All posts by Darcy

What to Expect when You’re Expecting to be a Homeowner

A little play on a book title, but if you’re like me, you feel better about taking on something new when you’re prepared –whether it’s going to college, starting a new job, becoming a parent or buying your first home. When you understand the process, the task itself isn’t so daunting.

The first thing to realize, as you leap into home-ownership, is the need to get pre-approved for financing. The lending industry is under scrutiny in an effort to protect you, the buyer.  Due to this, lenders are required to prove you have the ability to repay the loan.  This means you will be required to provide supporting documents.  This can become quite cumbersome, and frankly, frustrating.  We understand – believe me!  Our goal is the same as yours … help you get a loan.

The first step is the loan application. To make this convenient, we can gather this

courtesy of Stuart Miles|freedigitalphotos.net

information over the phone, on our internet site or in-person, whatever is best for you.  We need information such as your name, contact information, addresses and employers for the last two years, income, assets and your debts.  The application enables us to obtain credit to determine if you meet today’s credit guidelines, which vary by program and financing type.

From there, if all looks good, we gather supporting documents, such as paystubs, bank statements, etc. This information will initially be reviewed by the loan officer for validity and to determine if income matches what’s on the application, among other things.  It’s important to meet with your loan officer to discuss your options, the costs of buying a home, and most importantly, your comfort level in terms of a payment.

Once pre-approved, you’ll look at houses, and hopefully, will find one you want. At this point, you and your Realtor will draft a purchase agreement stating the terms of your offer – price, closing date, what you may want the seller to pay toward closing costs, earnest money amount and any contingencies you desire, such as having a home inspection.  Assuming you get the “your-offer-was-accepted” call, we move on to the next steps.

You may have chosen to do a home inspection. You will pay the inspector directly; this is not part of the closing costs the lender would have gone over with you.  The inspection will help you determine if you want to move forward on the purchase or not.  Hopefully, you are full speed ahead!

Now that you have a property address and aren’t just a TBD (to be determined) anymore, there will be disclosures that are generated for you to sign. Your lender may mail these, email you a link or sit down with you to sign depending on their process.  At this point, you will receive a loan estimate, which will outline all your costs, including down payment and seller paid costs or down payment assistance, if applicable to your situation.  Your lender most likely went over a similar type estimate at your pre-approval meeting so you had an idea what your costs would be.  The loan estimate is still an estimate but is much closer to actual figures now that we know the price, taxes, rate (if you locked) and closing date.

 

At this point, you can lock in an interest rate. Your loan officer will check to see what rates are for the program you’ve decided to use.  Keep in mind, if using a first time buyer program, they publish their interest rates right out on their sites – so the rate is the same with any lender.  Rate locks have expiration dates – that means we must lock the rate long enough to cover you through your closing date.  And something very important – once locked, you’re locked.  If rates go down after locking, you cannot get a better rate and if they go up after locking, the lender must honor that rate.

Depending on how long the time-frame was between your initial pre-approval and the accepted purchase agreement, the lender may ask for updated paperwork – items that get old, like paystubs and bank statements. Eventually, when your earnest money clears, we will prove that left your account.  And, if your credit report has, or will, expire before your closing date, new credit will need to be pulled.  The life on the report is 120 days.

The lender will process your file, order verifications of income, flood certification, appraisal on the home and title work, among other things. Depending on the lender, the file may go directly to the underwriter, or may hang back while the ordered items come in.  The best advice here – if the lender needs any additional information from you, please provide it in a timely manner to keep your process going as smoothly as possible.

Once all documents are in, including an acceptable appraisal and title work, your loan will go back in for final approval. Either after this, or prior to this, the lender will provide you with a closing disclosure, which you must have in your hands three business days (includes Saturday) prior to closing.  Some lenders require you sign this to acknowledge receipt in that time frame.  This will give you the final figures for your closing.

Now the fun — going to closing and getting the keys to your home! You will sign a bunch of documents, get a check or send a wire for money needed at closing (dependent on your program, down payment, etc) and will possibly have a chance to chat with the sellers to find out more about your new home, and maybe the scoop on your new neighbors!

For most people, this process, starting with the application, will take you 60-120 days depending on your situation and motivation. And for some, it may take nine months or longer J  Either way, hopefully this has given you a little more information on what to expect when you expect to be a homeowner!

