Tag Archives: closing costs

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!?!

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

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!

Image compliments of Stuart Mills – freedigitalphotos.net

Pre-Approved for What?

If you’re a MN first time home buyer or are in the home buying market, it’s crucial to obtain pre-approval.  This terminology can mean different things to different lenders.  How much information are they gathering to determine your eligibility for financing?  Are they just asking some general questions via a website and going off what you entered?  What information are they looking at to confidently send you out looking for a home?   Again, this process varies from lender to lender.  Regardless of who you choose to work with, you want to make sure a few things happen.

Compliments Stuart Miles/freedigitalphotos.net
Compliments Stuart Miles/freedigitalphotos.net

First, you’ve provided an application.  The application provides the lender with the stepping blocks to dig deeper into your situation.  It gives them the keys to check credit — which helps them to know if you meet today’s guidelines for a loan.  For instance, are your credit scores where they need to be?  Do you have any derogatory credit that could prohibit you from obtaining financing?  Or even simpler, do you have enough credit established?

Second, they request supporting documents from you.  I’ve heard many people say that they were pre-approved just off of their credit and information they provided on the application.  My concern is nothing was verified.   Different types of income have different requirements on whether we can use it in qualifying or not.  Without seeing paystubs, W2s, bank statements, taxes, and possibly verifications of employment, we can’t really say if someone’s pre-approved.

Third, they’ve taken the time to go over your options and your comfort level.  It’s all good to be told you can buy a house for $250,000, but do you know what a payment looks like for that size home?  Is it even a payment you’re comfortable with?  What are the costs involved with buying a home?  Are you eligible for any assistance if you’re a MN first time home buyer?  Do you know where you will be getting the money from for down payment and closing costs?

Even more important, for “what” are you pre-approved?  Many people say they’re pre-approved for a certain house price.  And while that is partially true, it’s not really what the lender is approving you for.  Based on your income and debts, you will be pre-approved for a PAYMENT.  This will include principal, interest, taxes and insurance (both homeowner’s and possibly mortgage insurance).

Depending on the home type you want, this payment may also include association dues and if you’re using a first time buyer program, it may include a payment for the assistance you’re getting.  This payment will determine the price of the single family home, townhome or condo you may purchase, BUT, the interest rate, taxes and association dues will truly determine the actual purchase price while keeping you within the payment limit.

There’s a lot to know about getting pre-approved.  The most important thing is education.  Understanding what pre-approval means, knowing your options and being comfortable with these are key.  We’d love to help make sure your pre-approval is a “YES!”

MN Housing Makes a Few Changes

So many of my blogs have to do with MN Housing and their great programs.  It’s true, I love working with MN Housing.  They have fantastic programs for MN first time home buyers and even NON first time home buyers.

They offer quite a few different assistance programs to help buyers with down payment, as well as closing costs.  They even offer a conventional loan program with just 3% down and NO monthly private mortgage insurance (PMI).  That’s a huge savings — and another blog post!

up down arrowAs with all MN first time home buyer programs, there are income limits and purchase price limits.  To be eligible for these programs, you need to fall under the household income limits.  These limits have just been revised DOWN a tad.

The new income limits for their Start Up, Step Up and MCC programs have been revised:

  • $82,900  1-2 person household
  • $95,335  3+ person household

Household income is calculated differently depending on the program.  The Start Up program looks at ONLY the income of the people on the loan.  If the person is married, and the spouse is NOT on the loan, the spouse’s income is STILL counted.  All income is counted, even if the lender isn’t using it for qualifying.  For instance, if the borrower gets overtime, but it’s been less than a 2-year history, the lender will not use this in qualifying.  BUT, the income must be calculated for household income purposes.

The Step Up program uses “qualifying income” for the household income.  That means, if the spouse is not on the loan, their income is NOT calculated.  It also means if we don’t use overtime, like in the example above, then that income isn’t used in calculating the household income.  The benefit to this is more people will be eligible for this program!!

As a point of differentiation, MN Housing actually has TWO programs under Start Up which have DIFFERENT income limits than the above.  These limits have not changed and can be found at their site.  The respective programs are the deferred payment loan and the Home Help loan.

They made another change to the purchase price limits.  The maximum price of the property has been increased to $310,000 for the 11-county metro area.  This means if you purchase a home for $310,001, it will disqualify you for the MN Housing program — just make sure you purchase it for $310,000 and you’re golden.  Less is good too!

