PostFire: SBA and Loan Guidance Q&A #5
TL;DR
LA Post Fire: BA and Loan Guidance Q&A #5
Host: iO Tillet- Wright, wildfire survivor and activist
https://www.iolovesyou.com/, postfirela.org
Guests:
William Hayden, Co-Founder @ Bagshttps://securebags.com/
James Allenchach, Mortgage Expert, https://www.yourratemortgage.com/
Video of this conversation can be found here:
https://youtu.be/9xi4Nf0vIps?si=RyTPC3uAfLBu5r1F
Loan Guidance for Fire Survivors
Three main groups needing loans:
Homeowners rebuilding
Business owners rebuilding
Survivors buying new homes
Several post-disaster loan options exist, some with upcoming deadlines
Goal: Help survivors navigate financial recovery with fire-mitigating rebuilds
Understanding Debt & Loans
Not all debt is created equal
Good debt: Long-term, low-interest loans with sustainable repayment plans\
term length is a lever, and so there are pros and cons! Longer term means more years where the APR applies, so more time means more cost of capital. The benefit of longer terms is a smaller monthly payment. Sometimes, it's better to pay a loan off early to avoid accruing interest over the full period, and often the thing to optimize for is no prepayment penalty!
Debt-to-Income Ratio (DTI):
Below 42% is ideal, over 50% makes approvals harder
Step-by-Step Calculation:
1. Determine Total Monthly Debt Payments
Include all recurring monthly debt obligations, such as:
Mortgage payment (principal, interest, taxes, insurance – PITI)
Car loan payments
Credit card minimum payments
Student loans
Personal loans
Any other fixed debt obligations
Do NOT include utilities, insurance (except homeowner’s insurance in mortgage escrow), groceries, or discretionary spending.
2. Determine Gross Monthly Income
Use pre-tax income from all sources, including:
Salary/Wages
Rental income (if applicable, usually after a 25% expense deduction)
Business income (if self-employed, typically averaged over 2 years)
Other recurring income (alimony, pensions, etc.)
3. Divide total debt payments by gross income and multiply by 100 to get a percentage.
Avoid predatory lending (e.g., payday loans, high-interest cash advances)
Types of Loans & Cost Considerations
Conventional loans: Higher fees, longer commitments
Government-backed loans (FHA, SBA, etc.): Lower fees, better terms, better rates
Hidden costs: Funding fees, mortgage insurance, and origination costs impact affordability
Navigating Loan Options
Loans vary based on credit score, down payment, and financial history
Be aware of misleading terms (e.g., "no fees" may mean higher interest rates)
Choosing the right loan is like a "Choose Your Own Adventure", tailored to the individual
Loan Qualification & Considerations - What kind of loan applicant am I?
Understand key factors:
Loan repayment duration
Collateral requirements
Credit score requirements (e.g., some loans need 740+ FICO, others accept lower scores)
Use a flowchart or organized method to identify loans you qualify for and focus on those (Post Fire is working on providing this)
Essential Documents for Mortgage Application
For W-2 employees:
Last 30 days of pay stubs
Most recent 2 months of bank statements
W-2 forms for the last 2 years
Tax returns for the last 2 years
Most loan products will require these docs
Have a good idea of where your credit score is
For self-employed individuals:
Most recent 2 years of tax returns (federal, not state)
Asset verification
Have a good idea of where your credit score is
3 most important things to have prepared as you apply for financing
Know your credit score (actual vs. estimated scores impact loan parameters).
Determine your comfortable monthly payment threshold (not just what you qualify for, but what you can afford). Do not limit your joy.
Have your documentation ready (listed above)
SBA Disaster Loans Overview
Available due to a federal disaster declaration.
Open to homeowners, renters, and business owners.
Loan limits:
$500,000 for homeowners to rebuild
$100,000 for personal property losses (both homeowners & renters)
Up to $2 million for businesses
Who Qualifies for an SBA Loan?
Registered Business owners (including sole proprietors, LLCs, and nonprofits).
People with uninsured or underinsured losses (loan covers the gap after insurance payout).
SBA Loan Terms & Benefits
Low fees (no origination or application fees, only small filing fees).
Low interest rates:
If deemed creditworthy elsewhere, max interest 8%.
If not creditworthy elsewhere, interest capped at 4% (can be as low as 2-3%).
12-month deferment:
No payments required for the first year.
No interest accrual during that deferment period.
SBA Loan vs. Private Loans
SBA loans are lump sum payments, not lines of credit.
Private loans (lines of credit) may be costlier due to higher interest rates.
Best strategy: Use SBA loans FIRST for lower rates & deferment, then seek private loans if more funds are needed.