Same Name, So Many Types

Insurance … that covers a lot of area – from car insurance and liability insurance to health insurance and homeowner’s insurance.  There are a lot of insurance types out there and when you buy a house, there are a few you need to be familiar with.

My previous post discussed mortgage insurance.  This type of insurance may be required on your loan if you have less than 20% down with conventional financing or if you’re doing FHA financing.  It insures the lender in case you default and doesn’t cover you for anything.  Mortgage insurance is factored into your monthly house payment.

Flood insurance is another one that could possibly become something you need to understand.  Lenders will “pull” a FEMA (Federal Emergency Management Agency) flood certificate on all properties prior to financing them to confirm the house is not in a flood zone.  If it is in a flood zone, flood insurance will be required to be part of your house payment.

Title insurance is necessary for any loan that is being done in Minnesota.  There are two types of title insurance.  One is called lender’s title insurance which insures the lender in case any other liens come up against the property.  As lenders, we want to be in first lien position so if other liens arise, we are paid first.  Lender’s title insurance is paid by the buyer at the time of closing and the amount varies by title company, loan amount and purchase price.

The second title insurance out there is called owner’s title insurance and this would protect you.  It is optional and the cost is based on purchase price and loan amount, as well as the title company you’re using.  This is a one time fee paid by you at closing, so it’s not something that is “renewed” year after year.

Though you aren’t in a lien position, you may want to be protected if liens come up that weren’t incurred by you. When purchasing a home, one of the jobs of the title company is to search public records on the address you’re buying.  They want to make sure no liens exist so they can pass free and clear title to you.  If there are liens, the seller is responsible to pay these off at closing.  No one is perfect, so there could be liens out there that the title company doesn’t find as they may be improperly recorded at the county.  Liens follow the property address, not the person who incurred them.  So, when you go to sell or refinance and a new search is done, something could come up like this and you would either need to pay it off, go to court to fight the lien if it’s not yours or when you purchased, if you had bought the owner’s policy, you may be protected for instances like this.  Talking to a title company is the best way to learn more about the owner’s policy and their specific coverages.

Finally, there is homeowner’s insurance.  This is a little confusing because it actually is known by a few other names – hazard and property.  They all do the same thing – insure the property we will be lending on.  And lenders want to make sure the property is adequately insured.  The amount of coverage requirement will vary by lender and loan type so you will want to check with your lending institution.

Homeowner’s insurance is billed annually, and in many instances, will be part of your house payment depending on the loan type you’re doing and your down payment amount. It’s your responsibility to set up your annual policy with an insurance agent of your choice prior to closing.  The amount they charge will be part of your payment, and if you escrow your insurance in your payment, the renewals will be paid by the lender in the future on your behalf.  This annual premium amount is broken down to a monthly amount and added to your house payment.

What if you purchase a townhome or condo and the insurance is covered in your association dues? Do you need homeowner’s insurance in that instance?  The answer to this varies.  Most associations have insurance that covers the structure, so if it were to have damage, their coverage would insure that loss.  However, these policies don’t always cover cupboards, carpet, bathroom fixtures, etc., also known as “walls-in” or “all-in” coverage.  If they don’t have this, then you would need to purchase this policy, typically called an HO-6 policy and it would be included in your payment if the loan type you’re doing requires this.  If “walls-in” or “all-in” is part of their policy, then you wouldn’t need it for loan purposes, BUT, you will still want to purchase it to protect your personal belongings!

As you can see, when it comes to buying a home, there are a lot of insurance types to be familiar with. It can get a little confusing.  Hopefully, you will work with a lender that will help educate you on the requirements specific to your loan type.  As with ALL insurance related questions, please reach out to the appropriate provider or expert to answer questions you might have for your situation.

A Necessary Evil and A Little History Lesson

If you are like many people buying their first home, or subsequent home, it may be tough to come up with a large down payment or much of any down payment. Whether it’s just hard to save, debts are too high or you aren’t realizing enough equity from the sale of your home, down payment savings are tough to allocate.

Ideally, a 20% down payment is the goal to shoot for in order to avoid PMI or MI– private mortgage insurance or mortgage insurance. Reality is, most people, just don’t have that, so they must contend with the necessary evil of paying for mortgage insurance in their house payment.

