First Stop 4 Home Loans

As you learned in the previous blog, in most instances,  you do need a job with income to get a loan.  I should be careful saying this, as there are people with steady income via social security, pension, disability or investments that technically don’t have employment and could still get financing. So, the other important piece to this ever-changing pre-approval puzzle is INCOME!

Long gone are the days we could do those crazy no-income verification loans.  In order to figure  out what you qualify for, there needs to be income.  We can’t just write a guesstimate down on the application or use a number that “looks good” from the tax return.  And just so I am clear here, doing this was NEVER okay, but many people in my industry took some pretty dangerous liberties.  Need I say more??

Income comes in MANY forms — the most common is employment.  This is the most logical place I will look.  But some income is sneaky and not-so-identifiable.  Such as investment income.  Many people have assets that earn interest or dividends on a yearly basis.  If the same assets have earned income for the last two years, we can use these as income.

Could we count rent from your sister for income?  The easy answer is no since a lot of things have to fall in place to use this. Most importantly, will she be living with you in the new home and will she continue to rent??  If yes, then the question — can this income be documented with canceled checks from her to you for the rent and did you claim it on your taxes as income with a preferable two-year history???  If so, then there is a good chance we can.

How about the second job you got so you can save more money for down payment?  Easy answer … maybe.  Again, more questions.  Have you been working two jobs for the last two years?  (we sure like the two-year history thing in lending, don’t we??)  This is really the most important question.  If the answer is yes, then more than likely we can.  We’ll look at the hours you put in at both and may have to do some averaging to determine the actual numbers we can use for qualifying.  If, however, you started the job a year ago or 6 months ago to save for down payment, then no, we can’t use it for qualifying.  It is still a good thing and will still help you during this process!!!

How about self-employment or commission income??  You’ll love this … need a two-year history to use these types of income.  And so you know, lenders use the income you reported to the IRS, meaning we use the NET income (or loss for some) after you write-off expenses.  A few things can be added back, but without a lesson on tax returns and lending, this is the easiest thing to remember …. NET.

The two-year history holds true if you want to use tips, bonuses, overtime or even seasonal employment. Tips, by the way, actually have to be claimed to use — so either they show up on your paychecks or your taxes and if they don’t we can’t use them.   Oh, and speaking of seasonal employment, we can even use UN-employment income for qualifying if you work seasonally and have the two-year history of receiving both.

Something I want to point out here relative to first time buyer programs — these special programs have MAX income limits for qualifying.  Even if we can’t use all of your income for qualifying because it’s less than two years or for some other reason, we MUST still use it in calculating income for the program.  Federal guidelines require us to use ALL household income, regardless of it’s source or history.

Let’s say your spouse isn’t on the loan due to credit issues.  Though we aren’t using ANYTHING about their situation on the loan, we still MUST calculate their income for the first time programs.  And if you receive child or spousal support, we must use it under the program guidelines.  If you choose, you could also use this in qualifying for a loan; but there needs to be a history of receiving this income (which that history varies on the program you’re doing); it needs to be on-time and we must document it will continue for at least three years.

Are you a fan of the races or playing a mean hand of poker?  Gambling winnings could be counted as income if consistently received for the past two years!  Rental income from investment properties you own can be used as income.  Payments of pension, social security or disability could be used as income — have to meet not only the two-year rule, but we also need to show the income will continue for at least three more years, just like child or spousal support.

I am sure there are many income situations I haven’t listed and maybe some that are so obvious, they aren’t coming to the top of my head.  The main gist to remember is the “power of two” — having that two-year history.  Not all sources of income require this, but most do, so it’s a good rule of thumb.

As always, I am happy to go over your income situation to determine if we can use it when helping you qualify for a loan.  Next piece to our puzzle — assets — gotta have ‘em!

In putting your pre-approval puzzle together, we look at things other than just credit.  Though credit is such a big, anchoring piece, it’s also important to know about piece #2 — Employment.

Years ago, we had loans available for just about anyone — people who didn’t have jobs, those that didn’t claim any income and even those that didn’t have both!  These loans were called no-income verification loans and for the most part, they just depended on the credit and asset merits of the borrower.  Of course, there were even loans where we didn’t verify assets either.  Buying a house with none of these things verified was truly crazy!!!!

Today, this is NOT the case.  You need to have a job, preferably a stable one AND you need to have a history of working.  Getting out of high school and being on a job for 2 months isn’t an acceptable duration any longer. 

Lenders are looking for a 24 month history of employment, at a minimum.  This history doesn’t have to be on the same job, though it does make your file stronger if this is the case. 

Recently, many people have hit hard times with layoffs and down-sizing.  As an example, maybe  the last 2 years of employment history are spotty – just working 1 1/2 years, then 3 months laid off looking for work and finally starting back up.  Due to this, we will go back further than 2 years to create that necessary 24 months history.

What about college graduates just getting started in the workforce?  If the student had a history of working while going to school, we may have that 24 month history already.  But many times, being a student IS their main job.  In this case, we will look at the schooling as history; but more than that, we want to correlate their schooling (degree or classes they took) with the field they just started in.  In this case, we may not need the full 24 month”work” history.

Back to the recent graduate — what if they can’t find a job in their field of study and have to settle for something else?  First, kudos for finding and accepting work.  That’s great.  In this case, though, we will need to see at least 6 months on the job to show there is some history after their “job” as a student.  As with many things in the loan process, we will look at each scenario on a case-by-case basis.

This leads me to stay-at-home parents.  This is a GREAT thing to be able to spend time with your kids.  Believe me, I know the drill.  If however, you decided to take that time with the kids, whether it be 6 months or 5 years, and get back into the workforce, then we need to show a history of not only working prior to the time off, but also at least 6 months back on the job.  Depending on how long the sabatical was, we may need longer than 6 months — another case-by-case situation.

Then, there is the part-time work moving to full-time work.  This would be seen similarily to the above, in that we may want to see at least 6 months on the full-time job to show a history and the ability to work full-time.

Nutshell — working is a good thing and a necessary one in order to get a home loan.  But it’s not just about working, as you can see, it’s also about duration.  These tips will be true for any person on the loan in which we want to use income.

And speaking of income — that is the 3rd piece to the pre-approval puzzle that I will discuss in my next blog.  Anything I can do to make the process more understandable for YOU is my ultimate goal!

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 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

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 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.

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!