As with all programs, guidelines change.  That said, some of my older blogs may reference income limits or purchase price limits that are out of date.  Please always check with me, or the respective first time buyer site, on the current guidelines to make sure you’re eligible for the program you want!

Assistance … Not Just for First Time Home Buyers Anymore!

For as long as I can remember, down payment assistance has been associated with MN first time home buyers, meaning the only way someone qualified to get down payment or closing cost assistance was they had to buy their very first home.  This definition is actually broader than a true first time home buyer and applies to anyone who has not owned a home in the last three years.  The broader definition has helped those people who may have experienced a foreclosure or short sale be considered MN first time buyers, enabling them to get assistance.

But what about buyers who own a home now and need assistance?  Is there any help for those folks?  I think many people would consider selling if they had a way to come up with the money needed for their 43next move.  Unfortunately, some people are having to pay to get out of their current homes, leaving them with nothing for the next home.  This just makes the process of moving impossible.  The good news, and answer to the question, is YES, there is help for these folks, thanks to our partners at MN Housing.

Over a year ago, MN Housing introduced the Step Up program.  This is specific to those people looking to refinance a home where they had down payment assistance or to purchase a new home where the NEED down payment and closing cost assistance.  The available loan types are the same as the Start Up program, which is specific to MN first time home buyers.  We can use Step Up with FHA, VA or conventional financing.  The home the borrower currently owns MUST be sold prior to closing on the new home.

The assistance is a true second loan against the home and is required to be paid back.  It’s called the Monthly Payment Loan (MPL). The interest rate on this second loan is the same as the rate the borrower has on their first loan.  All rates are published on MN Housing’s site.

The assistance is equal to 5% of the sale price of the home and the term of the loan is amortized over 10 years.  Most minimum required down payments range from 3 – 3.5%, making ALL the down payment covered by the assistance.  The leftover amount can go toward closing costs.  If worked into the purchase agreement, the seller could cover some, or all, of the closing costs as well, making it so the borrower may only need the required minimum investment of $1000!

As with all MN Housing programs, there are income limits that the household must be under to qualify.  For a 1-2 person household, the limit is $83,900.  Recently, the way income is calculated with Step Up changed, making it so more people can qualify for the assistance they deserve!

If you’re looking to move up to your second, third or even fourth home and need some help getting there, please don’t hesitate to contact me.  It would be a pleasure to see if the Step Up program will benefit you and get you moving up sooner than later!

You … from the Underwriter’s Perspective — The Third “C”

Another piece to your underwriting puzzle — Cash.  I love this one because cash actually isn’t an acceptable source of down payment or closing costs.  The better term for this “C” is assets, or what you have available for the transaction, but then it wouldn’t be with the other cool “C” kids!

You may wonder why cash isn’t allowable, I mean, it’s money and that’s what you need to

courtesy of  ddpavumba|freedigitalphotos.net
courtesy of ddpavumba|freedigitalphotos.net

buy a home, right?  True, but cash isn’t traceable.  We have no idea if it was yours from the tips you made at your server job, money saved at home, a gift from family, an unsecured loan or quite possibly, money derived from other unacceptable sources.  This is why we tell you NOT to make deposits into your accounts using cash with our list of things “not to do” in the loan process.

So if cash isn’t allowed, then what do we look for?  The obvious sources of assets are checking, savings and money market accounts.  We’re looking to make sure that the only deposits going into your accounts are funds from your employment and we determine this by looking at the last two months bank statements.  More statements may be requested depending on how long you’re in the process.  Any other deposits will be questioned, because again, the money could be an unsecured loan or untraceable funds.

Some people have CDs (certificate of deposits), mutual funds, stocks or bonds.  These are certainly acceptable sources.  We would need to prove ownership of the accounts by the last two months statements, prove that you liquidated the funds and have them in your account.  For bonds, we would get copies of the actual bonds.  A Roth IRA is also usable.  Typically, you can pull everything out you’ve put in with no penalty.  You aren’t able to take any of the funds you’ve earned from the investment though.  Since I am not a financial planner, I would get their advice on this.

