California real estate investing is a challenging market for seasoned investors, let alone those new to the practice. The Golden State has been in a downhill spiral of foreclosure acquisitions since the banking crisis. However, this has opened the doors for investors to purchase properties well below market value.
California real estate investing can be a profitable practice as long as investors take time to become familiar with the area. Several markets have witnessed housing prices decline by as much as 40-percent. Today, investors can locate affordable houses in areas such as Malibu, where prices were often prohibitive for generating positive cash flow.
Housing prices have actually started to rise in inland areas such as San Diego, Los Angeles, and San Bernardino. Investors who desire properties in these areas should develop strategies now in order to capitalize on reduced prices.
To make money with California investments, investors should take time to learn about market conditions and available properties. This is especially important when investors plan to use properties as rental homes or offer owner will carry financing options.
It is crucial for investors to become educated in landlord/tenant laws, as California has some of the strictest in the nation. A good place to start is the California Department of Real Estate website. Visitors can locate information surrounding rental laws, compliance regulations, and download handbooks and a variety of realty forms.
Investors just starting out should consider working with a real estate attorney to draft leasing or purchase contracts. Those who unknowingly violate laws or are non-compliant with rental codes could be subjected to exorbitant fines.
According to the U.S. Census Bureau, nearly a half million people move to California every year. This provides ample opportunity for investors to generate positive cash flow. The key to success is to understand the needs of new residents.
Investors who plan on renting or selling houses to families should locate properties in highly sought after school districts. Those who focus on renting to white collar workers will want to invest in homes positioned near airports and interstate systems. Taking time to learn what newly transplanted residents want can help investors attract long-term tenants.
Offering owner will carry financing lets investors reach a vast number of people who want to buy a house but cannot qualify for bank loans. Many people believe creative financing is illegal, but this is far from the truth.
Economic conditions have made qualifying for a home mortgage next to impossible unless borrowers have perfect credit. Many California residents want to buy a home, but ineligible for funding due to credit blemishes. Investors can offer solutions by offering properties under a lease purchase option agreement or seller carry back mortgages.
Rent-to-own has become a popular option because buyers can reside in the house as a tenant while working toward the eventual purchase. Investors can sweeten the deal by locking in the purchase price within the contract. Since the average appreciation rate in California is 9-percent, the house will more worth more when buyers are able to obtain financing.
Seller carry back mortgages involve acting as the mortgage financier for partial or whole financing. When partial financing is offered, buyers take out a mortgage loan and sellers carry back the remaining portion of the purchase price. When whole financing is offered, sellers carry the loan for a few years until buyers qualify for a bank loan.
California real estate investing still offers opportunity for profit, but doing so requires ingenuity and awareness of market conditions. It can be advantageous to work with a realtor or network with other investors that possess solid experience with buying houses in the Golden State.
California Land Financing Budget (Example):
Land Purchase Price $300,000 Land Purchase Price
Soft Cost of Construction $ 40,000 Plans and Permits
Hard Cost of Construction $350,000 Construction Costs
Closing Costs $ 22,000 Fees, Title, and Escrow.
5% Misc. Reserve $ 17,500 5% of Construction Costs
Loan Interest Reserve $ 35,000 Interest On Amount Drawn
Total Building Cost $764,500
Appraised Value $800,000 Estimated Value of Land with Building Completed
Down Payment $191,125 25% of $764,500
Benefits of California Land Lenders
Loan officers dealing with California land should be able to assist you with the following information:
Assessment of the estimated yearly taxes, insurances, and HOA fees.
Approximate interest rate for the loan.
Down payment required.
Interpretation of your personal financial statements, credit scores, and income-to-debt ratios to conclude your eligibility.
Utilities Lead to the Path of Finance
One important thing to consider as you look to buy California land is utilities. When construction developers go into the construction stage to build new homes in Southern California then roads and utilities are built for a large number of homes. When the lender knows that a lot has public road access and utilities nearby they are often more willing to supply financing for the land because there is a foreseeable capacity to build on it which increase the California real estate worth and lowers the risk to the lender. The cost of installing utilities on a lot is not considered part of the hard construction costs for building.
Land Loans from a California Lender’s POV
California land loans are more risky to lenders than residential loans. The reason for this is that normally most people do not live on the land they buy since it’s vacant. As a result it is industry practice to not consider land a primary residence until something is built, and so it follows that vacant land is called investment property even if a person intends to build on it in the near future. Also, vacant land is called commercial property in California, that is property used for an investment purpose, even if the land is zoned residential and there are plans in place to build a primary residence. The importance of this categorization for lenders is that their risk increases on lending for land because a person can walk away from a land loan easier than a loan on a primary residence since the borrower has another place to live hypothetically.
