First Stop 4 Home Loans

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

Are you currently pre-approved wth FHA financing?  For many, this is the way to go — minimum down payment (3.5%), lower acceptable credit scores (620) and higher allowable seller paid costs (6% of the sale price which will be lowered soon to 3%).  One thing that always frustrates FHA borrowers is the Up-Front Mortgage Insurance Premium (UFMIP) and the monthly mortgage insurance.  Why is FHA charging twice for the same thing?  Let me explain.

First, it’s good to know that FHA is self-insured.  So, if you default on your loan, they provide insurance for the investor.  Whereas on a conventional loan, you pay Private Mortgage Insurance (PMI) to insure the lender in case of default.  The PMI is provided from an outside company and is required on all loans with less than 20% down.  (Of course, if you qualify, you may be able to get  the new MN Housing program that DOESN’T require PMI or a down payment!)

FHA requires the UFMIP on all loans and a monthly amount on all loans regardless of your down payment situation — minimum down of 3.5% or 50% down — you’ll still have it.  One thing many people don’t know is what ELSE the FHA insurance covers.  Let’s say you lose your job and are having a tough time making your house payment.  Like most, you don’t want to lose your home.  FHA’s insurance covers job-loss protection.  FHA may pay up to 12 months of your house payment to save your home and keep your payments on time with your lender.  Those payments will be added on to your loan on the back end.

Right now, the UFMIP is 2.25% of the loan amount.  In all of the deals I do, this is rolled into the loan, not paid out of pocket.  This will raise your payment because your loan amount increases.  The monthly amount is .55% of the loan amount, divided by 12 to get the monthly figure.

Here is what you need to know:  any new case numbers* assigned ON or AFTER 10/4/10 will have different UFMIP and monthly MIP.  Good news is the UFMIP will DECREASE to 1% of the loan amount vs. the current 2.25%.  This is a good change.  The annual premium, or monthly amount, will be INCREASING to .90% of the loan amount — almost double what it was at before.  So what, right?  Well, let’s look at the numbers.

Scenario:

• Purchase price $200,000
• Rate at 4.5% over 30 years
• 3.5% down or 96.5% LTV

Old MIP Scenario

• Loan with UFMIP is $197342
• UFMIP that is included in above loan amount is $4342
• Monthly MIP is $88
• Principal and interest is $991

NEW MIP Scenario

• Loan with UFMIP is $194930
• UFMIP included above is $1930
• Monthly MIP is $145
• Principal and interest is $988

Difference?  Payment is $54/month HIGHER with the new plan.  That means, in real terms, you can afford about $7500 LESS in purchasing power.  Sure, that’s the downside.  But, if you stick with your home for 7 years, you will actually “wash” the difference.  Though FHA will get more of your money upfront (vs being rolled into the loan), you will have MORE equity at that time than with the original plan).  And, stay in your home 10 years, the MONTHLY amount should drop off assuming you’ve reached 22% equity in your home based off your original purchase price.

The moral of the story — buy as soon as you can if you’re using FHA.  $7500 in buying power is HUGE!  Most of you will just stay in your home for 5-7 years if it’s your first home so the “wash” really doesn’t matter.  And who really wants a payment that is over $50/mo more?  Not me.

So, when’s the time?  Now!  Why is it now?  To save on your monthly payment and BUY more home!

*case number:   the number assigned by FHA for your property purchase.  It follows the address and is how an appraisal is ordered.

Are you a first time buyer just waiting to get a home?  Are you trying to save, but finding it tough to do with all your other obligations?  MN Housing has come to the rescue!  Starting around August 16th, with a signed purchase agreement, you’ll be able to obtain 100% financing on a conventional loan.  This just may make it easier to get a loan on some of those homes not allowing FHA financing.

Thankfully, MN Housing realized there was a huge need to bring this back to the first time buyer.  Currently, the most minimum down payment you can do is an FHA loan — 3.5% down.  Conventional financing does allow for 3% down, but the private mortgage insurance is higher.  Due to this, and the fact that MN Housing offers a lower rate on FHA, the payment is lower than a conventional MN Housing loan. 