Retirement accounts are other acceptable sources of assets.  Most of the time we use retirement or 401K statements as reserves.  That means, we’re looking at the balances just to make us feel good about the transaction.  Sometimes, certain programs require reserves.  For instance, we need to prove you have at least 2 months of the new house payment leftover after closing.  Or if you’re retaining your current home while purchasing the new home, we may need to prove six months reserves for BOTH the current house payment and the new house payment.  These guidelines vary by program.

Another source of assets is a gift.  Acceptability of this is dependent on the loan type, but in most instances, a gift is okay as long as it’s from a family member.  There are guidelines on how to get a gift, including a form to be completed called a gift letter.

I’ve mentioned unsecured loans and how they aren’t acceptable, but are any loans acceptable for the money you need?  Yes!  If the loan is secured against another home you own, a retirement account or a car, for instance, then a loan is okay.  If the loan is against anything but the retirement account, we must use the monthly debt payment in your qualifications.

Another form of funds for down payment and closing costs could be from an assistance program, like those found with MN Housing or Dakota County Bond.  These aren’t assets you possess, but would serve proof that you have the funds necessary.  All of these programs would require you have at least $1000 of YOUR own money into the transaction, verified via your bank account or some other asset account.  A gift is NOT acceptable for this $1000 as that would not be considered your funds.

Even the seller can contribute to what you need for closing costs, but there are limits to this and it’s a negotiation between you and the seller.

Of course, there are other forms of assets that I may not have touched on.  To know what you need to purchase a home, it’s best to sit down with a professional to look at all your options!  Last “C” coming up next — Collateral.

Dakota County Program Just Got Better!

MN first time homebuyers buying in Dakota County have a few new reasons to celebrate!  The Dakota County Bond program has made some great improvements to their popular MN first time buyer program with regards to their household income calculation, income limits and down payment assistance amounts!  This is fabulous news!!

As the name implies, this program is for homes purchased in Dakota County and is only available for first time buyers — meaning you haven’t owned a home in the previous three years.  The other MN first time buyer program via MN Housing, does have a down payment and closing cost assistance option for non-first time buyers, as well as MN first time home buyers.

courtesy of Stuart Miles|freedigitalphotos.net
courtesy of Stuart Miles|freedigitalphotos.net

Dakota Bond has three down payment assistance options, depending on your household income.  As shared in a previous blog, household income used to be defined as ALL income derived by ANY person, over the age of 18, who will be living in the new home.  They recently revised this to be in-line with MN Housing’s new definition — income is calculated from the person on the loan, any other person on the loan AND living in the home or the borrower’s spouse, whether on the loan or not.

Their assistance can be used with an FHA or VA loan (must be a Veteran to qualify for VA).  The amount of assistance was previously calculated off the loan amount, but is now calculated off the purchase price — offering MORE money to use for down payment and closing costs.

Here is the break down of their assistance programs — the one that changed was for those people in the higher income category — it went from 2.5% up to 3.5% and now has a higher max loan cap — currently $7500, as is the 5% option.  The max loan amount is $10,000 under the 10% option! (more household size info can be found on their site)

Household
Size
10% of Purchase Price
5% of Purchase Price
3.5% of Purchase Price
1
$28,850
$45,100
$83,900
2
$32,950
$51,550
$83,900
3
$37,050
$58,000
$96,485
4
$41,150
$64,400
$96,485

As with all MN first time home buyer programs, you must attend the Homestretch class.  This course is offered through the MN Homeownership Center.  There is an online version, but if you opt for this, you still need to do a one-on-one session with Dakota County.  Because I feel strongly about education and learning from your peers, I highly recommend the 8-hour,  in-person class.

The assistance from Dakota County is an interest-free, deferred loan.  When you refinance, sell your home or your home becomes non-owner occupied, you must pay the assistance back.  There is also a minimum investment of your own funds of $1000.

Also available with Dakota County is the MCC — Mortgage Credit Certificate.  This can create a $2000/year tax credit.  In a nutshell, 35% of the mortgage interest you pay each year can be used to offset a tax liability, up to $2000/year.  I am happy to explain this further, but an accountant is the best person to advise if this is a beneficial option for you.

We are very fortunate in Minnesota to have so many wonderful programs to help MN first time home buyers obtain their homeownership dreams.  It would be my sincere pleasure to discuss your options to see which programs best fit your situation!

Deferred Loan with MN Housing = MORE Assistance!

MN first time home buyers now have a better opportunity to get down payment assistance! MN Housing recently increased the available assistance on their Deferred Payment Loan program, making this down payment assistance program an option for many more MN first time home buyers!

