A single, low equity mortgage can be a balm for Southern California home prices, providing an option that most affordable home loan programs do not address.

The loan, a first I have ever seen, is offered through community development financial institutions and does not care about how applicants look or where they want to live. The combined minimum loan amounts range from $150,000 to a maximum of $3.5 million. (The first loan limit is $3 million and the second $500,000).

As long as the borrower has at least 15% down payment for an owner-occupied home or condo, an average FICO score is at least 680, and they have payment reserves for the home, they could just to be able to buy a home.

Buyer beware: mortgage rates are high, however, in the range of 7% to 8%.

The income portion of this particular mortgage application is a blank slate. Volatile, irregular or transient jobs (due to COVID-19, for example), cash businesses, retirees, seasonal or on-demand workers and even recent immigrants may qualify. Proving the ability to repay is a nonstarter. It’s NINJ (no income, no job) with a small down payment.

Today’s mortgage standards are not designed for borrowers with unusual or atypical means of income to make monthly payments. The conventional real estate financing structure is a tight and complicated institutional underwriting box. If you don’t fit in the box, too bad. Every day across America, potential buyers are denied access to mortgages because they cannot prove the government’s litmus test standard for repayment ability.

These systematically unqualified buyers are forced to rent, often paying top dollar. Regardless of their income. There are no formal regulations allowing landlords to qualify based on income or show rental applicants

possibility of paying a monthly rent. Unqualified candidates sign leases every day as long as they have the initial funds to satisfy the landlord.

Those who cannot pay often look the eviction straight in the eye. So what’s the difference between this and an unconditional home loan?

Most family wealth comes from or begins with homeownership equity, mortgage debt repayments, and repayments. Without cash on hand, it’s hard to create new family wealth in America, especially when traditional loan approvals are out of reach.

Empowered by US Department of Treasury, community development financial institutions, two of which offer this loan, are exempt from certain consumer finance rules and regulations (such as proving repayment capacity). The big idea is to find various ways to expand economic opportunities like home ownership for the unserved and underserved.

Here is an example of how the Communautary development work loan:

A buyer obtains a house at the median price at $797,000put 15% down, or $119,550. To avoid mortgage insurance, the first mortgage is $597,750 and the piggyback loan is $79,700 for a handset $677,450. In this example, both loans are fixed rate for 30 years and can only bear interest for the first 10 years. After 10 years, borrowers have 20 years left to amortize and repay the loans.

Assuming a FICO score of 740, the first interest-only payment at an interest rate of 7.25% is $3,611. The second payment of the interest-only loan at 8.5% is $565. Monthly property taxes are $830 (assuming a tax rate of 1.25%), and assume that home insurance is $175 per month. The total monthly payment is $5,181.

In addition to the payment, this first loan would cost approximately 1.625 points, or $9,713and the second would cost 1 point, or $797. In addition, there are settlement fees such as escrow, title, valuation, and underwriting. The buyer looks roughly $17,000 in total points, fixed costs and foreclosures. In this example, he will also need three months of house payments in reserve, or $15,543.

The deposit, closing costs and payment reserves amount to $152,093.

Note that the down payment and closing costs may be a donation. The home’s payment reserves must come from the borrowers’ own funds.

Reserves must have been seasoned in the borrower’s account for at least one month.

Black or Latino applicants will get a quarter percent off the first loan rate, but not the second. Overall, the house payment would be $156 lower in the example above than an interest rate of 7%.

This loan option, with slightly different terms, also includes cash refinances and refinances as well as second homes and investment properties.

With as little as 15% down payment and the ability to do little more than fog up a mirror to get in, could some people naively buy and not be able to keep up with the payments, ultimately losing the house and down payment at foreclosure? Sure.

So no, it’s not a perfect system. But it gives the benefit of the doubt in this world of flawed mortgage financing to a borrower who has a few shekels and decent credit. Better to exclude people than to exclude them.

Freddie Mac rate news: The 30-year fixed rate averaged 5.1%, 15 basis points lower than the previous week. The 15-year fixed rate averaged 4.31%, 12 basis points lower than the previous week. The 5-year ARM averaged 4.2%, 12 basis points higher than the previous week.

The Mortgage Bankers Association reported a 1.2% drop in mortgage application volume from the previous week.

Conclusion: Assuming a borrower obtains the average 30-year fixed rate on a $647,200 loan, last year’s payment was $803 less than last week’s payment $3,514.

What I see: Locally, qualified borrowers can get the following fixed rate mortgages without points: a 30-year FHA at 4.375%, a 15-year conventional at 4.125%, a 30-year conventional at 4.875%, a 15 one-year conventional high balance ($647,201 at $970,800) at 4.875%, a 30-year conventional high balance at 5.25% and a 30-year jumbo buy, fixed at 4.75%.

Note: The FHA-compliant 30-year loan is limited to loans of $562,350 in the Inner Empire and $647,200 in LA and Orange counties.

Eye-catching loan of the week: a giant 30-year adjustable mortgage, locked in for the first five years at 3.75%, with 1 point.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected].