Real Estate Column: Making Sense of Your Financial Options - Fractional vs. Group TIC Loans

By Glenn Rodriguez

This past year has brought a lot of change to our industry. Real estate financing has become much harder to acquire than it once was. Recently, I have been getting a lot of calls from Realtors and buyers who are trying to make sense of it all. There seems to be two main areas of concern for most people: Tenants-in-Common (TIC) financing and the new conforming loan limits.

There are basically two types of TIC loans: fractional and group loans. In a group loan everyone is on one loan and is responsible as a group to make the mortgage payment. If one person does not make their payment the rest of the group has to make up the difference to keep their loan in good standing.

There are several clauses put into a TIC agreement to help protect all members but group loans do come with more risk than a fractional loan. A fractional loan allows a borrower to only be responsible for his or her portion of the mortgage. This alleviates a lot of the risk associated with owning a TIC, therefore, fractional TIC loans have become increasing popular among TIC groups.

There have been some fairly significant changes to some of the fractional TIC loans programs within the past few weeks. Sterling Bank and Trust recently decided to stop accepting loans from several brokers in San Francisco. It is my understanding that there are very few mortgage brokers who can offer Sterling’s loan programs. Integrated Mortgage is one of the few brokers that is still offering Sterling’s loan programs at the same rates and terms as their retail branches. In 2007, Integrated Mortgage funded more than 40 percent of all of Sterling’s fractional loans. Today we continue to have a strong relationship with Sterling and continue to offer their products.
One of the other major changes Sterling announced was the elimination of their 90 percent loan. Since there are currently no lenders offering second mortgages for fractional TIC loans, buyers must now either put 20 percent down or have the seller carry a second mortgage.

This is an important thing for buyers and sellers to understand. A buyer that only has 10 percent to put down will be limited to TICs where the seller is willing to carry a second loan to make up the difference. A seller who is willing to carry a second loan will open his or her listing up to more potential buyers.

We have also seen several lenders raise their rates for fractional loans. Most of the fractional loans are pricing out around 7.75 percent. However, other less known lenders that are doing fractional loans as low as 6.75 percent.

TICs are constantly changing and can be very complicated. It is a good idea to work with someone who has access to several lenders and is knowledgeable about the process.

Earlier in the year the conforming loan limit was temporarily raised from $417,000 to $729,750. These temporary conforming loans also known as Agency Conforming Loans have grown in popularity as the availability of second loans has significantly decreased.

Today there are basically two types of conforming loans. Loans under $417,000 are still easier to qualify for and come with the lowest rates available. Loans between $417,000 and $729,750 are offered at rates about .125 to .25 percent above traditional conforming rates but are still much lower than most lenders’ Jumbo rates.

These newer Agency Conforming Loans are available in 30-year fixed, 15-year fixed, and 5/1 ARMs. Rates are still relatively low and I find that most people want to lock into a 30-year fixed rate. These loans allow borrowers to consolidate their first and second loan, lock into a fixed rate, and pull cash out of the property. Of course once you are looking to pull cash out you will need a favorable appraisal and will pay a little higher interest rate.

Financing is harder to get than it used to be but there are still a lot of good loan programs available and rates are still relatively low. Now more than ever it is important to align yourself with a mortgage broker that truly understands the market, has access to more loan programs and is able to get you the financing you need.

Glenn Rodriguez is a Senior Loan Consultant at Integrated Mortgage with more than seven years of industry experience. He can be reached at (415)570-0400 or glenn@cahomefinancing.com. Visit www.imc4loans.com or www.cahomefinancing.com for more information.

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