Application & Deadline
March 10th deadline to apply.
If denied, you can appeal until July.
To strengthen your SBA application, get a decline letter from a private lender (shows you can’t get credit elsewhere).
James Allenbach and his company will review your documents and issue Decline Letters to those who qualify at https://www.yourratemortgage.com/
Additional SBA Loan Benefits
Can include 20% extra funding for fire mitigation improvements.
Funds must be used for rebuilding to previous standards (not upgrades, expansions, or adding new features).
Some flexibility in architectural design, but must maintain original home purpose/size.
individual needs
Loan limits can be significantly higher (e.g., $1M–$2M), depending on need and qualification.
SBA Loans for Refinancing Mortgages
SBA loans are not designed as mortgage refinances, but they can be used under specific conditions:
Applicants must not have credit access elsewhere.
Must demonstrate significant financial hardship preventing mortgage payments.
Common use case: A balloon payment due with no flexibility from the lender.
If credit is available elsewhere, SBA loans cannot be used to refinance a mortgage.
Alternative Strategies for Mortgage Relief
Insurance payout strategy:
Apply insurance proceeds to pay down the mortgage first (reducing high-interest debt).
Use SBA loan to cover rebuilding costs at a lower interest rate.
Layering financing (“debt stack”):
SBA loan + private financing may be combined if documentation is in order.
SBA Documentation Requirements
For Personal Relief (Homeowners & Renters)
FEMA registration required.
Proof of ownership/tenancy (deeds, lease, utility bills, voter registration).
Insurance documentation (approval/denial letters, claim details).
Proof of damage (photos, videos, FEMA assessments).
Financial records:
Recent federal tax returns
Personal financial statements (assets, liabilities)
Authorization for SBA credit check
For Business Relief (Up to $2M loans)
Proof of business ownership (Articles of Incorporation, tax licenses, sales tax records).
Financial records:
Personal financial statements for owners with 20%+ stake
Business tax returns (up to 3 years)
Profit & loss statements & balance sheets
Debt schedule (list of business liabilities)
Loss documentation: Evidence of physical or economic loss.
IRS authorization form for SBA to access tax records.
securebags.com is a resource for free help with the above topic
One-Time Close Construction Loans (Alternative to SBA Loans)
Designed for rebuilding homes from total loss.
Loan based on completed value of the home, not just rebuild cost.
Benefits:
Deferred payments for the first year.
Locks in 30-year fixed rate at lower interest than traditional construction loans.
Potential rate adjustment at project completion to match market rates.
0% Down FHA Disaster Loans (FHA 203h)
Marketed as "no money down" loans for disaster victims.
Things to watch out for:
Higher interest rates often offset the “no fees” claim.
Solicitation calls offering these loans can be a red flag.
Administered by CalHFA (California Housing Finance Agency).
Caution: Always verify lender legitimacy before proceeding.
Summary of Key Points
FHA Loan with Down Payment Assistance
Offers $3,500 per $100,000 in purchase price as a grant.
No monthly payments on the grant, but it accrues 1% interest.
Must repay the grant when selling or refinancing for cash.
660 credit score, W-2s, and standard debt-to-income ratio required.
First-time homebuyer program but also available for federally declared disaster relief victims.
Expensive to close but beneficial for those without a down payment.
Additional closing cost assistance is available.
FHA vs. Conventional Loan Comparison
If you have 5% down, you qualify for a conventional loan.
Conventional loan benefits over FHA:
No upfront funding fee (FHA has a 1.75% fee).
Lower mortgage insurance, which drops off after reaching 80% loan-to-value (LTV) (~60 payments).
FHA mortgage insurance lasts for the entire loan term.
Higher FHA mortgage insurance cost (e.g., $550/month for a $1M loan).
Conventional loan interest rates are slightly higher, but mortgage interest is tax-deductible, unlike FHA funding fees.
Loan Shopping & Red Flags
Avoid high-pressure sales tactics.
Compare at least two loan estimates to identify hidden fees.
Beware of upfront fees, guaranteed loan approvals, or expedited processing claims.
SBA loans do not require application fees, and interest rates should be below 8%, generally below 4%.
Legit SBA loans come from .gov email addresses, not private lenders.
Links available:
YourRateMortgage.com – Helps assess mortgage options, obtain decline letters for SBA loans.
SecureBags.com – Assists small businesses with financing and paperwork.
PostFire Survivors Network – Offers support and information for fire survivors.
Upcoming Events & Follow-ups
Soil Safety Q&A – Tuesday, February 25, 6 PM PST (PostFire LA Website).
Recap video with captions and Spanish translation will be posted on YouTube and the website.
Additional Q&A opportunities will be available.