Helping Your Clients Rebuild and Qualify for a New Mortgage After Fires

Helping Your Clients Rebuild and Qualify for a New Mortgage After Fires

President | Loan Officer
Mike Meena
Published on January 23, 2025

Helping Your Clients Rebuild and Qualify for a New Mortgage After Fires

The recent fires in Southern California have left many homeowners with significant losses, including homes reduced to shells or completely destroyed. As a realtor, you’re likely working with clients unsure of their next steps. At Augusta Financial, we want to partner with you to provide clear options for these homeowners to rebuild or purchase a new home, even while managing the financial complexities of their situation.

 

Key Considerations for Your Clients: The Lot and Mortgage

When a home is destroyed, your clients are often left with the land or lot and possibly an outstanding mortgage. Here are some scenarios to help them navigate:

  1. The Lot:
    1. If the insurance company pays off their mortgage, they retain ownership of the lot. However, they remain responsible for property taxes and any liabilities associated with the land.
    1. If the mortgage is not fully paid off, they must continue making payments on the lot, even though the home no longer exists. Failure to do so could result in foreclosure. Keep in mind that an owner can ask for a reduced payment when the mortgage is reduced.
  1. Selling the Lot:
    1. Selling the lot can provide funds to pay off the remaining mortgage and potentially serve as a down payment for a new home.
    1. Example: If the lot sells for $500,000 and the remaining mortgage balance is $300,000, they can use the $150,000 after fees, surplus toward purchasing a new property.
  1. Insurance and Liabilities:
    1. Insurance typically does not cover liability or rebuilding costs for the lot itself unless specifically included in the policy.
    1. If they plan to keep the lot, liability insurance may be recommended to protect against potential accidents or claims.

 

Qualifying for a Mortgage While Holding a Lot

Qualifying for a new mortgage while still managing the financial responsibilities of a lot can be challenging. Here’s what we at Augusta Financial will evaluate for your clients:

  1. Debt-to-Income (DTI) Ratio:
    1. We calculate the DTI ratio, including:
      1. Any remaining payments on the lot’s mortgage.
      1. Monthly obligations for the new home.
      1. Other outstanding debts, such as credit cards or auto loans.
    1. Example: If they owe $1,500/month on the lot and the new home’s mortgage payment will be $3,000/month, their total housing-related debt will be $4,500/month. This will be considered alongside their income and other debts.
    1. Important Note: We have to look at what we are provided during escrow. If you are getting your mortgage payment reduced or your property taxes reduced but do not know the new payments, then we will have to use the payments we are provided at the time.
  1. Loan Options:
    1. FHA 203(h) Loan:
      1. Designed for disaster victims, this loan allows for 100% financing (no down payment) and flexible underwriting guidelines. $1,209,750 maximum Loan Amount!
      1. Ideal for clients who still owe a mortgage on the lot and need financing for a new home.
    1. Conventional Loans:
      1. If they have a down payment or have sufficient income to cover both the lot and the new home, a conventional loan may be the better choice.
      1. Requires a down payment and stricter qualification criteria.
  1. Income and Assets:
    1. We review their income stability and available assets to determine their ability to manage multiple financial obligations.
    1. If they’ve sold the lot, the proceeds can improve their financial position and ease qualification.
  1. Property Taxes and Insurance:
    1. Property taxes on the lot may eventually be reduced to reflect the absence of a structure, but this process can take time, especially in Los Angeles County. Qualification will be based on the current taxes even though we know they will be reduced later. I know I mentioned this before, but it’s kind of important an I am not losing it!  LOL!
    1. Without a structure, insurance costs on the lot are typically minimal, but these expenses should still be factored into their budget.

 

Example Scenario

The Johnson Family’s Journey

The Johnsons’ home was valued at $1,400,000, with $900,000 remaining on their mortgage. After the fire, they received $600,000 in insurance payouts, leaving them with:

  • $300,000 still owed on the mortgage.  Keep in mind that lenders will work with you and reforecast the payment based on what you owe now.
  • Ownership of the lot where their home once stood.

The Johnsons decided to:

  1. Sell the lot for $550,000, using $300,000 to pay off the remaining mortgage.
  2. Use the remaining $200,000 as a down payment on a $1,200,000 new home.
  3. Qualify for a conventional loan for the $1,000,000 balance based on their income and reduced debt obligations.

 

How You Can Help Your Clients

  • Evaluate Selling vs. Keeping the Lot: Work with your clients to determine if selling the lot is the best financial move or if they should keep it for future rebuilding.
  • Plan for Temporary Financial Overlap: Help them understand the potential for managing payments on both the lot and the new home during the transition.
  • Partner with Augusta Financial: We’ll help your clients explore the best loan options for their unique situation, whether it’s an FHA 203(h) or a conventional loan.
  • Set Realistic Expectations About Tax Adjustments: While property taxes may eventually be reduced, the process can take time, and they should budget accordingly.

 

Final Thoughts

Ensure people stay current on their mortgage payments or do a proper forbearance! If they start missing mortgage payments, it will severely affect their ability to finance them!

 

Rebuilding after a disaster is never easy, but your clients can move forward confidently with the right guidance and partnerships. At Augusta Financial, we’re here to support you and your clients every step of the way. Let’s work together to ensure they have the tools and resources they need to rebuild or start fresh.

 

Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

2025 starts now!!! Please let me know if you would like to go over my latest marketing idea!

But wait, there’s more…

 

Interest Rates

The buck stopped on Tuesday and interest rates have climbed for two days!  YAY? NOT!!!

 

  • We offer 12-day escrows for pre-approved buyers - Conventional/FHA/Jumbo/Bridge loans.
  • We provide loans in all states, so call me with anything you need.
  • Government Loans (FHA/VA/USDA) are in the 5’s and 6s.
  • Conventional loans up to $806,500 are in the 6s.
  • High Balance Loans from $806,501 to $1,209,750 are also in the 6’s and low 7’s.
  • Jumbo loans above $1,209,750 are in the 6’s and low 7’s.
  • Bank statement loans are available with 10% down again, with larger down payments in the 7’s.
  • Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement!
  • 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,300,000.
  • Private Money lenders offer Hard Money Loans with 35% down.
  • No Ratio Loans require 30% down.
  • DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down.
  • Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go!
  • 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates!

Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

 

**Good News for Condos:** Nothing new to report.

**Bad News for Condos:**

Canyon Park Carriage – Litigation! Roof stuff!!  – This is now a maybe as it could be pre-litigation!  Waiting on the paperwork!

Sonterra Condominiums  – 15425 Sherman Way – one entity owns 61% of the condos. They are not eligible for conventional or Government financing!

For all other issues involving condos, please check MikeMeena.com. I will post updates here, but all the information on the naughty list is available on my website. Just go there and click about to find our most updated list.

Let me know if you hear anything new about condos or townhouses.

 

I am available every day if you need anything.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

Have a great day, and an even better tomorrow! Please call me when you have a client who needs to borrow!

President | Loan Officer
Mike Meena President | Loan Officer
Click to Call or Text:
(661) 714-6258

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