Karen: Hi, I’m so excited today to have Dan Williams, Vice President of Directors Mortgage, here with us again today. Dan’s going to be explaining the various loan products that they have to offer through Directors Mortgage. Dan, do you want to educate our buyers on different loan products that you have?

Dan: Sure. Yeah, that’s obviously a big topic.

Karen: It is.

Dan: There’s a lot of products and a lot of different things.

Karen: We’ll just go through them.

Dan: There’s different categories that we talk about. The first would probably be first-time homebuyers. There’s a lot of different products that help people trying to switch out of that rental market into buying.

One of those that comes to mind right off the top of my head would be one that’s used commonly, an FHA loan. FHA is really popular in Bend with first-time homebuyers because it doesn’t have necessarily an income limit and/or a price limit on homes, which a lot of other products do.

It does have loan limits, though. It maxes out at $373,000 and change for this market, for Deschutes County. But you only need 3.5% down. Again, we’ve talked about this in the past, but so many renters and people trying to get into a home think they need 20%+ down, and they just don’t.

So first product there would be a 3.5% down FHA product that allows people into this market in Bend without necessarily having to get out of the area to have the product work.

Karen: Sure. Wait, I want to say something about the FHA loan. I think the other nice part about that too is that if someone is concerned about their down payment, they can also request that the seller contribute to their closing costs and prepays, which makes the loan even more affordable for a first-time homebuyer.

Dan: Absolutely. Generally speaking, you can go up to about 6% in seller-paid closing costs that goes off the purchase price towards closing costs and prepaid costs that a buyer would normally bring on top of the 3.5%. This is a true way to get them down to that lower figure.

The next one that comes to mind is Chenoa, and that is a product that really is very rare, and it’s what we carry.

Karen: What is it?

Dan: That is also an FHA based product. All the things that we just talked about stand in place, but the 3.5% down can be covered with a second mortgage that is part of this program.

Karen: Does that mean no money down?

Dan: That is exactly what it means. It’s 100% financing through a first and a second combo. The 3.5% that would normally be a down payment would come in the form of a second. You have a 96.5% first and a 3.5% second for 100% total.

The second is awesome. It’s a very aggressive second, and it’s income-based. If you make 115% of the median income for the area, your second is basically a silent second. There’s no payment on it, there’s nothing. You make your payment on time –

Karen: Wait a minute.

Dan: Yeah, I’m dead serious. I know it sounds too good to be true, but it’s there.

Karen: It kind of sounds like 2006 or 2007.

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Dan: Well, yes and no. They’re still having to fully qualify. These are all loans that someone has to truly qualify to get into. They’re not stating income; they’re actually bringing their taxes and paystubs and everything in, and we know what they qualify for.

Karen: How do you spell that again? Chenoa?

Dan: Chenoa, C-H-E-N-O-A. It’s a product that we offer in-house. Again, it’s very friendly because the second has no payment if you’re at 115% or less. All you have to do is make a payment on the first, and if you make it on time for 3 years, the second goes away. It’s just gifted and it’s gone away.

Karen: Seriously?

Dan: Yeah. If you’re at over 115% of the median income for the area, then you get very aggressive terms on the second.

You can get a 10-year, no interest second, or you can get a 30-year, 5% interest second – which is unheard of. To have a 5% interest rate on a 100% financing on a second mortgage is unheard of. Normally those are going to be, at this point, prime plus 1.5 or prime plus 2.

So you’re going to be considerably higher rate, and your term is generally going to be shorter. It’ll be on a 20-year payment or something where the payment just isn’t as aggressive or as enticing to somebody. This is, again, a way for somebody to qualify without having money down.

Karen: When you go to qualify for the Chenoa – did I say it properly?

Dan: You did.

Karen: Are you only qualifying for that first payment?

Dan: No, you qualify for both.

Karen: You qualify for both, okay.

Dan: Correct. It’s a good product, and it’s one that we’ve used several times. For the right borrower, it’s a good fit.

If you’re getting out of town, say out of the outskirts of Bend or going up towards Redmond or down towards La Pine or Sunriver, then you can open up the USDA product. We’ve talked about that in the past. That’s 100% financing.

Karen: Let’s come back to the USDA. We have to take a break here pretty soon to thank our great sponsors on House Talk. We’ll be back in just a few minutes with Dan Williams, Vice President of Directors Mortgage. Thanks, Dan.

Dan: Thank you.

Karen: Hi, this is Karen Malanga, Principal Broker at RE/MAX Key Properties, back with House Talk. Thank you so much for listening.

When we took our break, Dan Williams, Vice President of Directors Mortgage, was just going to start explaining what a USDA loan product is. Can you do that, Dan?

Dan: You bet. USDA is a great product. I’m a big fan of it if it fits for you – meaning you cannot use it in Bend proper. You have to get out of town.

