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    How to find a down payment to buy a replacement home after LA County fires
    • January 23, 2025

    This column goes out to anyone who has lost a home to a natural disaster.

    My heart goes out to the thousands of people in Los Angeles County who are displaced and dealing with this very scenario.

    Perhaps you plan on rebuilding your burned down home. Maybe you don’t.

    Either way, you’ll need to make important long-term housing decisions and arrangements.

    Also see: California’s home insurance prices set to soar

    If you decide to buy another home, and you don’t have the ability to pay cash, you’ll need to come up with a down payment (in most cases) and closing costs. And you’ll need credit and income to qualify for a new mortgage.

    This column today offers some options to consider.

    Down payment funds may come from your own savings or retirement account, or they can be a gift from a relative.

    Or, if you have a home equity line-of-credit with available funds left, try to tap that.

    More on fires: Should some parts of Los Angeles never rebuild?

    Wells Fargo’s Home Equity Line of Credit customers can use available funds up to the credit limit, according to their HELOC agreement, said Sunny Rodriguez, a Wells Fargo spokesperson. HELOC borrowers also can use available funds if the collateral is insufficient.

    Bank of America and Chase Bank did not respond to questions regarding their HELOCs.

    I recall from the Great Recession days a plethora of homeowners nationwide were cutting off from the available funds left on their HELOCs when they really needed the money in case of emergency. It became a race against time. Pull the funds and put them in your bank account before your lender cuts you off.

    There are other sources for down payment funds.

    Also see: ‘Wildfire refugees’ scramble to find housing as rental prices soar

    If your furnished home is a total loss resulting from a state of emergency, the insurer shall offer a lump-sum payment under the personal property coverage. The amount will be no less than 30% of the policy limit, applicable to the covered dwelling structure, up to a maximum of $250,000, without requiring the insured to file an inventory, according to a California Department of Insurance bulletin.

    Early on, you can also ask your insurance company for an advance or full settlement under the covered dwelling structure to go toward the down payment on your new home?

    If you have a mortgage on your burned down home, the insurance check will be written to both you and your lender. Upfront, you should clear or negotiate any potential advances from your insurer with your mortgage lender.

    “Insurance companies cannot give you less (of a settlement) if you choose to purchase another home instead of rebuilding,” said Michael Soller, deputy commissioner with the DOI. “People need options after a disaster.”

    When qualifying for a mortgage on your new purchase, your lender will have to include your mortgage payment, property taxes, insurance and any HOA fees on your burned down home. You are still responsible for paying that mortgage after any payment forbearance is provided by your mortgage servicer. You have up to one year of forbearance from most lenders. You must be financially comfortable enough to cover both house payments.

    If you can’t qualify on your own, perhaps you can get a co-signer. Ideally, that might be a parent, in-law, sibling or child.

    What about retirees on a fixed income or disabled adult children who have lost their homes?

    Formerly named Parent Loan, Fannie Mae has a loan program named Family Opportunity Mortgage or FOM where an adult child can sign for the parent(s) who cannot qualify on their own or a disabled adult child. Fannie Mae will also give more competitive owner-occupied pricing, even though the adult child signing for the mortgage isn’t occupying the property.

    There is always what I call the “fog the mirror mortgage,” which is designed for someone who has excellent credit and 20% down but cannot document their income. Income and job sections of the application are left blank. The catch is the rate for this type of mortgage is much more expensive.

    Also consider that Proposition 19 enables certain homeowners an option to save money on property taxes.

    “Prop. 19 allows the property owner to transfer their tax base to a new home anywhere in California,” said Jeff Prang, the tax assessor at Los Angeles County.

    Homeowners have two years to affect the transfer.

    “I am certain that many fire victims may find this to be easier than the rebuilding process.” There are no age restrictions on a tax base transfer when the homeowner suffers the loss of their property due to natural disasters.

    Be mindful that you must sell your burned down departing residence within two years of an up-leg purchase. You will pay property taxes at fair value (without any future refund) on your purchase until your departing residence is sold, according to the California State Board of Equalization.

    As an aside, what if there is wildfire litigation and a settlement from a public utility, for example? Can the wildfire victim homeowner retain the right to the settlement funds when selling the remaining lot?

    “In most situations, the insurance company through subrogation will recover wildfire litigation settlement funds. If there are no insurance company subrogation issues, I think the plaintiff (old owner) and new buyer can decide how they divide these proceeds as they want,” said Mike Hensley, an attorney at the law firm Frost Brown Todd. “A tricky part of this is that the tax treatment of casualty loss proceeds may make this division unrealistic.”

    Hensley recommends homeowners in this position consult a tax professional.

    Short-term ownership of another home (until your home is rebuilt) is not advisable.

    If it’s temporary shelter and you plan on selling the pad after your home is rebuilt, you might be better off just renting.

    Transaction costs to buy and then sell a property add up quickly. Between commissions, other settlement charges, moving expenses, inspections and repairs (not to mention your valuable time and attention), it could add up to around 8% in direct charges of that property’s value.

    And, under your insurance policy’s additional living expenses or ALE, your insurer must pay for 24 months of temporary rent, according to a California Department of Insurance bulletin. This includes Fair Plan customers. You are unlikely to receive the 24 months of rent if you buy another property, even temporarily.

    The DOI is offering free appointments with its insurance experts who will look over and explain insurance policy benefits. Sessions are being held this weekend at Pasadena City College. Call 800-927-4357 to reserve a spot.

    Next week: Construction and financing for those wildfire victims wanting to rebuild.

    Freddie Mac rate news

    The 30-year fixed rate averaged 6.96%, 8 basis points lower than last week. The 15-year fixed rate averaged 6.16%, 11 basis points lower than last week.

    The Mortgage Bankers Association reported a 0.01% mortgage application increase compared with one week ago, which included an adjustment for the New Year’s holiday.

    Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $806,500 loan, last year’s payment was $145 less than this week’s payment of $5,344.

    What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.875%, a 15-year conventional at 5.625%, a 30-year conventional at 6.5%, a 15-year conventional high balance at 6.125% ($806,501 to $1,209,750 in LA and OC and $806,501 to $1,077,550 in San Diego), a 30-year-high balance conventional at 6.875% and a jumbo 30-year fixed at 6.75%.

    Eye-catcher loan program of the week: A 30-year mortgage, with 30% down locked for the first 5 years at 5.99% with 1 point cost.

    Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or [email protected] .

    ​ Orange County Register 

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