Currently, there are three types of assistance with MN Housing via their Step Up program. The first, and most popular, is the Monthly Payment Loan.  Just as the name implies, there is a monthly payment tied to this assistance, but it offers the most money for down payment and closing costs.  The assistance is equal to 5% of the sale price with no maximum loan.  The monthly payment for this loan must be taken into account when your qualifications are determined.

my houseRates on the second loan assistance are the same as the first loan and the loan is amortized over 10 years.  As with all MN Housing loans, there are no pre-payment penalties on the first loan OR the second loan assistance.  This is the most used assistance because it has the same income limits as the general MN Housing program — household of 1-2 people is $83,900 in the 11-county metro area.

The new change, which is very exciting, has to do with the Deferred Payment Loan, which is the second type of assistance with MN Housing.  Again, as the name implies, it’s still a loan, which is interest-free, but it’s deferred.  That means, when you sell the home, or the home no longer is your primary residence, you have to pay the assistance back.  Ready for the new changes that will open this to more people?  First, the income limits have been increased from $50,000 to $60,000 for a 1-4 person household in the 11-county metro area.

Second, they raised the amount of assistance.  It used to be 5% of the sale price, with a max loan of $4500.  Though this is helpful, it just wasn’t enough.  The assistance is still 5% of the sale price, but now the maximum assistance is $7500!  This is HUGE.  The main reason — you can get more assistance and there is no monthly payment to consider when determining what you qualify for.

The last assistance program with MN Housing is Home Help.  This is also a deferred payment, interest-free loan which has a forgivable feature.  As long as you live in the home as your primary residence for six years, 50% of the loan amount will be forgiven.  Nice, right??

The Home Help loan has different income limits, lower than the the Deferred Payment Loan, which can be found on their site.  It also has a different calculation for the loan amount, which is determined by their online calculator, but it could be as much as $10,000!  There are some specific guidelines with Home Help which I would be more than happy to guide you through to determine if Home Help is the program for you.

MN Housing has many down payment assistance programs for MN first time home buyers.  For the most part, the appropriate program will be determined by your household income.  Since there are many factors that go into figuring household income, as well as whether the program works for your situation, you need to work with an expert and I can help!  I look forward to guiding you through the MN Housing programs and on your way to homeownership!

 

Need to Qualify for More? A Co-Signor can Help!

MN first time home buyers can jump for joy with recent changes to MN Housing’s Start Up and Step Up programs.  As mentioned in a few previous blogs, MN Housing has made some welcomed changes to how household income is calculated for MN first time home buyers with their Start Up program, and non-MN first time home buyers, with their Step Up program.  They are in the business to help MN first time buyers realize their dream of homeownership and so am I!

The changes don’t stop with calculating income.  Since inception of the MN Housing programs, I have run into a catch-22 with MN first time home buyers – they need down payment assistance, but their income isn’t high enough to qualify for a new home.  They need a co-signor and unfortunately, those two situations couldn’t be combined – until now!

courtesy of Ambro|freedigitalphotos.net
courtesy of Ambro|freedigitalphotos.net

When using FHA financing, co-signors can help MN first time home buyers and other buyers qualify for more of a home.  Sometimes the borrower’s income is too low or some of it isn’t usable due to the type of income (i.e. commission or overtime) or maybe their debts are too high.  Whatever the reason, they can’t qualify for a loan without help.

To the rescue, if the borrower is lucky, is a co-signor, which is normally their parents or some other family member.  We use the co-signor’s income, assets, employment and debts for qualifying.  If the co-signor isn’t willing to help the MN first time home buyer financially, or doesn’t have funds, then the buyer is stuck since they can’t have both – a co-signor AND assistance.

Available now, MN Housing is opening up more doors to MN first time home buyers.  A co-signor is now allowed with MN Housing programs utilizing FHA financing!  We don’t have to use the co-signor’s income when calculating household income if the co-signor is not occupying the property with the MN first time homebuyer.  Now the buyer who doesn’t have enough saved and needs assistance from MN Housing, can also get the “qualifying” assistance needed from their family member.  It’s a win-win for everyone!

We are honored to be a Platinum Level partner with MN Housing and are so excited these changes in effect now.  I’d love to learn more about your situation to see how these changes can help you become a MN first time home buyer or buy your subsequent home with MN Housing’s assistance.