But is PMI/MI really all that bad? First, let’s look at some history of down payments.   In the early 1900’s, down payments were commonly 40%- 50% for conventional financing – wow!  Of course, a house back then, may have only cost $5,000 – so $2,500 doesn’t seem like that big of a deal, BUT when annual incomes were approximately  $600-$700/year, that made coming up with that money hard, maybe even impossible

To help stimulate the economy, in 1934, FHA (Federal Housing Administration) came along with an alternative to conventional’s large down payments – they offered a minimum down payment.  With it, they charged mortgage insurance on an annual basis (factored monthly into the payment) and also collected an amount upfront called the Upfront Mortgage Insurance Premium (UFMIP), which is financed into the loan.  Throughout the history of FHA, the required down payment, annual MI and UFMIP amounts have adjusted to FHA’s needs (government loan type).

In the late 1950’s, conventional financing wanted to get in the game and make housing more affordable, so in came Private Mortgage Insurance companies (PMI). This insurance, paid for by the buyer, helped lenders feel more comfortable with smaller down payments.

So what exactly does PMI/MI do? Unfortunately, it doesn’t do anything for you.  It is all about insuring the lender in case you default on your loan.  If the lender has to foreclose due to non-payment, they can fall back on this insurance to help cover some of their losses.

With conventional financing, there are certain coverage percentages which differ with PMI depending on your down payment amount and your credit score. If you use a first time buyer program, with PMI, you may even have a lower percentage, thus a lower PMI payment.

FHA’s annual amount for MI doesn’t vary on the credit score. If you put more than 5% down, you will have a lesser annual/monthly amount for your MI.  Even if you put 20% or more down, you WILL still have the upfront and the annual MI with FHA.

What about getting rid of the PMI/MI? This differs by program.  With FHA financing, you can’t get rid of the MI – it will be on your loan the entire term you have it.  Only caveat is if you start with 10% down, the MI will eventually drop off.

With conventional PMI, it will automatically go away when you reach 78% loan to value (LTV) of the original value (purchase price) of your home – or 22% equity. Fortunately, with PMI, you can be proactive and attempt to remove this sooner than that.  There are essentially two opportunities, but ultimately, the servicer of your loan (company you’re making payments to) will be the decision maker here on whether they allow this.

First, your LTV must be at 80% or less of the original value based on your amortization or actual payments you’ve made.

Or second, if you can show with a new appraisal that you have the necessary equity required by the servicer, you could request the servicer to drop the PMI.  Ultimately, cancelation is still up to the servicer.

So, the necessary evil isn’t really evil at all – it’s really a GREAT opportunity for you to buy a home without needing 20% down, without having to scrape and save every penny you earn. And, if you’re eligible, you could even get assistance for that down payment with one of the many first time/subsequent home buyer programs available in Minnesota!

End result: the necessary AWESOMENESS is that you can get into a home sooner than later due to this little necessary evil!

Need Money for Closing Costs?

Most of the first time buyer assistance programs require that the assistance you receive, for down payment and/or closing costs, is paid back. Usually it’s paid back over a period of time or the repayment of it is deferred until the house is sold or no longer your primary residence.  Either way, the entity providing the funds gets their money back to help the next home buyer in need.

MN Housing just announced a new grant program which doesn’t require any money to be paid back!  As with all MN Housing programs, there are eligibility requirements.  These vary depending on WHICH MN Housing program you use and there are three of them – Start Up, Step Up and MCC (Mortgage Credit Certificate).  The grant works with all three of their programs AND you can pair it WITH the assistance!

In any case, you still must meet guidelines set forth by the underlying loan type you are securing — FHA, VA, RD (Rural Development) or conventional. If you meet those guidelines, then we look to see if we can layer the loan type with the MN Housing program.

Generally speaking, they have income limits that your household must be under, and as with the underlying loan program, there are minimum credit score requirements. Being a first time home buyer is a pre-requisite for two of the three programs – Start Up and MCC.  And the definition of a first time home buyer is not having ownership interest in a principal residence in the last three years.

The grant is only available when using a conventional loan with your MN Housing program. It cannot be used with VA, FHA or RD.  The grant amount will differ depending on which guidelines your underlying loan is following – Fannie Mae or Freddie Mac.  Who are Fannie and Freddie you ask?  These are the agencies that provide the guidelines lenders follow for conventional financing.  Your lender will determine the best underlying loan for your needs and situation.

