TIC’s where once thought to be one of the riskiest type of housing investment out there.
But we’re now finding that TIC’s are actually turning out to be one of the safest investments out there, at least for banks!
Carol Lloyd of SF Gate’s Surreal Estate column (who has, by the way, surprisingly been a voice of reason and reality amidst the majority of the media’s doom and gloom hype) wrote an article for this week’s Sunday paper talking about the safety record of fractionalized loans for TIC’s.
According to Carol’s investigations, fractionalized TIC loans are seeing “No defaults, no foreclosures and, according to some experts, not so much as a late payment.”
The reasons for this statistic are probably many, but probably the biggest factor affecting this kind of solid track record has to do with the fact that TIC lenders are more careful!
Unlike the trend of national banks just starting to tighten up lending restrictions in response to the subprime mortgage fallout, lenders offering fractional TIC loans have always had strict guidelines.
In days past, no document stated income loans where common. No down payment? Low down payment? Bad credit? No problem! (Sounds like the old “Credit Man” commercials, doesn’t it?)
But these days, according to Monica Di Perna of Guarantee Mortgage, regular lenders require “at least 10% down and many times 20% down, depending on your overall monthly debt versus your gross monthly income. If you have credit card monthly bills, car loans and student loans, they will add these monthly payments with your future mortgage payment plus 1/12 of your property taxes and 1/12 of your fire insurance. If this ratio is 45% or under, then that’s fine. Also, lenders require $30,000-$40,000 in retirement money or reserves (money that you would not use to purchase your home). In addition, they require you to have your down payment (most of this must be in your bank account for 2 months) plus $5,000-$7,000 for closing costs. All these assets must be proven through bank statements, all pages, for the last two months.” Also credit scores should be a minimum of 690 to get a lender to consider you a worthy candidate.
But TIC lenders have always been this strict, and usually, even stricter. From the article, one lender is quoted as saying “We required full documentation and employment verification, and we only financed up to 75 percent of the value of the property, so homeowners were truly vested in this property. Borrowers had to qualify for the monthly payment now – not in the future after some crazy teaser rate.” High credit scores, interest rates and down payments where the norm, and still are.
As for whether TIC’s are safe investments for buyers? The answer is really “it depends.” San Francisco has strict condo conversion laws that really impact whether a TIC investment is right for you as a buyer. It really depends on your long term plans, and your financial situation. If you are considering buying a TIC in SF and need advice to see whether it’s the right investment for you, feel free to contact me and I’ll be happy to discuss your situation with you.