The idea behind the product is to promote growth in outlying areas. It’s a government-backed program that, again, is 100% financing. It’s got great, pretty much conventional pricing, and it has a very low funding fee and a very low monthly MI. For those kinds of products, that’s really rare. A couple years ago they lowered their funding fee down to 1%. It was like 2.75% before.

That figure is built into the loan amount, so you’re not even bringing it out of pocket. It’s truly 100% financing. And just like you mentioned earlier, you can still get seller concession. So this is a true 100%. You would bring no money out of pocket.

But there are income limits on this one, and there are area restrictions on this one. You have to make sure the home is in the proper area and you don’t make too much money for the product itself. But it’s a great product.

Karen: I didn’t mean to interrupt, but in Bend proper, then, Deschutes River Woods would qualify?

Dan: No. Actually, I would say yes, there is a very small sliver of Deschutes River Woods that does still qualify, but generally speaking, no.

Karen: Probably Three Rivers South.

Dan: Three Rivers South, yes.

Karen: Oregon Water Wonderland, areas outside of La Pine or east of Bend.

Dan: Oh, absolutely. Yeah, out east. All of Redmond, basically, which is surprising. Consensus data just isn’t in to update yet. But truly, all of Redmond qualifies.

Karen: So it’s a good time to take advantage of this program in Redmond.

Dan: Correct, yes.

Karen: You could use it for any – it’s not going to be a rural home at all, in parts of Redmond.

Dan: No, it would be in town. But remember, there’s income limits. But other than that – and they’re pretty high, actually.

Karen: What are they? Do you know offhand?

Dan: Sorry I don’t know them exactly, but I want to say for a family of four or less, they’re up in the $70,000-$75,000 range, if I remember right. A family of more than four, you press up over $90,000. So it’s not totally restrictive. It’s a pretty decent product, really.

There’s veterans loans, VA. We’ve talked about those in the past. Those are true 100% financing, and honestly, probably the best 100% financing loan there is. From a cost standpoint to the borrower, the rates, fees, everything that goes with a VA loan is very aggressive. I really like them. If somebody can qualify for those, I’m definitely looking at that.

The one thing a veteran would need to know is that if they’ve used a VA loan in the past and they’re using it again, they have a higher funding fee. They call it a subsequent use, so the next time you use it, the fee for a VA loan goes up quite a bit. If someone’s got down payment money, it’s not always the best loan for that person.

Karen: And you can only have one VA loan at a time.

Dan: Correct. Only owner-occupied, and only one at a time.

Karen: And on the USDA it’s owner-occupied. All the products we’ve been discussing this morning are owner-occupied.

Dan: Correct, so far. Switching gears out of these specialty products, we’ve got obviously regular conventional financing. Conventional financing today, interestingly, allows all the way up to a 3% down payment.

Karen: No.

Dan: Yeah. You could do a 97% conventional. That’s been in place now for several years, and a lot of people don’t realize that they can get a conventional loan. Just remember that when you put less than 20% down, you do have to have mortgage insurance. It’s a requirement of the loan.

Karen: Can you explain what mortgage insurance is to our listeners? And it’s PMI, right?

Dan: Correct, private mortgage insurance. What you’re basically doing – a lot of people think “I already have insurance on my home; what is this for?” This is actually a policy that protects the lender from defaults.

A person who puts a lower amount than 20% down and has conventional financing and they’re required to have mortgage insurance, that insurance is saying that they think you don’t have that much skin in the game on this home for down payment, so they’re protecting themselves from loss. If you were to stop making your mortgage payments and that home were to go into default, that insurance actually, as a portion anyway, protects the lender from some of their losses.

Karen: And it can be a little bit expensive, correct?

Dan: It can be. The less you put down and the lower your credit score, the higher the MI rates are. Those are all factors that we look at as to what we would have someone use as far as what’s the best fit from a cost and longevity standpoint.

Do you plan on being in that home for a long time, where you can get enough equity to drop it? Once you’re at 20% equity, 80% of the value that you owe against the home is in place, you can drop the mortgage insurance.

Karen: Is that process fairly simple, or does it entail a lot of paperwork?

Dan: No, it’s pretty simple. You can petition to drop it early when you believe that your home is at 80% – or when you have 20% equity, is a better way I should say it. You can get an appraisal and petition the lender to drop it.

Once your home hits 78% of the original loan amount, when you owe 78% of what you originally borrowed, it automatically goes away. You don’t have to do anything.

Karen: Oh, that’s only another 2%.

Dan: It’s not much difference, correct. But sometimes the difference of what a home is actually worth on an appraisal can be a lot higher than the actual rate that you’re paying it down.

So you could get to a point to petition for it sooner than if you were just paying the loan down and waiting for it to hit 78%. That’s why that option is available, because the market might be rocketing and your value is going through the roof – like Bend might’ve done for a few years here. [laughs]

Karen: It just seems to be continually going up, doesn’t it?

Dan: Yeah.

Karen: Even today I was looking at prices on MLS and I’m like, oh my goodness. [laughs]

Dan: Yep, it’s crazy.

