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FHA loans, based on Prop. 19 property taxes
If you lend in California? Are you aware of Prop. 19 Property Taxes? Do you qualify FHA loans, based on Prop. 19 property taxes? When a senior over age 55 sells her home, and purchases her next home, she can carry her current base property tax rate to her new house, thereby helping a lot to qualify for the loan. There is a calculation and explanation at this government. I will most certainly qualify for Prop. 19. The lender will also have to gross up my non-taxable part of my social security income in order to make the income better. This is legally allowed. 33% of my social security income is non-taxable, therefore, this percentage can be grossed up by 1.25% (I think this is the percentage). This makes a difference. Normally, lenders qualify by taking 1.25% property tax in calculations, however, that amount is very high and when it gets added to monthly payment, then the DTI is not met. For example, on a $615,000 home, with a loan of $304,000, the property tax (1.25%) is $651 per month. With Prop. 19 calculations, it comes to only $482.33. This makes a big difference in cases like mine who is trying to qualify for the highest price home possible based on my income. Last question – does the house I am purchasing have to meet FHA loan criteria? Before I go further, I was wondering if you are aware of Prop. 19 and grossing up income? I will try calling you next week.
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3 Replies
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I understand California’s Proposition 19 and how it affects property taxes. California’s Proposition 19 is mainly for seniors 55 and older. What Proposition 19 does is it allows homeowners who qualify to transfer the taxable value of their existing home to a replacement residence. This can result in significant tax savings on a new purchase. And yes, this reduction in property taxes can bring down your DTI ratio, which is vital while trying to get approved for a loan.
You are correct about grossing up non-taxable Social Security income. HUD guidelines on FHA loans allow lenders to add 15% to non-taxable income, increasing your qualifying income. For example, if one-third of your Social Security income is not subject to tax, that portion can be grossed by 15%, thus helping the overall numbers.
As for your last question, yes, the home you buy must meet HUD agency guidelines criteria, including property condition standards (minimum property requirements). The house must undergo an appraisal that includes an inspection (to ensure it meets safety/soundness/security requirements).
If you’re considering Prop 19 and grossing up Social Security to qualify, you must find a lender who understands how these two things work together within underwriting guidelines. Let me know if you’d like to talk more next week, and we can discuss further options. We have over 250 wholesale investors and financial institutions.
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Good evening Gustan. To be honest, I have been on this loan qualification journey for quite some months and have a lender who has documented my loan for a conventional loan with a DTI at 50%. I know all my qualification number by heart, been working on it for many many months. However, lenders don’t want to qualify loans based on Prop. 19 tax basis and that is true of my lender as well. They tell their clients that the adjustment to the property tax will be made after the loan closes, however, for qualification they take 1.25% for property taxes, which makes my monthly payment higher than what it actually will be. This lender who has been working with me is a local lender here in my town which is my preference. I would only use a lender out of State if they would qualify me based on Prop. 19 property taxes, therefore, I ask this question. Otherwise, I do not wish to start my loan qualification process again, because the end result is the same. I have a simple financial situation, having retired already, with a clean thin file credit, but home prices are high in my area, higher than what I have been qualified for. Unfortunately, I don’t think it will work. I was hoping to hear from you that you had already done many loans with Prop. 19. That would make me feel more confident. You see, I am retired, have a great townhome with a low interest mortgage of 2.875%, however, I want to sell because I find dealing with HOA a big nightmare. I just hate HOA. The way the housing market is here in California, it is extremely risky to sell your home, unless there is a 500% surety that I will get a great perfect loan. I wouldn’t feel good doing a loan if a lender I unsure of the prop. 19 situation. I already have a great lender locally, however, they wouldn’t qualify based on prop. 19 property tax. Property tax is very high in my area, and is the reason why loans are not working out for most people. I am sorry, therefore, I don’t feel I should pursue this any further. I appreciate your response. Thanks, have a great weekend.
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Thanks for giving me more details about your situation. I appreciate it. Concerning the Prop 19 tax basis and its effect on qualifying for a loan, it is indeed difficult for lenders who only calculate property taxes using the standard method, given that you prefer working with local lenders.
Things to consider:
Advantages of Proposition 19:
It enables homeowners, especially those who are elderly and over fifty-five years old, to transfer their previous homes’ tax assessments to new properties. Thus, it saves a lot of money in terms of property taxes. However, most lending institutions estimate future financial obligations at one point two five percent (1.25%) regardless of whether there exists any conservative guesswork, like what just happened to you.
Lender’s flexibility:
Some may be willing to qualify borrowers based on lower anticipated property taxes under Prop 19, though this rarely happens. This is because lenders normally use current rates, which apply universally, without considering individual differences among applicants to not underestimate their clients’ financial capability in the coming days.
Other Solutions:
If they are already your trusted partner and you want convenience, go ahead. However, remember that things have been done, and when everything is adjusted according to Prop 19 rules, your actuals will likely turn out lower than expected. The deal now would ensure it will close while benefiting from reduced levies later.
Out-of-state lenders:
Alternatively, if you were to consider another lender outside their region who might have had prior experience dealing with similar cases or could be more open-minded regarding qualification criteria based upon proposition number 19, however, as mentioned earlier, starting afresh by filling out applications, forms, etc., with different people takes time and only sometimes yields the desired results. Hence, one may try many options but return where they started.
With everything being as it is and given that you would rather stick around with a local lender than look elsewhere. This is to keep an open mind even if they make no allowances due to adjustments arising from Proposition 19. I am in charge of the largest branch of NEXA Mortgage Corporate NMLS 2315275, the largest mortgage brokerage in the nation, licensed in 48 states (M.A. and N.Y. pending), including Washington, DC, Puerto Rico, and the U.S. Virgin Islands. Over 80% of our borrowers could not qualify at other mortgage companies. Gustan Cho Associates (Oakbrook Terrace, Illinois NMLS 2315275) is a DBA of NEXA Mortgage. Most of my support, operations, and licensed personnel are seasoned professionals who have been with me for over a decade. We only issue pre-approvals if we can close the loan on time. I am one of the few national managing mortgage branch and ops managers who originate loans. We have many different options such as a TBD underwriting approval, a full mortgage conditional loan approval subject to the property. We offer forgivable down payment assistance programs, no-doc loans, bank statement loans, and other alternative mortgage programs. Let’s chat on the phone, and if I can offer any advice that can benefit you, I want you to choose any loan officer and mortgage lender you feel comfortable with. There were many instances where I have helped clients who had other loan officers coach their loan officer to the finish line. The housing market is tough right now to sell, considering what you pay for the mortgage. Moving with certainty about loan conditions and general financial status would be wise.
If you ever decide otherwise or need more help, feel free to let me know. I hope this has been helpful. Good luck with your decision-making process. Have a nice weekend!
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