not. Now we are 6 to 7 years down the road and we're seeing Pandora's Box of Loans opening up!

In just the past couple of months I've heard of more new loan programs than I have in years and many sound, quite simply, too good to be true. In one case, a private investor will purchase a home for a would-be buyer who doesn't have strong enough credit to purchase on their own, and the buyer is able to rent the home from the investor for up to six years, then purchase it at the original purchase price AND reap the benefits of appreciation. Sounds like a dream right? Well it is just one of the many creative loan programs that I've heard from one of the main mortgage brokers I work with, Lori Richmond of Absolute Mortgage.

Lori’s company has been finding all sorts of private lenders and programs to help pretty much any buyer get into a home…and most importantly these loans are safe and don't run the risk of outrageous financial risk. So I asked Lori about her the market and some of her favorite programs, and she says that because many buyers are also sellers (and contingent offers don't fly these days) that she loves the bridge loan.

About the Bridge Loan: In today’s fast-paced, low-inventory real estate market, "move up" buyers face a unique challenge that first time homebuyers don’t have to worry about: how to buy their next home when they have one to sell. Most people don't want to face a reality in which selling a current home is followed by a few months of renting that finally results in the purchase of a new home. Thus if the mother of invention is necessity, there has never been a more necessary time for bridge loans than the present. Our bridge loan program (also known as a swing loan or gap financing) can be used when a move up buyer is waiting on the proceeds from the sale of their home that has not yet closed. When a buyer is caught between two closings, it provides the necessary cash to move forward with a purchase before the sale of a current home.                                                                                                                

I also spoke to another one of my favorite mortgage folks, Evon Phua who is with Wells Fargo, and he discussed some of the amazing programs they are offering as well. Her favorite is that they are offering loans up to $1,000,000 with only 10% down and NO PMI! She also mentioned that Wells Fargo is offering VERY low interest rates right now that can’t be beat!

Finally, there are some quirky new and old programs creeping out of Pandora’s Loan Box now such as new construction loans, down payment assistance loans, new non-conforming loans, which really cover the whole gamut!

 So how are buyers and sellers supposed to take in all these new options? Should we feel nervous about another market crash and bubble or shall we organize a flash mob performance to celebrate? If we keep in mind that the lending world is now highly regulated and that programs are heavily scrutinized before emerging from the box, and consider that lending ratios have tightened to prevent borrowers from over spending on their home, I'd say it is time to celebrate...let the Flash Mob commence!