One of my greatest pleasures is connecting clients with the best service provider for their needs.  For example, I will often pair clients with a high-end custom contractor to build their dream home in Atherton, whereas I recommend a very reasonable contractor for remodeling investment properties. I match clients with the best providers in many venues such as insurance brokers, audio-video installers, arborists, and pool cleaners.

The most nuanced and most valuable connection is to perfectly pair my buyers’ goals and economic circumstances with the best lender for their situation. Buyers are often surprised at the variability in underwriting standards and criteria. For example, some lenders fully consider stock options as part of a buyer’s salary while others do not. Of the lenders that do, some lenders give full credit to options and treat them like salary whereas others count only a fraction of their value; again, it is surprisingly lender-dependent.

Given that each lender has unique underwriting standards, the loan amount a buyer can be pre-approved for can change dramatically depending upon which lender they speak to. As loan approval amounts can often vary by well over a million dollars, finding the right lender can provide the buyer with a tremendous amount of optionality in their home search. Below are some common examples of buyers who would benefit from working with the right lender.
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Trade Up Buyers

When qualifying a buyer for a loan, most of the larger banks such as Wells Fargo and Bank of America will consider the carrying costs not only of your new home, but also your existing home.  Carrying two homes in Silicon Valley makes it much harder to qualify for as large of a loan as desired, inhibiting the ability to trade up. However, some lenders do not count the debt ratios of your existing or departing residence, allowing you to qualify for a much higher loan amount. This allows buyers to efficiently trade up now and postpone selling their original home, giving them the ability to effectively time the market. 

Landlords

Just as some buyers trade up and then sell their home, some choose to hold on to and rent their previous homes. Whether a lender considers the projected rental income in their loan-qualifying analysis varies by lender. Several lenders give full consideration to treating this rent collected as income, while some give 75% credit to rental income to account for vacancies and others provide no credit at all if the buyer has never been a landlord before.  This difference in how various lenders view rental income can greatly affect the loan amount for which buyers qualify.

Special Loan Programs for Lawyers, Entrepreneurs, Doctors & Professors

Several lenders offer special loan programs tailored to particular professions. Citibank has an excellent program for lawyers at elite firms, such as my old firm of Wilson Sonsini, that entitles them to lower rates and down payments than other borrowers. For example, below-market rates are available even with putting down as little as 10% for a loan up to $5 million, whereas most banks want 30% or more down at this price point. Silicon Valley Bank also has special programs for founders that grant both lower down payment requirements and lower rates to incentivize founders to keep all of their business with the bank. Bank of America has similar options for doctors, while Stanford Federal Credit Union and First Republic Bank both offer great programs for Stanford professors. I know the nuances of each of these specialty loan options, as well as the most experienced lenders at the various banks, and can recommend to my clients appropriately.  
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Where are Mortgage Rates Today and Where Will They Be at End of the Year

More than any other factor, the decline in housing prices that occurred in 2022 was precipitated by mortgage rates more than doubling in 2022. Freddie Mac surveys the nation’s average rate for the 30-year mortgage, and this rate started 2022 at barely over 3% before peaking at just over 7% in early November. The average 30-year mortgage rate has now dropped below 6% as inflationary pressures ease. The Mortgage Bankers Association is predicting 30-year mortgage rates declining to 5% by the end of 2023 and 4.4% in 2024. Decreasing mortgage rates are catalyzing a recovery in local and national housing prices.

I am recommending to clients that they purchase a home in today’s market, discounted due to the high mortgage rates borrowers are facing. Purchasing today locks in the good deal as well as the low property tax rate in perpetuity, and buyers can later refinance in 18-24 months when rates are projected to be much lower. While the average mortgage rate for a 30-year mortgage is barely below 6%, I get my clients lower rates by directing them to the banks providing the most attractive rates, such as those found below:

Examples of Mortgage Rates as of Mid-February:

5-year ARM - 4.40%

7-year ARM - 4.65%

10-year ARM - 4.9%

15-year fixed - 4.95%

30-year fixed - 5.4%

*Ken DeLeon and DeLeon Realty are not licensed mortgage lenders.  The material contained in this article is for informational purposes only, and should not be considered lending or financial advice. Interested parties are advised to consult with a licensed mortgage professional regarding available rates and programs.