Why is California loan modification so popular? The loan mortgage crisis that sparked this whole economic implosion is to blame for most of our problems. The real estate industry, particularly of California, has collapsed because of people’s greed. Lenders kept on lending to anyone without considering the risk factors and real estate kept on selling and developing more areas. As a result, the debt that remains unpaid grew and grew. The economy was running on the illusory wealth created by debt. But soon of course all of this bad debt caught up with the system and soon the banks crashed because there was no more cash sustaining its functions. And as everyone knows, perhaps the major industry of California is the real estate industry. And since that went kaput, the government is trying to create new ways in order to revive it in hopes that reviving that industry will eventually help revive the entire economy that crashed because of it in the first place.
As such, a new California civil code has been created last year. This is called civil code 2923.6. Basically, what this California code does is that it requires the banks and the private lenders of housing loans in California to accept the applications for loan modification in almost every situation where foreclosure is immanent. Thus, if you have a mortgaged house in California which you have bought between first of January 2003 and the last day of December 2007, then you are likely eligible for this program. For those who do not quite know what loan modification is, it is basically a permanent change in the terms of the loan. These changes such as reduction in interest rates as well as in time extensions and such are all aimed at helping the borrower to pay his or her mortgage despite his or her financial problems.
There is also a federal program created by president Obama, the famous Obama bailout program that creates incentives for all lenders in the nation whenever they successfully approve a modification of loan application. However, this State move by the California government proves to be a much more effective solution to the problem that really tries to resuscitate the economy by tending to the root of the problem. It is aimed at the long term goal of improving the economy and though it may be small, analysts are seeing real incremental improvements to the state’s economy.
Every Californian should be aware of this new law. Of course, this law does not condone abuse of mortgage payments. It only makes it more affordable for borrowers who are facing foreclosure. For those who really want their application to pull through, a good advice is to consult a loss mitigation expert.
One must also note that one does not have to have been late in his or her mortgage payments in order to have a California loan modification. Even such people who are still on time with their payments can still talk to their lender about a modification if they can see that they are in danger financially.
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Before learning how to get a California Mortgage Company License, we need to first talk about what type of mortgage license your company should get. There are three (3) different types of Mortgage Company Licenses offered in California. The Department of Real Estate offers the California Department of Real Estate (DRE) Corporate License with the Nationwide Mortgage Licensing System (NMLS) Company Endorsement. The Department of Corporations (DOC) offers two different types of mortgage company licenses, the California Finance Lender License (CFL) and the California Residential Mortgage Lender License (CRML). All three of these license types have different requirements for approval and allow different activities. It is very important to decide up front what license type works best for you, so let’s take a look and compare each of them. I will be using a lot of acronyms, so refer to the above paragraph if you’re not sure what each acronym means.
All three license types allow companies to broker, bank/lend, or service residential mortgages. The CRML License is the only license type that allows a company to sub-service residential mortgages, which means to service loans that are owned by another company. The CFL License and DRE License both allow a company to originate commercial mortgage loans. The CFL License is the only license that allows a company to originate non-secured commercial or personal loans.
The CFL License has a major restriction that needs to be pointed out. The CFL License only allows CFL brokers to broker mortgage loans to a CFL Lender. This means that a CFL broker can’t broker to DRE companies, CRML companies, or federally or state chartered banks, unless those companies also hold a CFL License. However, there is no restriction regarding what companies a CFL lender can sell loans to. The restriction solely applies to brokering loans.
Minimum Net Worth
Net Worth is the company’s assets minus the company’s liabilities. Each license type has different minimum net worth required for approval.
The DRE License has no minimum net worth requirement. The CRML License has a $250,000 minimum net worth requirement. The CFL License has a $250,000 minimum net worth requirement if the company is originating residential mortgage loans. If the company is only originating commercial mortgage loans and non-secured loans, then the minimum net worth for the CFL License is only $25,000.
Other Major Requirements
Following are some of the other major requirements and barriers for each license type. You’ll notice that they are all very different in what they require.