Now, we finally have a conventional alternative where the payment IS less than FHA!!!  Here are the parameters to the program:

• NO down payment
• NO monthly mortgage insurance
• Must be first time homebuyer
• Maximum household income 1-4 person $83,900
• One unit home, townhome or condo
• Minimum credit score 680
• Seller can pay up to 3% of the sale price toward your closing costs or pre-paids
• Minimum investment of YOUR money — $1000
• Must attend the Homestretch class

Let’s look at an example comparing FHA to this new program.

In the scenario above, you could actually increase your purchasing power by about $4000, which may not seem like a lot, but could get you up to a different price point.  This program has so many positives.  Let’s hope it can help you afford the home you’ve been wanting to buy!

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.

With rates falling, a few of the first time buyer programs have been lagging behind as they still have higher rates.  A regular FHA fixed rate is between 4.5% and 4.75%* today.  The Dakota County program’s rate was at 4.99%.  Many people are still taking advantage of the program since it offers down payment assistance.  Recently, they lowered the rate to 4.75% to be competitive with the market.  So you know, this is a rare thing for first time progams.  Normally when there is money alloted to the counties, the initiative is set at a certain amount of funds and a certain rate.  This is great news!

To repeat, many people are taking advantage of this program not just for the rate, but the opportunity to get down payment assistance.  The Dakota County program offers three tiers of assistance depending on household income.  Household income is defined as income brought in by all people in the home over age 18 and includes such income as bank interest, child support/alimony, side jobs, etc.  Even if the income can’t be used for qualifying (i.e. overtime that has been received for less than two years), it is still figured into the limits for first time buyer programs.  Here are the down-payment tiers:

Household          10%                         5%                      2.5%
Size                  Income Limit      Income Limit    Income Limit

1                           $29,400                $45,100              $84,000
2                           $33,600                $51,550              $84,000
3                           $37,800                $58,000             $92,400
4                           $42,000                $64,400             $92,400
5                           $45,400                $69,600             $92,400
6                           $48,750                $74,750            $92,400
7                          $52,100                 $79,900            $92,400
8                           $55,450                 $85,050           $92,400

Max assistance for the 10% limit is $10,000 and max for the 5% limit is $7500.

So what do the numbers mean? Let’s reference the middle column. Let’s say you have 3 people in your household. That means your total household income must be under $58,000 — one cent over and you go to the next column. In this scenario, you qualify for down payment assistance equal to 5% of the base loan amount, with a max of $7500. The first time buyer assistance is a second mortgage that is placed against your home when you close. It is an interest-free and payment-free loan. If you received $7500, you would pay back $7500 either when you refinance your loan or sell your home.

If you’re looking in Dakota County for your first home, definitely check out this program.  All lenders are not created equally with first time programs.  Lenders must be approved to do this financing.  Obviously, I can help!  It’s time to take advantage of all you have to gain as a first time buyer in this market!

*Rates are subject to change.

Can you say “whoopee?” 

Late Wednesday night (June 30th), the Senate took the lead of the House of Representatives and passed the Homebuyer Assistance and Improvement Act which extends the CLOSING date for those eligible to receive the federal tax credit under the American Recovery and Reinvestment Act.  This is part of the bill that was presented.  You can see other details of this bill here.

First time buyers, those who haven’t owned a home in the last three years, as well as current owners who have owned a primary residency 5 of the last 8 years, were eligible for a tax credit if they purchased a primary residence — up to $8000 or $6500 respectively.  The guidelines required buyers to have a signed purchase by April 30th and CLOSE on the home by June 3oth.

The problem was that many of these home purchases were being held up buy a multitude of things — the banks that own the homes, the banks that are considering a short sale for the sellers and even title and mortgage companies.  The argument was that the buyer was not at fault for this delay if they had the signed agreement by April 30th so they shouldn’t be penalized.  Low and behold, buyers now have until September 30th to close on their house to still get the federal tax credit!!

So, if you are one of those people that thought you missed out on the credit because something was preventing you from closing on your home prior to June 30th, yesterday, then you can breathe a sigh of relief!  Good luck with your process and enjoy this awesome gift from the government!