Karen: It is crazy. We’re going to take a quick break here, and then we’ll be back and learn a little bit about some funding for new construction.

Hi, welcome back to House Talk. I’m Karen Malanga, Principal Broker at RE/MAX Key Properties, and I’m visiting with Dan Williams, Vice President of Directors Mortgage.

Dan: was just going to start discussing the funding that he has available for new construction. Dan, do you want to take it away?

Dan: Sure. This is an exciting new product for us. We’re glad to be rolling this out because there’s a huge need for this, especially in this market.

Karen: Oh, it’s huge. There’s new construction everywhere.

Dan: Exactly. We have what’s called a one-time close construction loan that we’re bringing out for borrowers. Our particular product has a loan limit of what’s called conventional financing limits. What is that? In this area, for Deschutes County, it’s $453,100, to be exact. That’s the max amount that we will lend.

The requirement for these kinds of products is that you put 20% down. Any time you’re building a home, they’re always going to have a minimum requirement that’s a little bit more than the standard minimums for conventional, because you don’t have a structure yet. We’re taking a bigger risk by lending on essentially dirt to start with, and then building from there.

So there’s a 20% down payment requirement. You have to have a minimum of 700 credit score. There’s a few basic things like that that are in place that someone would need to have.

But the beauty of a one-time close construction loan is that you essentially take the loan out, and when you take a loan you lock the interest rates in. One of the things that we offer is a very long-term lock for this process. You come in, you start in, and you get your plans and your specs and your property picked out, and builder agreements are all in place and you’re rolling forward.

We know that you’re preapproved, we’ve gone through some work with you, and now it’s time to start. We will lock the loan, and we can lock that loan for up to a maximum of 12 months. So you can get today’s rates locked in.

Karen: For a year.

Dan: For a year.

Karen: Wow.

Dan: A lot of people don’t understand this, but when you lock a loan, you’re generally locking for say a 30-day timeframe or 45 days or 60 days. The longer you lock that loan, a person pays a fee for the lock. What it’s saying is the market knows that it could move up with you getting today’s rates, so they charge you for that risk, that it could go up.

When you lock for a full year, you pay a little bit more fee. The beauty of what this offers, though, is that at the end of a year – let’s say it took you a full 10 months or so to build a home, which is not uncommon. You get to the end of your term. We’re going to look at today’s rates, and we give you an automatic float-down policy to whatever the current market rates are at no cost.

If the market changed and they went down, you get that rate. If they’ve gone up, you’ve been locked in, so you’re not taking any risk. So it’s a sweet scenario for that buyer to eliminate a lot of risk.

Karen: Yeah, that’s super. How does it work, though, if you’re working with a builder? You’re not subsidizing the build along the way; the builder’s got to have his own financing behind him?

Dan: No, this is actually funding the actual construction. The way it works is every piece of the way, the loan is funded based on the percentage of work that’s completed.

The first thing that happens is we help pay for the land. The person’s picked out the land – and that’s part of the total cost of the home, the land that it’s on. So one of the first checks that we write is to the seller of the land.

Now that’s paid for, and generally then you’re getting surveying and excavating and foundations and all that initial work. Once those things are done, they get what’s called a first draw. That draw is based, again, on what percentage of the project is complete.

The builder gets a check for that money and is paid. He can pay out his subs, pay for material, all of those things along the way as he’s building the home, based on completion.

It goes like that all the way through the process, through framing and finish work and electrical and all of that, all the way through. We get to the final time and we get an occupancy cert at the end. Once we get the occupancy cert and the county says “you can now live in this home” and it’s all legal and done, we do the final draw and pay everybody out, and the loan is closed.

The beauty is, because it’s a one-time close, it converts automatically into your long-term, 30-year fixed financing from there. So you’re not having to go back and convert from construction financing to permanent financing. Without trying to lose you, you close one time.

Karen: Yeah, you haven’t lost me. It just makes the whole process so much simpler. Much easier to build a home, and it’s managed the whole way through. You don’t have a lot of documentation to have to deal with a double closing or whatever.

Dan: Correct, and you don’t have to worry that down the road, something changed and now you don’t qualify for the permanent financing to take out the construction loan. You’ve qualified one time upfront, all the way through.

At completion, it automatically converts and your 30-year term starts on your locked in rate, and away you go. No more fees, no more costs. It’s just very simple and clean.

Karen: That’s great, Dan. How can our listeners find out more about that? At your website?

Dan: That would be a definite call-and-sit-down-talk kind of thing with us. [laughs]

Karen: Dan, what’s your phone number, just in case?

Dan: (541) 385-6112 is the office. (541) 668-3053 is my cell.

Karen: Thank you so much.

Dan: Thank you.

Karen: And again, thanks, everyone out there, for listening to House Talk. It’s been a pleasure. Karen Malanga with RE/MAX Key Properties. We’ll see you next week.

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