The DRE License requires the company to designate an individual with a California Department of Real Estate (DRE) Individual Broker License as the Broker/Officer of the company. In order to get an Individual DRE Broker License, a person must complete 60 hours of education, show proof of 2 years full-time mortgage experience, pass the DRE Broker Test, which is only offered in California, and then submit an application for the Individual DRE Broker License. Since a person can be the Broker/Officer for multiple companies, often companies that don’t have an Individual DRE Broker employed with their company, will contact someone that already holds the Individual DRE Broker License to be their Broker/Officer, and then pay them a monthly fee to act in this capacity. However, this can get expensive. This requirement is the most burdensome part of obtaining a DRE License, and is the reason most companies will consider one of the other two license types.
The CFL License does not have any major requirements that are burdensome other than the minimum net worth mentioned above.
The CRML License requires that the company have a Federal Agency Approval with either FHA, VA, Fannie Mae, or Freddie Mac. FHA, Fannie Mae, and Freddie Mac all require $1million in net worth to get a lender approval from them. However, Veterans Authority (VA) does not have any minimum net worth requirement to get a lender approval from them. And the best part is you never even have to do any VA loans once you get this lender approval from VA. So currently this loophole basically eliminates this major barrier to getting a CRML License. However, there is currently one other major issue to obtaining the CRML License. The CRML License requires that the company has a funding source or is in the process of obtaining a funding source to fund their loans. The regulators that approve the CRML Licenses believe that the CRML License is not for companies that just want to broker mortgage loans. So the regulators will look for liquidity in the company that will allow the company to fund loans with their own money, or the regulators will look for a warehouse line of credit to fund the mortgage loans. The regulators will in most cases accept a letter of explanation and proof that the company is in the process of obtaining cash investors or a warehouse line of credit, but this is somewhat of a grey area and must be handled carefully. Although the CRML License allows a company to broker loans, the regulators interpretation of the CRML law is that the company must plan on using the license to bank mortgage loans also.
Loan Originator Licensing
There are two different types of loan originator (LO) licenses in California. There is the DRE NMLS LO Endorsement issued by the Department of Real Estate, and there is the DOC LO License issued by the Department of Corporations. The DRE NMLS LO Endorsement is used by loan originators working for DRE companies. The DOC LO License is used by loan originators working for CFL or CRML companies.
The DRE NMLS LO Endorsement is much harder to get than the DOC LO License. The DRE NMLS LO Endorsement requires 3 tests, 60 hours of education, and 2 applications. The DOC LO License only requires 2 tests, 20 hours of education, and 1 application. The reason for this difference is that the DRE requires a loan originator to first hold a DRE Individual Salesperson License or Individual Broker License before they can complete the NMLS requirements. To get a DRE Individual Salesperson License, a person needs to complete 40 hours of education, take the Salesperson test that is only offered in California, and submit an application for a DRE Individual Salesperson License. Then the DRE requires the DRE Salesperson to apply for the DRE NMLS LO Endorsement, which requires 2 more tests, 20 more hours of education, and a separate application. The portions through the NMLS for DRE and DOC are virtually identical, but again, the DRE requires the person to hold a DRE Individual Salesperson or Broker License before they can apply for the NMLS Endorsement, making the DRE LO Licensing requirements much more difficult.
Each license type has varying types of costs to consider. The DRE Corporate License application costs $300. And the DRE NMLS Company Endorsement application, which must also be obtained by DRE companies, costs $500. So the total cost under the DRE is $800. However, a company must also take into consideration the costs of licensing and endorsing a DRE broker/officer for the company. Between the education, testing, fingerprinting, and application fee, the cost to get a DRE Individual Broker License can be as much as $1,000 to $1,500. And if the company wants to hire a DRE Individual Broker instead of getting someone within the company licensed, the cost is usually about $500 to $1,000 per month.
The CFL License application costs $400. There is also a surety bond required, which costs about $250. And there is fingerprinting which costs about $50 per officer/owner. So the total cost under the CFL is about $700.
The CRML License application costs $1,100. There is also a surety bond required, which costs about $500. And there is fingerprinting, which costs about $50 per officer/owner. So the total cost under the CRML is about $1,650. However, under the CRML, there are a few other costs to consider. If the company doesn’t already have a Federal Agency Approval, then the cheapest one to obtain is from Veterans Authority. The cost for Veterans Authority Lender Approval is $200. If the company doesn’t already have audited financials, then the company will need to pay a CPA to complete this. The cost ranges from $800 to $1,000 for start-up companies, and goes up to as much as $3,000 to $5,000 for existing companies. Also, another major cost to consider under the CRML License is the cost of renewal. If a company does no business during the year, the cost to renew is $1,000, but if a company closes even just one loan during the year, the cost to renew goes up to $5,000.
