Mortgage Consultant @ Santa Cruz Home Finance
Hello from Bri Chmel at Live Love Santa Cruz! I often get questions about loans. Many times people don't even know they are actually qualified to buy a home! Please check out this article, it spells out many details about first time home buyers, loan limits, and also what it takes to get a loan for a million dollar home. Santa Cruz Home Finance is the only LOCALLY owned mortgage banking comapany. And Tai is an absolute stand up individual who is deeply tied into the real estate market in Santa Cruz County.
Bri: Tai, tell me about yourself!
Tai: My name is Tai Boutell and I am a mortgage consultant at Santa Cruz Home Finance. I moved to Santa Cruz in 1984. I went to high school here. I left and went to college and worked in the ski resorts for a while. I moved back to Santa Cruz in 1999, and started this career. I have lived in Seabright ever since. My dad and his wife are the owners of the company, so it is a family business. I have an amazing family. My kids are in middle school at the moment. As a family, we are all into stand up paddleboarding, outrigger canoeing, and my girls are into dance and volleyball. My wife is a big political activist, which keeps her pretty busy. We find Santa Cruz to be a very open minded community and a great place to live.
Bri: What makes Santa Cruz Home Finance stand out?
Tai: Santa Cruz Home Finance is a mortgage banking company in Santa Cruz County. If you want to support local companies, this is where you would come! The other mortgage banking companies in town are all from elsewhere- they just have a satellite office here. It is so great to live in this community, work in this community, and play in this community. All 24 people that work in this office live in Santa Cruz County. Santa Cruz Home Finance also supports 10-15 local non-profits every year with monetary donations. A mortgage banking company is defined as a direct lender that lends it’s own money for closing transactions. And to do that, we approve the loans in this office, draw the final loan documents, and finalize the funding right here in this office. That is why we have such a large staff!
Bri: What are the conforming loan limits and what do these mean?
Tai: Fannie Mae sets the limits each year for loans that they purchase or insure, and currently the conforming loan limit is $424,100. The second one is what they call the “high balance” conforming loan limits, and is $636,150. It is specific to a geographic area. So if you want a good interest rate on a Fannie Mae or Freddie Mac loan, for the vast majority of programs, you will work within the conforming loan limits. Loans under $424,100 have better interest rates, and high balanced loans ($424,100-$636,150) have slightly higher interest rates. You have to be careful where your property is located in regards to this. For example, Monterey County has lower limits. Say you are looking in southern Santa Cruz County for a piece of property, and it just so happens that you find something in northern Monterey County. Because of the county change you are not going to be able to go to $636k because they have a different high balance limit. Everybody has the $424,100, but the high balance limit is specific to an area for one unit properties.
Bri: What type of benefits do first time home owners have?
Tai: That is a big list, pending qualifications. The first time buyer programs include affordable housing units, down payment assistance, and tax, credits, and closing costs grants. First time home-owners can take advantage of any one of those, or they can add them together. But these are all based on income limits. The individual or household applying for the loan has to make under a certain income to qualify for these programs, and not everybody qualifies. Also, some people may decide to opt out of the programs as well because there can be too many strings attached. Following are some examples. The down payment assistance for a household of two is anywhere between a $60k-$64k a year limit. Both people’s income has to add up to less than$64k. For a household of four, it’s just below $80k. The tax credit, known as the MCC (Mortgage Credit Certificate) has higher limits. For a household of two it is $112k, and a household of three is $131k. So a lot of people can qualify for this one. They would then get a tax credit of $200-$300 a month.
Bri: Many potential first time home-buyers are currently renters. Can you explain the benefits of buying a home vs. renting one?