To be eligible for the grant, you must have annual qualifying income under $72,320. Qualifying income is the income your lender uses to determine your qualifications for your loan.  For instance, if you are the only one on the loan, but your spouse is not, then the qualifying income is just your income.  This limit is for the 11-county metro area, which encompasses Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Ramsey, Scott, Sherburne, Washington and Wright Counties.  Income limits are lower in the remaining MN counties.

If using Fannie Mae, the grant amount is a flat $1,500 to use toward your closing costs only.

If your lender determines Freddie Mac guidelines are your best fit, the grant will vary based on the loan amount you’re securing and qualifying income – (which still needs to be below the aforementioned limits).  The grant can be used for BOTH closing costs and down payment.  Minimally, you would be looking at ½% of the loan size, but you could be eligible for a larger grant if your income meets lower limits set for the program.  Any lender participating with MN Housing can give you further details.

As always, when working with a lender, make sure they offer these great programs with MN Housing and any other agencies to help you get into your house with as much assistance as possible. And who can say “no” to grant money!?!

Homebuyer Education that is an A+

Goodness – there is a lot of information available for homebuyers, especially for first time buyers. You can search online and find plenty of information, tips and opinions.  Your family, friends and co-workers are typically willing to give their advice too, not to mention all the books on the subject of home-buying.

With so much information from multiple sources, it can be a little overwhelming, not to mention daunting. There is a wonderful resource that we have in Minnesota that can help take the mystery out of buying your first home and give you the one-stop-shop of homeownership research.

It’s called Homestretch. The Minnesota Homeownership Center developed a required class for people who want to utilize first time buyer assistance programs.  This class, however, is not just for first time buyers.  It’s for ANYONE looking to buy a home.  And so much has changed in lending, that getting a refresher after being a homeowner for years isn’t a bad thing!

The class is eight hours long, but is well worth the time investment – not only for the education piece, but also it enables you, if eligible, to participate in many different assistance programs. Talking to your lender will help you determine the programs you might be eligible for.

Homestretch is taught in many locations which you can choose from and can be found by clicking their link on the right side of my blog. You can attend ANY class that’s convenient for you.  If you’re planning on doing any special assistance program, like Neighborhood LIFT or NSP, you will need to attend a HUD-approved Homestretch class.  Their website can direct you appropriately.  As of this writing, there are no more funds in the LIFT program.

During the class, you will learn about becoming a homeowner, how to prepare for this “move” financially, determine your comfort level for a house payment by completing a budget, learn about credit, different loan types, home inspections, the offer process and MUCH MORE! I know I sound like a commercial for Homestretch, but I truly believe in being as educated as possible about the BIGGEST purchase you will ever make.

The in-person class is really the way to go. Since there are other people in the same situation as you, others’ questions can help you learn more than you would from the manual you receive.  Typically, the class will have a few different presenters, possibly a loan officer, a Realtor or a home inspector, to name a few.  These experts can add more value to the printed material too since they know the ropes!

The Homestretch class does come with a cost and each agency that teaches it will charge a different amount ranging from $20 – $50 (typically per household). Also, there are classes taught in different languages, so if English isn’t your primary language, you may be able to find a live class that meets your needs.

But what if you don’t have time to share eight hours with new home-buying strangers? Then you may opt to take the Framework class which is the online version of Homestretch.  This probably won’t take you as long as the in-person class, but you will still learn the same information.  The fee for Framework is $75.  Depending on the program you end up using, as discussed with your lender, you may want to confirm Framework is an option over Homestretch.  Some programs do require the in-person class.

Regardless of what method of learning you choose, in-person or online, this class is the perfect “starting point” for your home-buying journey. It’s best taken prior to even starting your pre-approval process or shortly after meeting with your loan officer.

Being educated on what to expect, what questions to ask and things to avoid is priceless. Homestretch is definitely the way to go if you’re looking for the one-stop-shop for homebuyer education!

Worth Repeating for Smooth Loan Sailing

Getting financing for a new home can sometimes seem a little daunting. It seems like you’re on this never-ending wheel of providing your life history on paper – and then when you think you’ve provided the last of it … the lender wants more.  It’s all to help you get your loan approved so you can realize your homeownership dreams.  Believe me, we don’t want to keep asking you for documents any more than you want to provide them!

Another way to realize those dreams sooner is to keep your nose to the grindstone on a few items that could affect your chances of approval throughout the process. The process of buying a home starts the day you apply for the loan all the way until closing.

This blog is a re-do of a blog I did about three years ago – and it’s worth repeating because even though I go through these items with my buyers, they still “fall off the wagon” and miss some simple steps. My goal is to make it so that you know exactly what NOT to do while you’re in the loan process.

First, and foremost, credit is very important – not only on the day you applied, but even at the time of closing. Lenders will pull credit a few days within closing (called a credit refresh – no scores are pulled) to make sure you haven’t increased any balances, opened any new credit (big or small) or incur any new derogatory items.

So, it should go without saying, continue to pay your bills on time; don’t open any new credit and certainly, don’t increase balances on current credit. Oddly enough, don’t close any accounts either as this could have a negative effect on your scores.

Credit reports are good for 120 days, so if your process takes longer than that, you may need to have a full credit report (with scores) pulled again. If credit does need to be re-pulled, lower scores could mean not qualifying for the program you want, increased interest rate or increased monthly PMI.  It’s important to keep your credit as shiny as possible just in case.

Here is the list of items to avoid while you’re in the process relating to your credit. Some items may be unavoidable, so it’s always best to chat with your lender about these or any future changes.  Your lender is your ally – we are all trying to get you to the finish line!

  1. As mentioned, don’t open any new credit – credit cards, interest-free accounts for new furniture, etc, cars, co-signing for someone – anything. Just say “no!”
  2. Don’t close any accounts – this is something you can do after you close on your home if you really want the account to no longer be available to you. But again, it could bring your scores down temporarily.
  3. Don’t increase balances – you basically want all credit card balances to stay status quo during the process – a little up or down is okay. Believe it or not, just an additional $25 added to your debts could make it so you cannot qualify for your loan any longer – and that is NOT what you want to find out a few days before closing!
  4. Please don’t buy or lease a car – refer to #1
  5. Don’t pay off any collections unless your lender has advised you to do so.
  6. Try not to incur any collections. I realize this isn’t something you have control over, BUT, if you happen to get a past due notice during this process, please pay your bill so it doesn’t go to collection.

And what about your assets or your bank accounts? Believe it or not, changes to those could possibly affect your loan approval.  For instance, with many first time programs, the buyer is required to have $1000 of their own money into the transaction.  If there are a lot of cash deposits into the account, the lender will have a hard time proving the money is theirs, since cash is not acceptable for the transaction.

Here are the things to avoid with regards to your bank accounts.

  1. Don’t make any cash deposits. Though the money may be yours, we have no way to prove this. If you need the money for closing, the best advice is to use your cash for bills and spending money so your employment income can just keep building in your account. That is easily verifiable.
  2. Try hard not to bounce any checks. This can be a sign of money mismanagement.
  3. Please copy any checks you deposit that might not be from your work. Better yet, contact your lender first to make sure putting that money in is okay – they will advise what to do in order to document this is your money.
  4. Talk to your lender FIRST before receiving any money as a gift. There are steps to follow and it’s much easier to document forward vs. having to chase down paperwork.
  5. Don’t deposit any unsecured funds. Loans you take out not tied to your 401K or cash advances on a credit card are unacceptable sources of money for closing costs or down payment, so please don’t do that. 401K loans are acceptable and please discuss with your lender if you intend to go this route.

Last, your job could change things too. A few days before closing we will contact your employer to confirm you’re still employed.  SO, the simplest advice is to KEEP YOUR JOB.  If you have the opportunity to change employers or change positions within your company, please let your lender know first.  A change in pay structure, like going from salary to salary plus commission, could affect your chances of getting your loan.  Or, if you’re doing a first time buyer program, a raise in income (though a GREAT thing) could put you over income for a first time buyer program, taking away your down payment assistance.  It’s best to chat with your lender so you know what your options are before making a job move.

Ultimately, as a lender, we want your loan process to sail as smoothly as possibly. With the right current and rudder to guide you (information above), you should have no problems making it to your homeownership destination!

Should You Jump on Too?

The market has improved in pricing and rates are certainly looking good. Just because rates have gotten better and “everyone” seems to be refinancing, does it make sense for you to jump on the bandwagon too?

As with all financial decisions, it makes sense to understand your current mortgage situation. Here are some questions that will help a lender give you the best possible advice on the viability of a refinance and the possible benefits.

ID-100265173What is your current rate now? The general rule of thumb for a refinance to make sense is to drop your rate by 1 – 1.5%. If your loan amount is under $150,000, you may need the rate to drop 1.5 – 2% before refinancing will make financial sense.

Do you owe on any second loans, home equity loans or did you get any down payment assistance when you purchased your home? If you have these types of loans, and your goal is to pay them off, the new loan may be called a cash-out refinance. This type of refinance will require you to have more equity in the home and may have a little higher rate.

If you have a second loan, you may have to keep it depending on how much equity you have in your home. If the second loan was used for a down payment to buy your home, we may be able to use one of MN Housing’s refinance programs. Feel free to contact me if this situation applies to you. I would be happy to explain it in more detail.

What is your home value? Fortunately, the market is improving. Certain loan types will require you have a minimum amount of equity in your home or you may have to carry mortgage insurance.

Will the savings offset the closing costs? With all refinances, there will be costs involved, from the lender, title company and third parties. Also, a new escrow account will be established for future payments of taxes and insurance. Lenders can run these numbers to determine the charges and figure out the period of time to recoup the fees. The rule of thumb is to recoup the fees in less than 2 years. The costs may be covered by the lender (pay a higher rate), covered by you out of pocket, or rolled into your loan.

The last, and most important question – How long will you live in the home? If all the numbers align, but you only plan to live in the home another 2-3 years, refinancing may not make sense.

These are just a few of the questions to really determine if refinancing is right for you. Just because your friend, family member or co-worker is doing it, doesn’t make it the right financial decision for you. I’d be happy to assess where you are and where you want to be, to see if you should jump on the bandwagon too!

*Image compliments of Stuart Mills|freedigitalphotos.net

You ARE Worthy!

Life is hard, and at times, just not fair!  Things happen – whether it’s a job loss, divorce, decline in home values, medical emergency or death in the family.  These things wreak havoc with our financial well-being.

The above reasons, and I am sure many more, played a large role in people filing bankruptcy, losing their home to foreclosure, or for some, having to sell their homes as a short sale just to get out from under.  It’s tough, and for those of you who experienced these major set-backs, I am truly sorry you had to deal with such devastation!

ID-100142021You might be thinking your chances of owning a home for the first time, or ever again, will never happen after these experiences.  I am here to tell you that we all have second chances and you are worthy of being a homeowner!  But how?

First, it helps to know the general guidelines for loan qualification after a short sale, foreclosure or bankruptcy.  The guidelines vary by the type of loan you take out.  FHA, the Federal Housing Administration, will be more lenient than Fannie Mae or Freddie Mac, which offer conventional loans.  Sometimes, there are extenuating circumstances that could lessen the wait period, but those are considered on a case-by-case basis.

Bankruptcy – home financing eligibility date is taken from the date the bankruptcy was discharged from the courts.  It is also dependent on the type of bankruptcy – Chapter 7 or 13.  I will advise for Chapter 7 bankruptcies, but the wait period may be less with a Chapter 13 if certain requirements are met.

  • FHA & VA:              2 years
  • Conventional:   4 years

Foreclosure – eligibility date is taken from the latter of the sheriff’s sale date or the date the claim was paid to FHA.  The claim date is only applicable if the loan foreclosed upon was FHA financing.  This date is usually 3-6 months after the sheriff’s sale.  Conventional financing could have a shorter waiting period depending on circumstances and other criteria.

  • FHA:                          3 years
  • VA:                             2 years
  • Conventional:    7 years

Short Sale – eligibility date is the date the sale of the home took place.  The waiting periods are the same as a foreclosure, except with conventional, where the waiting period can vary depending on the circumstances, as well as the amount of money you have down.

Once you’re over that waiting period, then what?  As lenders, we certainly want to see that you’ve re-established credit.  We understand that your credit and finances took a beating during that time – it happens!  But, we want to see that you came out in a better place.  We’re looking for on-time payments and a lack of derogatory credit, such as collections or charge offs.

Long and short of it – you ARE worthy, and after having a bankruptcy, short sale or foreclosure in your past, there is hope of becoming a homeowner!  We’d love to help!

*Image compliments of Stuart Miles — freedigitalphotos.net

 

Out with the Old, In with the New

In August, MN Housing retired one of their popular MN first time homebuyer programs – Home Help. This program was very beneficial for borrowers with lower incomes and allowed a borrower to get a larger amount of down payment assistance – up to $10,000, as a deferred loan. Home Help had some obstacles making it a little more difficult to obtain, such as a special home quality housing inspection. Though the borrower qualified for the program, the home may not have.

Fortunately, MN Housing didn’t leave us hanging without a replacement – one that’s similar in terms of assistance, but different in that the previous obstacles are now gone!  As of October 1, 2014, MN Housing is now offering the Deferred Payment Plus program (DPP for short). This is a secondary alternative to the current Deferred Payment Loan program.

For some clarification, a deferred payment loan is just that – deferred. There is no interestID-100246872 rate tied to it and no monthly payments are required. Full repayment of the loan is due upon sale of the property, or when it’s no longer your primary residence, or if you were to refinance the home without using a new MN Housing loan.

The current Deferred Payment loan allows a borrower to get up to 5% of the sale price with a maximum assistance amount of $7,500. For a household of 1-3 people, the maximum household income is $60,000. Larger households have higher income limits depending on the number of members. Household income is defined as ANY income derived from any of the borrowers on the loan, whether consistent or not, as well as any spousal income from a spouse NOT on the loan.

You could qualify for more than the $7500, depending on your need, with the Down Payment Plus program. To qualify for more funds, which go up to $10,000, there are some additional parameters that must be met. At least TWO of the following items must apply to your situation in order to be eligible for the higher assistance.

  • You’re a single head of household with dependents
  • You have a household of four or more people
  • One of your household members is disabled
  • Your front end ratio is over 28%

The first three are pretty simple to understand. The fourth parameter, the “front end ratio,” may need some explanation. As lenders, we look at how much of your GROSS monthly income is used toward your house payment, which we call the front end or “housing” ratio. We also look at how much you spend toward your housing AND other monthly obligations, this we call the “debt” ratio. For the “front end ratio” to be one of the two items for you, the proposed housing payment must be higher than 28% of your gross monthly income. Your approved MN Housing lender will help you determine this.

The DPP loan with MN Housing is a wonderful opportunity to help you and your family make homeownership attainable. With all the MN Housing programs, there are other qualifying parameters. You can find further information about these requirements on their site or allow us to go over those guidelines with you. We’d love to help determine your eligibility to make your home buying dreams a reality!

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Why Buy?

“Why not?”  is my response to that!  I’ve seen a lot in the two decades I have been in this industry.   The market can change, which is out of our control.  Due to this, there are certainly better times to buy than others, but making an investment in a home is a positive step for most.

As you have seen in the news, rates continue to be near all-time lows.  This won’t last forever.  At a Minnesota Mortgage Association conference I attended, a chief economist from Freddie Mac spoke on predictions.  His prediction is that by this time next year, 30-year rates could be in the 5’s.  Relatively speaking, rates in the 5’s are still good.  Of course, for those of you who were able to take advantage of 30-year rates in the 3’s, this may seem “high.”  It’s all relative.  When I got in the business over 20 years ago, a 30-year was over 9.5% — sure makes the 4’s and 5’s look pretty good, right?

ID-10017957 (1)Appreciation is another great reason to buy.  I understand that since the fall of the market in 2006, our housing appreciation has not been a factor, but overall in the picture of homeownership, you will likely have home appreciation.  In the early 2000’s, home appreciation was obnoxiously high with double-digit value increases.  This isn’t typical and helped play a part in the fall.  That said, it’s quite normal to expect 2-3% increases each year and luckily for most homes in MN, that is currently the trend.

You can thank the federal government for another reason to buy – mortgage interest deductions.  There are discussions in Congress to take this deduction away, which will be a shame if that’s the case.  As of now, the interest you pay on your loan is tax deductible.  Depending on your tax bracket and standard deduction, you may have excess deductions above the standard deduction to reduce your taxable income – meaning less in taxes for you!

There are many programs available for first time and subsequent buyers to help with down payment and closing costs.  In years past, these assistance programs were limited to just MN first time homebuyers.  That is not the case anymore with the popular MN Housing program.  If homeownership is on hold so you can save money, you may want to talk to a lender versed in these programs to see if you are eligible.

Of course, the last reason I have (I am sure there are more)  – is pride in homeownership.  There is something to be said for owning your own home – having a place to call yours, a place you can improve or change at your discretion, a place of safety and a place you can be proud of.  It’s an accomplishment to own and quite a wonderful benefit to be working toward YOUR goals of building equity, versus helping your landlord meet their goals of YOU paying for their property.

Why buy?  Again, my response is, “why not?”  If I can assist in helping you determine how homeownership can benefit you, please let me know.  I am here to help!

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