Home equity loans are regulated in California to limit fees and caps.
No matter where your financial company is based, they will have to
follow these regulations if you are living in California. By expanding your
search to national financing companies, you can find competitive rates
and terms that still follow California law.
Providing Full Home Equity Disclosure
Many of the basic ideas of the federal “Truth In Lending Act” are based
off of California financing law. By using lenders who follow California
financing laws, you can protect yourself from predatory lending.
For example, one such California principle is the idea of full
disclosure, listing out interest rate, fees, and terms before signing a loan
contract. In California, lenders must offer contract copies before
application and before using the credit.
It is a good idea to look over the fees and terms to be sure they are
fair and meet your needs. For example, if you find a prepayment penalty,
then you may want to negotiate a waiver or find a different lender.
Placing Caps on Home Equity Loan Fees and Terms
California laws also place caps on fees and terms, particularly with
sub prime loans. For example, interest cannot be charged on a loan until
one day after closing. There are also limits on late fees and early
Large financial companies have been prosecuted in California for
failing to meet regulations. So even with the biggest names, look over the
terms to be sure they are not overcharging you.
Shopping Outside of California for Best Home Equity Loan
Even with local laws, you can still search outside of California for
low rates. By expanding your search online, you can find competitive
rates and terms than still meet California law.
Start with a broker site that will link you to several lenders. By
providing your address, financial companies will be aware of the unique
laws related to your loan quote.
Whenever I hear the word refinance or mortgage, I start to get nervous. In California, most folks like to relax, enjoy the sun, sky and surf (or mountains if you have em’) and not mess around with their hard-earned homes. But California Refinance can actually save people thousands upon thousands of dollars in mortgage payments, and can turn some people into full fledged home owners on beautiful, panoramic California property for far less money than they could have ever imagined. They can even look into purchasing homes that they never thought possible, or free up money to turn their current home into their fantasy home. Talk about California Dreamin’!
California has everything- Coastal property, beautiful parks, financial districts, a world-renown entertainment industry and a sublime wine industry. This makes California an extremely popular residential settlement zone. Permanent and seasonal home owners flocking to the West Coast, along with vacationing renters, have brought up market value considerably. Add this to the fact that California offers more benefits than other districts, and you have the perfect time to take advantage of the considerable opportunity this strong market brings by using California refinance to cut down on monthly payments, reduce loan lifespan, and find ways to make your interest tax-deductible.
But let’s not get ahead of ourselves. First a few quick points on refinancing for folks like me who just get tired of these terms just being bounced around without context. Refinancing a mortgage is simply taking out a new mortgage. When interest rates drop lower than your current mortgage rate, refinancing your mortgage could reduce your monthly home payments and free up cash to pay higher-interest debts or other expenses such as home maintenance. This strategy can end up freeing thousands of dollars for other expenses and pursuits, or it can be used to shorten the amount of time spent on paying for your home.
Many options exist through California finance. You can get a lower rate mortgage. You can transform an adjustable rate mortgage (known as an ARM mortgage) to a fixed rate, meaning no fluctuation in price according to a rising and falling real estate market which can be an expensive gamble. A first and second rate mortgage can be again changed into a single lower rate mortgage, and cash is available for family expenses. All this can be provided by California refinance as there is a focus on offering all different variations of home refinance loans, and unlike more conventional lenders, California refinance providers are more receptive and helpful to unique situations and financial constraints.
The bottom line is that california refinance helps homeowners to cut down on monthly payments by reducing interest rates and payments. Providers can also assist with attaining cash needed for debt consolidation and home maintenance. Borrowers with good credit history can be offered competitive rate programs, borrow up to one hundred percent of their financing and change their fixed and adjustable rates. California finance supports buyers that other providers might turn a blind eye to by working around homeowner problems such as bad credit history, nonpermanent employment, bankruptcies, slow payments, etc. In short, a world of options exists to save any and all borrowers money, time and trouble.
Utilizing California’s refinance secrets will allow you to put your money into more pleasurable pursuits. Whether you are catching a wave or a movie, sipping some Sonoma wine or an L.A. nightclub martini, strolling by the golden gate bridge or by old faithful, or simply spending some quality time in your one-hundred percent bought and paid for home let California refinance worry about the mortgage. You sit back and enjoy life.