Is this house-hunting thing making you feel a little unraveled?  With all the homes on the market, people telling you to “buy now” and the overwhelming amounts of information about programs — who can blame you for not keeping it together!  Okay, so maybe do have this process all figured out.  I commend you for doing some homework and getting educated.

Let’s start with what you need to do BEFORE you start househunting — get pre-approved with a reputable and reliable lender.  A pre-approval means you’ve completed an application with a lender, had credit pulled, provided supporting documentation and your loan has been through an automated underwriting system and/or been seen by an underwriter.  If these things DON’T happen, you’re NOT pre-approved.  There are many things that the lender looks at when determining your qualifications. 

In order to determine the accuracy of your application, we must gather supporting documentation — hence, having you “pull it together”.  The list applies to anyone on the loan application and not all items on this list will pertain to everyone. 

-most recent TWO paystubs

-last TWO years W2s*

-last TWO years federal taxes, all schedules*

-most recent month bank statement, showing beginning and ending balance, all pages

-most recent quarterly statement for any accounts not monthly, i.e. retirement, stocks or bonds, all pages

-any court papers such as decrees or bankruptcy documentation

*If you intend on using a first time buyer program, you will need the last THREE years W2s and federal taxes.  This proves to us and the first time buyer powers-that-be  that you have not owned a home in the last 3 years which is the criteria to be considered a first time buyer.

I know what you’re thinking … along the way I may ask for more, including your first born, right?  People have stories and some are quite good.  My goal is to get everything I need upfront so there aren’t last minute dashes to find other paperwork.  Also, if other things enter your situation for buying, we need to address them with … more paperwork, i.e. a gift from family or document a large deposit into your account.  If you want to avoid some of the pitfalls that can cause havoc in your loan process, check out this great article written by my manager.  She makes a very boring thing, like what not to do while in the process, very funny.

Moral of this story — pull it together to support your application information.  If other documentation is requested, please provide that in a timely manner.  The sooner we have your paperwork, the better.  And before I forget, I am NOT perfect.  I make mistakes and sometimes miss things.  So forgive me if I ask for something you gave/emailed me.  I have so many conversations in a day and receive my share of emails.  I try to keep it all straight, but sometimes, it’s just better to ask again.  No double guessing.   The past few months have been fun as I am working with three ladies that all have the same first name!  Mama Mia!  So, forgive me now.  And most importantly, just know that you WILL be given the best service and communication around.

We just completed another successful first time buyer seminar this past Thursday night.  That was quite the night of storms — thought we might be talking to a small, non-existent audience, but we got lucky and people “weathered” the storm!  I hope you all did too and thanks to those of you who did make the trek!

Every month, on the third Thursday, we perform an exciting light show with music and dance — okay, not really.  But we do present an evening of information so you can learn what you need to know before you get out and look at homes.  Please join us from 6:30-8 pm at the Cornerstone Mortgage office located in Burnsville at 436 Gateway Blvd. 

Steve Howe from Re/Max, and I, will walk you through the homebuying process starting with the first step … pre-approval.  That’s the step of getting your financing set up so you know you can actually purchase a home if you find one.  This is CRUCIAL in today’s market since, as a loan officer, I am seeing changes constantly on what investors are requiring to get a loan.  Come learn what the new changes are and come find out about the special programs you may be eligible for to help you afford your new home.

Steve will explain the home purchasing process and what you can expect from a Realtor.  He makes this process simple and easy to understand; whereas I just confuse you!  Just kidding.  Making sure you’re still reading!  He specializes in in helping first time buyers which is important since your needs are vastly different than a current homeowner.

Anyway, we’d love to have you at the seminar, whether it’s in July or our future classes.  And speaking of classes — this is NOT the Homestretch class that is required to qualify for the first time buyer programs.  You can see this as the Cliff Notes, but with additional information on the special programs that Homestretch doesn’t delve into.

Please RSVP with Cheryl to let us know how many spaces to save.  Can’t wait to meet you!  Oh and one pre-requisite … come with questions!