First Stop 4 Home Loans

Who knew you needed money to buy a home?  It’s a crazy thought, but it’s true.  Now … there are programs that can help you with a portion of the required down payment and closing costs.  Or, if you’re a Veteran, you may be eligible for a loan with nothing down.*  Because not all people are Vets or qualify for these first time programs,  you need to know how much is required for down payment and closing costs.  Plus, it’s helpful to know what lenders are looking for in terms of documentation to prove you have the funds to cover these necessary loan requirements.

Let’s start with how much you need, which will depend on the program you’re doing and the loan amount.  In general, on an FHA loan, you need 3.5% of the sale price for down payment and approximately another 4% of the sale price for closing costs.  This number may seem high, but closing costs make up a lot of different things — lender charges associated with originating your loan, appraisal, credit report, funds to start your escrow account, 1-year upfront homeowner’s insurance, title company charges, county charges and possibly a broker commission fee charged by your Realtor.

Your down payment can come from logical sources like your own money, a gift from a family member or even down payment assistance available to some first time buyers.  Money for closing costs can come from these sources too, plus in most cases, the seller can pay for some or all of your costs, depending on the program.  They cannot cover any of your down payment.

Let’s say you’ll be using your own money — which is very commendable.  Lenders will require the last 60 days of bank statements to prove you have the funds necessary for closing and down payment.  Funds can come from many different account types – savings, checking, money market, roth IRA, stocks, bonds, mutual funds, 401K accounts and possibly more.

The big thing to know is that CASH on hand or deposited is NOT acceptable in a mortgage transaction.  Cash cannot be verified or traced, so it’s unacceptable as an asset.  Any deposits made into your bank accounts on the statements you provide for your loan, and those going forward, will be scrutinized in terms of deposits and overdrafts.  It’s important to only deposit your work income while in the mortgage process.  Check out the other things NOT to do in the process.

Taking a loan against an asset is also acceptable for down payment, though the payment, in most cases, will have to be used as a debt in qualifying.  Loans against another home, car or your retirement are typical places you could finance the costs or down payment.  An unsecured loan or draw against a credit card is NOT acceptable.

Assets are important, but not crucial at the time of pre-approval.  For instance, some of my borrowers save during the process.  Though they may not have the funds at our first meeting, they will within a month or so prior to closing.  As I mentioned, gifts are acceptable sources of assets too as long as they are from a family member.  There is a method to the madness for verifying these assets, so please seek advice from your loan officer PRIOR to getting any funds from family.

The take-away from this is that you will need money for down payment and closing costs; however, the amount you need will vary on the program and if you’re eligible for special assistance and/or if the seller agrees to assist with costs.  The other big take away — DON’T make deposits that aren’t from your employment or they will be questioned.  It’s better to be above-board with your loan officer about your intentions rather than finding out at the last minute you have an issue with your loan due to unverifiable assets.

Your pre-approval puzzle is solved now that you have all four things in place.  The glue that will hold it all together is choosing the right loan officer who will help you make sure the pieces are where they need to be.  Of course, it would be my pleasure to serve as your glue, but with anything, you need to find a person you trust and are comfortable with.  Good luck!!!

*You must be a Veteran to qualify for a VA loan.  Zero-down is par for the program, but there are still closing costs that either need to be paid by the Veteran, a gift from family or the seller.

It’s all over the news that rates are at RECORD lows, again!  How lucky can we be?  If you’re looking to buy a home, especially your FIRST home, it’s a great time to consider doing it. 

But, buying a home “just because” the rates are low isn’t a good reason to purchase and some people, frankly, aren’t cut out to be home-owners.  You need to know the time is right for YOU!

The chart below demonstrates where rates have been.  Current 30 year fixed rates are at least 1% LOWER than the low years or 2009 and 2010.  Take that to the bank!

What about the first time buyer programs?  Yup, their rates are soooo low, it’s crazy.   Here is a summary of the most common programs and the rates for the 30-year fixed:
-Dakota County - for homes in Dakota County – 3.75% with up to $10,000 in assistance*
-City Living - for homes in the CITIES of Minneapolis and St. Paul – 3.99% with up to $10,000** or 2.5% of the loan amount toward assistance
-MN Housing – ALL of Minnesota – 3.625% with no assistance or 4% with $4500 in assistance*

Yippee — great rates — what does that mean to you, other than bragging rights over your parents’ rate when they bought their first home?? It means more buying power. For example — let’s say you qualify for a $1500 PITI payment (principal, interest, taxes and insurance), of which $1200 is just the principal and interest. With a rate of 4%, you’d be looking at financing about $250,000 — if the rate were 1% higher, your buying power drops by $25,000.

A better way to look at this … buy a home that’s $25,000 less and have a lower payment by about $130. THAT sounds like a better idea, especially since home prices are in YOUR favor.

NUTSHELL — if now IS the time for YOU to buy, then by all means take the plunge. Make sure you’re working with a lender with experience (like my 17 years) and one that knows and practices the first time buyer programs (in my sleep!). I am here and happy to help!

*Assistance and qualification for program is based on total household income and possibly other parameters set by the program
**Special program with St. Paul based on total household income, as well foreclosure status

The other day, I was meeting with a client for signatures at Caribou.  Behind her was a crooked picture — which was bugging me.  Admittedly, I got up and straightened it, then went back to business explaining the paperwork she was signing. 

Why is this relevant to anything, other than my fanaticism?  It’s ALL about the details with loans, so it’s hugely relevant.  With so many changes in guidelines and requirements by investors, you need to make sure you’re working with a loan officer that not only pays attention to the details, but KNOWS them.

In her case, we were meeting to sign paperwork after she had an accepted purchase agreement.  There is a lot of paperwork with first time buyer programs, not to mention nuiances that make understanding the programs a little difficult — even for me, a veteran loan officer.

I’ve had discussions with clients that didn’t have a clue what they signed when applying for a loan with another loan officer, why it was relevant or what the possible penalties would be for buying with a first time program.  These are all very important details ANY client should be told.

When you’re spending the most money EVER on one item, it’s crucial to work with the right person — someone who knows the programs, the current guidelines (which seriously change daily) and have a true desire to educate and be honest.

Aligning yourself with someone who sees crooked pictures — knows, foresees and attends to the details — will ensure you have a good experience in this not-so-straight mortgage world.

The past few years have been sensational with first time buyer programs and rates. Recently, a few of the popular programs REDUCED their rates again, making this an even better time to “go all in!”

MN Housing, a program that is well known throughout the Minnesota area, has got a few programs. One of their programs offers no assistance, BUT, a low rate of 4.125%* That is incredible!  And, if you want, or qualify for, down payment assistance, you could be looking at 4.5%. All of these rates are subject to change, are 30-year fixed terms and have NO pre-payment penalty!  Keep in mind, they do have a recapture tax, which all subsidized bond programs have.  Don’t let this scare you though … most people don’t have to worry about this when they sell.

Another great change occured with the City Living Program. This is the program availalbe to homes in the cities of Minneapolis and St. Paul. They reduced their rate to 4.25% AND increased their down payment assistance from 2% of the loan amount up to 2.5%! Plus, you may be eligible for funds in certain neighborhoods making the pot even sweeeter!

The Dakota County program also dropped their rate — so 4.35%. They offer 3 different tiers of assistance depending on your household income. And speaking of household income — all the programs have adjusted these limits down just a tad, so please inquire if you’re interested in pursuing one of the programs.

Remember, you’re only a first time buyer once and if you can take advantage of a special program to reduce your rate and possibly help with costs, do it!!!
*Assumes an FHA or VA loan

So, you’re a first-time buyer?  Lucky you!  The market has been perfect for first-time buyers these past few years – more first-time  programs than ever with down-payment assistance, lower-than-market interest rates and the lowest prices on homes that we’ve seen in years.  But, maybe you’ve heard some things about the programs that might make you think twice.  Maybe the lender you’re working with is telling you things like “you’ll have to pay a tax when you sell” or “you have to live in the house for 10 years.”  Let’s get real … can someone really make you live you your house a certain period of time?  Honestly, the stories.  So here’s the truth, the low-down on the programs that will benefit  you the most when you buy your very first house.  For the most part, we can only be a first-time buyer* once (more on this later), so now’s the time to take full advantage.

Myth:  First-time homebuyer (FTHB)  programs are for buyers with poor credit.

Fact:  FTHB  programs are for buyers with credit that meets either FHA, VA or Conventional underwriting guidelines.  These programs aren’t a free-for-all where anyone can get financing just because they’re a first-time buyer.  A lot of people think this and I wish I had better news.  Truth is, guidelines dictate what is acceptable.  The main FTHB programs have minimum credit standards — for the most part, you need a mid-score of 620 or higher.  This is just the starting point.  From there other things are looked at like past derogatory items, how recent any lates have been and even how much credit you have.  One GREAT opportunity with FTHB programs is the ability to help people with NO credit or NO score to potentially get a home loan.  We take pride in being one of the few lenders willing to do this type of financing with the FTHB programs.

Myth:  FTHB programs are for low-income households.

Fact: Of course this isn’t true.  Some of the FTHB programs have household income limits up to $92,000.  I don’t know about you, but I think this is a far cry from “low-income.”  What  may be a better statement is that FTHB programs may benefit lower-income households in terms of down-payment assistance.  This is true for a few of the programs.  For instance, the Dakota County program offers three levels of assistance and the higher your income is, the lower the assistance.  BTW, the link takes you to an older article.  Please note, the rate is LOWER now at 4.45%!

Myth:  Doing a FTHB program will slow the process, delay your closing.

Fact:  Thank goodness this isn’t true!  With any FTHB program, you’re still qualifying for a mainstream loan type — FHA, VA or Conventional.  Adding a FTHB program on top of these doesn’t delay the closing, especially if you’re on the ball. Almost all of the programs require the lender to reserve the funds via an online system — this is pretty much the extent of the legwork other than some signatures.  There is one program, the Hennepin County NSP program, that does require that you get an approval from them first prior to making an offer. On most regular loans, depending on the lender,  typical time frames from your offer acceptance to closing is 45-60 days, which is absolutely do-able with any of the programs, even the NSP program as long as you have your ducks in a row.

Myth:  FTHB programs “force” the buyer to live in their home for nine years.

Fact:  Again, this is just so silly since people can’t be forced, for the most part. to do anything they don’t want to.  The myth here is more mis-understanding.  There is a form called the “subsidy recapture tax disclosure” that states if you should sell under nine years, you may have to pay a recapture tax.  If you get assistance through a federally funded program, you will have this potential tax.  And I say “potential” because more than 80% of the buyers I have helped, this would never become an issue.  And if it did, it’s welcomed because it means they are making WAY more money than they were when they purchased.   This tax doesn’t even come into play unless THREE things happen — you sell under nine years, AND you make a gain on your home AND your household income is over the limits published in the documents you sign at closing.  I guess the main point here is don’t let someone sway you from doing these programs due to a tax you may not even have to pay.

As you can see, there is a lot of wrong information out there.  It’s important to understand the program you’re getting into, but more importantly, work with a lender that offers them and can explain why the program may be a great fit for you.  I’m sure I wouldn’t be in business at this time if it weren’t for the availability of these programs and the expertise I have and willingness to originate these loans.  They are truly one of the best opportunities to first-time buyers and I would love to help you take full advantage of what’s available to you.

*Oh, and I mentioned that earlier that you’re only a FTHB once.  Of course, this really is true; but according to the definition of a FTHB, you could not have owned a primary residence in the last THREE years.  So, if you were a homeowner 4 years ago or in the past, we just have to prove you haven’t had ownership in the most recent prior three years.  We do this by obtaining your last three years of tax returns.

FHA is trying to re-build its reserves again.  Back in October 2010, FHA lowered their UFMIP (Up Front Mortgage Insurance Premium) from 2.25% to 1% to somewhat offset the increase in the monthly MIP (Mortgage Insurance Premium) from .5% to .9%.  This certainly didn’t help FHA buyers with their monthly payments.  It made it so a buyer couldn’t qualify for as much home.  And it took the argument away that FHA has a cheaper payment than conventional financing because the mortgage insurance is less.

So, why did they do it in the first place if it negatively impacted the borrower?  It was necessary.  FHA is required to keep reserves as a government program.  They have paid out, like many conventional PMI (Private Mortgage Insurance) companies, insurance claims to lenders when FHA insured homes go into default.  Unfortunately, they are still under the 2% reserves they are required to have and again, have to increase the MIP.

With case numbers* dated on or after April 18th, be prepared to see your FHA payment rise if you’re in the buying market.  This monthly figure in your payment will go from .9% to 1.15%.  On a $150,000 loan, that makes a $30/month difference.  For some, this may halt a transaction in its tracks.  This isn’t what anyone wants.

Unfortunately, you can’t change when you get an offer accepted.  The advice I can give, especially if you’re tight for qualifying, is to find a home sooner than later and get your purchase agreement to your lender ASAP.  It doesn’t take much for them to order the case #, but it will be a huge bummer if it doesn’t happen.   And, believe it or not, conventional loans, if you qualify, may actually have a lower payment for mortgage insurance — making the argument now favor conventional financing.

Still, some buyers will HAVE to use FHA.  Why? 

• FHA is more lenient on credit scores and allows for “creating” alternative credit.  So, if you don’t have a credit score, you could get FHA financing combined with a first time buyer program.  As of now, the first time buyer programs only require 620 for the mid-score using FHA financing.  Conventional financing will require a higher figure — 680+, if not even 720 or higher. 

• FHA also allows non-occupant co-borrowers to help qualify for the loan.  Let’s say part of your income is salary and some is commission and that income started a year ago.  Though you know you can count on it, lenders won’t for qualifying.  Commission income requires a 2-year history to establish a pattern.  Other income of this nature would be tips, self-employment, bonus and overtime.  Without 2 years, you can’t use it to qualify.  However,  if you had a family member co-sign with you, your qualifying ability could increase.  Keep in mind, my assumption is your family WON”T be paying your house payment, so you still need to use your head and stay within a payment range in which you’re comfortable.

• Did you know FHA offers job-loss protection?  I bet many people, including financing professionals, don’t know this.  If you can’t make your payments due to a job loss, FHA could pay up to 12 months of your house payment to your lender so you don’t fall behind.  The amounts you get will be added to your loan on the end — FHA is nice, but not that nice! 

• Another reason people may choose/need FHA financing is for rehab.   A loan type, called the 203K loan, offers rehab assistance that is added to the purchase price.  You still pay a lower amount for the home, but we add the fees and repair bid to the purchase price.  Your 3.5% down is figured on that higher number.

Long and short — if you have to do FHA, I suggest getting a purchase agreenment prior to April 18th.  Otherwise, prepare to pay the price when the 18th rolls around.  So stop waiting for something  better to happen with the market.  It’s not going to happen.  Get pre-approved and get out there and look! 

*Case number — a number assigned to a loan and a property address.  Lenders enter the property information into the FHA system, which then generates this number.   It’s like a social security number for the house.  If the current borrower doesn’t buy the home, and another person does using FHA financing, the case number will still attach to the address.  This also means if an appraisal was done, the appraisal sticks too and is used by the new lender.

For a short time, we were fortunate to have a true zero-down payment loan thanks to MN Housing.  Well, last week, MN Housing chose to stop offering these loans.  Here is what they had to say in their enews note:  “Under the direction of its regulator, the Federal Housing Finance Agency (FHFA), Fannie Mae has discontinued the HFA Affordable Advantage initiative.”  So, this isn’t just MN Housing saying no-way to keeping this program alive; it’s Fannie Mae.

Was it too soon to bring back such a risky loan in our current mortgage atmosphere?  I think many people thought that zero-down loans were the cause of the fall and the start of the so-called “mortgage meltdown.”  I have opinions on this, but my assumption is these loans are not to blame.  The loans that didn’t perform were those that were made to risky and not-so-credit worthy buyers.  It’s true, many of these loans were zero-down payment loans, but they had the added risk of being an adjustable rate loan (ARM). 

How most people financed these loans was to do a first loan at 80% of the value of the home, avoiding private mortgage insurance (PMI), and adding a second loan for the 20% down, thus not having any “skin” into the deal.  Pretty sure their  loan officer said something like — work on your credit for the next two years, then you can refinance and get a fixed market rate.   Unfortunately, there was a double-whack that occurred when home prices dropped.  First, these people didn’t have equity in their homes to refinance and second, they were stuck in adjustable rate loans that adjusted to very unfavorable rates.  That was the risk and a primary part of our current mortgage state of the union.

Don’t feel left out in the cold.  It’s not all doom and gloom if you didn’t get to use the zero-down program.  There are plenty of programs available.  For most, we’ll  just go back to the way things were a few months ag0 — doing FHA financing with 3.5% down.  The seller can still pay up to  6% of the sale price toward closing costs, so maybe you only need the down payment.  Or, maybe you’re able to get first-time buyer assistance, which is still available and then you might only need $1000 of your own money. 

So put on your happy face and bundle up, ’cause there’s plenty of home buying opportunities and even more programs to take the chill out of needing down payment!

For almost a year, we have been at historically low interest rates.  With 30-year fixed rates under 4.5% and 15-year rates under 4.25%, it’s no wonder people are refinancing their homes or buying new homes.  Though what is surprising is that there aren’t MORE people taking advantage of this. 

Rates are Grrrreat!

For the first-time buyer, the special programs have had LOWER-THAN-MARKET interest rates.  Not only do they offer these competitive rates, most have an option to get down-payment assistance.  The down-payment assistance, in most instances, is actually a second loan that is placed against the home.  The assistance is a zero-interest loan with no payments.  Because it’s a lien on the home, it must be paid when you either sell the home or refinance.  It will be due to a sale since there will be NO reason for you to refinance your loan, ever.  Rates are just too low.

So what about the first-time program rates?  Below is a listing of a few of the most popular programs and what their current interest rates are.  Please keep in mind, these rates are as of this post date and are subject to change at any time.  This is more to show you just how crazy-low rates are.  And yes, these are all 30-year fixed rates, no additional points being charged and no pre-payment penalties.

• Dakota County Bond:  for homes in the Dakota County area — 4.25% — FHA or VA loan
• City Living:  for homes in the city limits of St. Paul and Minneapolis — 4.25% with assistance or 3.99% with no assistance — FHA or VA
• MN Housing:  available in the 11-county metro area — 3.75% (FHA/VA) with no assistance up to 4.5% (conventional) with NO down payment and NO PMI (private mortgage insurance)

A few of these programs can also be used in combination with the FHA 203K rehab loans.  A great way to get into a home that may need some work or that may NOT meet FHA guidelines.  All of these programs have special requirements for owner-occupancy, household income limits and sales price limits.  Feel free to contact me with further questions or to see if you qualify for one of these great programs!

A quick look at the rates today for the MN Housing programs sent us all into an uproar at the office.  MN Housing is quoting 3.75%* for a government 30 year (yes, 30 years, not 15), fixed rate.  This is for their MMP program which doesn’t require the 8-hour Homestretch class, offers no down payment assistance, but DOES offer a great rate.  And when I say great rate, I mean “out-of-this-world-I-can’t-believe-it’s-not-an-adjustable-rate-Macaulay-Culkin-shocked-look” rate.  This is off the charts.  Who would have guessed we would not only see rates this low, BUT, see them on the special first time buyer programs?  Certainly not me!!

Let’s look at some figures using a loan amount of $150,000 (these estimates do NOT include taxes, insurance, mortgage insurance or dues):

• Rate:  3.75%**
• Principal and interest:  $695
• Total interest over 30 years:  $100,042

Compare this to the rate prior to 4 PM today …

• Rate:  4.25%**
• Principal and interest:  $738
• Total interest over 30 years:  $115647

So, the monthy savings is just $43/month, which means $516 a year.  Okay, so not really a HUGE difference; BUT, check out the 30 year savings in interest — over $15,000.  That’s just crazy!  You could take that $43/mo and add another $6000 or so to your purchase price.  That may be worth it just to get into another price bracket.

So what about the zero down payment program?  That rate came down too — also by 1/2%  — from 5% to 4.5%**  Remember, this program’s primary benefit, other than NO down payment, is that there is no private mortgage insurance (PMI).  A regular 30 year right now is about 4.5% or less without using a first time program.  Well, if you had less than 20% down, you would be required to have PMI.  On the above $150,000 loan the PMI would be about $65 in  your payment, eating away at what you could afford.

We are in some crazy times right now, but I cannot say it enough — NOW IS THE TIME to buy a home.  There hasn’t been, and will probably never be, another time in our lifetime to have so many benefits — low rates, low home prices and many special first time buyer programs just waiting to help you get into your first home.  Let me be the one to do that too!

*Rates are subject to change without notice.  This is not an offer to enter into an agreement.  **Assuming 5 days of interest on a $150,000 loan amount, the APR for these rates are 3.899%, 4.403% and 4.656% respectively

I can’t believe how quickly the third Thursday of the month came!  Wow.  I’m ready to educate you on the home-buying process.

The FREE seminar starts at 6:30 and ends between 7:30 and 8pm.  This seminar has been presented many times and continues to be a successful avenue for first time buyers to get their feet wet on the process of buying  home.  Be prepared to learn what you need to do starting with the pre-approval from a lender to getting the keys at closing.  There are a lot of steps in-between but if you’re familiar with them, the process will be much smoother. 

Needless to say, the market is a little upside down.  Things have and are changing daily with regards to down payment, credit requirements, as well as documents needed to verify assets or income.  What hasn’t changed are the great opportunities to get into a home at a great value, pay as little as $750 out of your pocket AND take advantage of some great programs made especially for you.

I will be honored with the presence of my first time buyer partner, Steve Howe.  He will address the other “stuff” you need to know about making an offer, inspections and the process in general.

Our goal for the evening is to give you the information you need to feel comfortable about setting foot into the world of buying a home and eventually, home-ownership.  We want to educate and honestly hope you will gain a clear understanding of the process, as well as the great opportunities the market has to offer you right now.

Please RSVP to Cheryl by clicking here.  You can bring as many guests as you want and most importantly, come with questions!  See you tonight.