There are four main benefits to buying a house. One is pride of ownership. You can’t get kicked out and you can do whatever work on the house that you please. Second one is, you are most likely building equity in the house, assuming that property values go up over time. It is your investment for the future. The third reason is because it is a built in savings account. You start with a loan of $400k, each month you are paying that loan down a little bit. So in several years you owe $350. You continue to pay that down, so it is a built in savings account for if and when you sell the house. The last one would be the tax benefit. Please see your tax accountant for advice, and this is not to be construed as tax advice. Somebody could be saving $700 a month in income tax savings by owning a house. The way I present this to people is I look at their rent. For example, they are paying $2500 in rent right now. If they owned a house they would have a $500 a month tax savings. So they are really paying $3000 to rent that home. $2500 to rent, which goes out the window, and $500 too much a month that they are paying in income taxes. That person renting is really paying $3000 to rent. For example, let’s take a house that is $500k, where the person or couple puts 20% down. And they got the MCC tax credit and tax deduction for home ownership. Their total payment after that would be close to $2000 a month. That same person is probably renting a house for at least $2000 a month in this town. So there are a lot of examples where the mortgage payment can be very comparable to a rent payment. In an example where somebody is buying a $650k house, and they are just putting down 3.4%, their mortgage payment is going to be quite a bit higher than what they are paying in rent. Rent vs. buy doesn’t make sense for everybody if they are paying super cheap rent. But most people can afford it because rent in Santa Cruz County is not generally $1500 a month, it is more.
Bri: What do you think an estimate down payment and income would be to start considering buying an average first home in Santa Cruz County?
Tai: An example is a sales price of $650k. This is below our median price in Santa Cruz County, but there are still homes here for sale for that. The biggest roadblock to home ownership is down payment. Not many people have 20% ($150k) down. But a lot of people have $20k, and do the FHA loan with 3.5% down. This isn’t just for first time home buyers, this loan can be used by somebody who has had homes in the past. They just have to be using it for their primary residence. They can combine their IRA, 401K, a couple thousand from mom and dad, next thing they know they have $25k and they do the FHA loan and they are buying a house for $650k. This would give them a mortgage payment of $4300 (mortgage insurance and property tax included) in this example. And they are going to have a tax savings of $600-$800 a month. So their effective payment is around $3500 a month. And then they take that $3500 and compare it to what they were paying for rent, and it may not be much higher. In this scenario, this person’s (or household’s) income would be $113 a year. So this could be a household of two with two $55k salaries put together.
Bri: Ok, so getting away from first time home-buyers and I’m flipping to the other end of the extreme now. Most of the homes in California, especially on the coast, are relatively expensive compared to national averages. How does an individual finance a home that is north of $1 million?
Tai: Any loan over $636 is called a jumbo loan. Most buyers in this realm have more money saved up. They may have already owned a couple of houses, they have good income, and they have a larger down payment. If you are over the high balance limit of $636 you typically have to put down 20%. But these individuals usually have between 20-40% down. But you don’t always need to have a large down payment. For example, there is one program that allows for 10%. You can borrow almost a million dollars with 10% down. You could be buying a house at $1.1M, with a million dollar loan. As your loan amount goes up to $1.2M-$1.5M, you are going to need 20% down if not higher. After that, it is all based on your income to qualify you. But, for example, you could be making $800k a year, but you still need a down payment. If you only have $40k in the bank that is not going to get you very far.
Bri: How does a jumbo loan affect borrowing?
Tai: We talked about having a little bit more cash and a little bit larger down payment. But what is included across the board is a higher standard. Qualifying for a conforming loan, $636k or below, is much easier. Much easier in terms of a higher debt ratio, a lower credit score, a lower down payment, easier across the board. Once you go into the jumbo range the criteria is stricter. The debt ratio is closer to 43% of your income, vs. the range of 40%-50% for conventional and FHA loans. So you have to have that much more income. You have to have a larger down payment. Also reserves are needed. Jumbo loans often require you to have 6-12 months worth of mortgage payments in your bank account after you close on the home. So that could be a lot of money in your reserves. Credit scoring also has to be higher. Generally those jumbo loans want to see credit scores up to 740. If somebody has a credit score of 650 but make a ton of money, they may not qualify for the loan. These loans are readily available. There is a lot of money out there for these loans. They can go up to $3 million dollars. But the standards are a little bit higher.
Bri: So if somebody is buying a $7 million dollar home on Opal Cliffs?
Tai: My guess is in that scenario that would be all cash!