100% mortgage financing is easier to secure in California than in many other states, even with the average California home price at $467,000 as of October 2006.
Many lenders are willing to provide mortgages with no down payments based on a good credit score and solid savings. But even if you don’t have those, you can still get financing help through one of California’s many government programs.
Pick Your Mortgage Financing Plan
100% financing of your home loan can be achieved in several ways. You can apply for complete financing with one mortgage. The home loan lender may or may not require you to pay closing costs.
Another option is to take out two mortgages. The second mortgage can be with a different lender. For those with poor credit, this is the easiest way to secure a no down payment loan, since the risk of the loan is carried by more than one lender.
Look Into California Financing Programs
California’s state and local governments have come up with several programs to help people buy a home. Licensed California financing companies, which include many national and local companies, can help you apply for these programs.
California’s Extra Credit Teacher Program is one such program. The state will help teachers who are first-time home buyers by offering 30 fixed rate loans at an interest point below market rates and a 3% second mortgage. In effect, a California teacher can get 100% financing for their new home.
There are also 100% financing programs for high cost county residents, low income families, and first time homebuyers.
Compare Quoted Mortgage Rates And Fees
With 100% financing loans, mortgage lenders will quote you a wide range of rates with a variety of fees. These fees may be a hidden cost of the loan, wrapped into the principal amount. Or they be paid at closing, usually qualifying you for a lower rate.
In order to find the lowest costing loan, compare mortgage loan estimates. Then take a look at the APR, which includes both the rate and fees of the loan. Most lenders provide loan quotes online, so it takes only a few hours to get dozen of offers.
Many residents of California will definitely have so many choices for exploration in this place. However, any individual who cares for his or her future will surely prioritize the important decisions, like financing a home rather than just spending on trivial things.
As such, it will be very prudent to first take this decision rather than find yourself constantly moving from one rented place to another.
Living in California and Financing a Home
Most people will find living in California as their goal to achieve the lifestyle that can allow them to maximize their potential and enjoy a comfortable lifestyle. However, it will be possible to live a more comfortable life if you have your own home to invest on.
In California, financing a home is fairly a matter that you must take seriously. You have to evaluate the various considerations to know your financial capabilities. You also have to know your options in purchasing a home in California.
Your Options to Financing a Home
Whether you are in California or elsewhere, financing a home will have to entail consideration of certain choices available to you.
You will most probably find yourself in need of money to purchase a home. As such, the best financing option for you might be to search for a home loan.
1. Going to California Banks for Financing a Home
When it comes to making loans, the first thing people think is to go to a bank and explore the options there.
Banks will definitely have a scheme for home financing loans. It will be easier to get a loan here especially if you have been maintaining a savings or checking account here for some time. There are actually many banks California.
However, if you do not know it yet, banks do not offer the best interest rates that will favor your financial situation.
You may be acquainted with the officers in the bank, but you will never be able to negotiate any stipulated interest rate or amount. These financial institutions are bound by what is determined for them, as such the rates are rather inflexible.
Thus, you have to choose some other better options.
2. Seeking Mortgage Brokers for Financing a Home
Mortgage brokers may be a good option for your home financing. They have relatively lower interest rates compared to the banks. They can also provide assistance when you make your loan.
The brokers are in constant dealing with various lending sources. As such, it will be easier for them to find a favorable deal and interest rate for you.
You will also have an easier time looking for mortgage brokers in California. They often advertise their services on the market. You can even explore the options online.
3. Getting a Correspondent Lender
The third option for you is to get a correspondent lender. The correspondent lender will aid you in evaluating a decision for the home financing. At the same time, they are the ones who shall provide the fund for the loan.
This is like combining the broker and the banker in one deal. This person can let you pick on the various options and schemes. Once you decided on one, then the correspondent lender can proceed with the contract and lend you the money.
You can even negotiate with the lender for a better interest rate payment scheme or even to lower the figures. This is something that you can benefit from in the long run.
However, it is relatively more difficult to look for corporate lenders compared to the other two options. They usually operate on a regional basis. Thus, they tend to take form in smaller institution or firms. Thus, it really needs a good amount of effort on your part to find one.
It is also possible to check online and find out if they have a website and this could be a good start. If they do not have, then the yellow pages may be your next option.
Living in California will definitely have its perks and highlights. You can definitely make some good time in every minute that you spend here. However, if you choose to really reside in California, then financing a home is definitely the first step for you.