First Stop 4 Home Loans

Every third Thursday of the month we are happy to offer you a free seminar* to learn more about the First Time Homebuyer Process.  Join us on Thursday, the 17th, 6:30-7:30 pm at the Cornerstone Mortgage office located at 436 Gateway Blvd in Burnsville.

From the starting point of getting pre-approved and all that entails to going to closing and signing a bunch of papers to officially dub you a First Time Home OWNER!  We are here to educate, not sell you something.  Steve Howe, Realtor with the Minnesota Real Estate Team, and I will also talk about purchase agreements, the many down payment assistance programs and answer ANY questions you have. Ultimately, we hope you will leave the seminar with a greater understanding of buying a home.

If you’d like to attend, please call Cheryl (952-808-0042) or email her to get your name on the list.  Bring any questions you have so we can address those throughout the seminar or at the end.  We look forward to seeing you this week!

*This is NOT Homestretch.  Go to www.HOCMN.org to register for this 8-hour class.

With so many foreclosures in the marketplace, you are bound to purchase one.  Thing about foreclosures is the process can be a little trying.  There are a few reasons for this.  First, you’re dealing with a bank, so timeliness is not always a priority on their part.  You may not get a decision on your offer as quickly as you’d like.  Sometimes, banks will set a date purchase agreements are due requesting the “highest and best” offers.  This means they’re looking for multiple offers and in this instance, they may have originally priced the home lower than market to create this frenzy.  It is what it is and if it’s a home you want, you have to play by their rules.

Will this Close?

Another thing you can expect with a foreclosure is an “as-is” addendum.  This means that you are buying the house without a seller’s disclosure and in most instances, the bank won’t fix anything if there are any issues with your inspection or appraisal.  Oh, and speaking of inspections … just because it’s sold as-is does not mean you can’t get one or make your offer contingent on one.  It’s still highly recommended.  Let me give credit to some banks out there.  Some WILL do repairs which can be beneficial to you.  Also, just because it’s bank-owned doesn’t mean you can’t ask the bank to cover some or all of your costs.  A good Realtor will be able to advise you on this aspect of your purchase agreement.

The reason a bank completes an as-is addendum, is they have no knowledge of the home.  They’ve never lived there and I’d be shocked if anyone from the bank has even been to the house.  So, if there was previous water damage, storm damage or anything that may negatively affect the home, they won’t know about it.  Typically, there is no personal property offered in these deals.  For instance, if the kitchen still has the appliances, they cannot guarantee they will be in the home when it transfers to you.  If they happen to be there when you move in — woohoo — extra bonus!

When working with the banks on these foreclosures, you can expect, in most cases, that the bank will require you to close with a title company they have chosen.  The bank will run all their transactions through this title company for ease and for familiarity.  Typically, the bank will offer to pay your owner’s title policy.  So you know, the bank may require you to close with their chosen company, though by law, you technically CAN choose your own company.  I would highly recommend you get a solid recommendation from your agent or lender.  Many title companies will adjust their fees to compete with the bank’s company.  I deal with title companies all the time and I know who performs and who could use a little work.  Those that can use a little work are not all bad.  There may be delays in getting paperwork or closing scheduled, but it eventually gets done. 

Sometimes, it doesn’t.  Here’s what happened that should have never happened.  A recent transaction I had didn’t close on it’s desired close date and then didn’t close a week later.  It wasn’t the client’s fault.  It wasn’t due to financing — package and funds were there.  It wasn’t due to the Realtors not doing their job — they did all they could.  It ALL had to do with the title company.  This “title company” had no presence in MN.  The people were slow to answer emails and rarely answered phones.  They didn’t meet with clients, but sent a notary — very impersonal.  Not only that, the title work was “outsourced” which made matters worse.

Needless to say, we needed some paperwork, which took a few weeks to get after persistent emails and calls.  We needed the closing to be scheduled so we knew when to date the closing paperwork and the buyers knew when to be available — never was set.  Since we finally had the necessary paperwork, the agents and client set a date; we sent the package and wired funds.  It’s typical for the title company to provide a HUD to the lender for approval.  The HUD is the itemization of the settlement charges.  We spent the morning of the ”rescheduled” closing date burning the phones up to the closer, as well as emailing.  Nothing.  Right after lunch, we requested the wire be sent back since there was no response or HUD.  Low and behold … a response with a request to give them some time as they are working on the HUD.  That was it, the last communication.  I am not sure why an extra week wasn’t enough time.  Come Monday we still didn’t have the wire back. 

Seems pretty bad, huh?  It is unacceptable to have such poor communication.  In the 16 years I have originated loans, I have NEVER experienced such disregard to all the people involved.  If you think the above is bad … the following is worse.  The family moved from their apartment, had their lives in a truck, their kids hours away with family and no place to go expecting to close on the date set in the purchase agreement.   So, that week the buyers had to pay to store their stuff and live in a hotel, with many days of frustration and uncertainty.  Who wants to go through this?  They didn’t deserve this.  The day the funds were at the title company, we waited … and waited … and the return calls never happened nor did the HUD arrive.  The buyers moved on and are now renting month to month.  They had to, had to provide a home for their children and stop waiting for a closing that wasn’t happening.  Why?  Because a title company couldn’t get their ducks in a row, didn’t have the same customer-focus as the others involved and didn’t have the desire to make it happen.

How could this have been prevented?  Bucking the system with the bank and choosing their own title company.  Does this mean everything would have been rosy?  Not necessarily, but it would have meant familiarity by those who matter — the buyers, agents and mortgage company.  It would  have meant the personal touch of having a person to talk to, someone to depend on and someone to sit across from who knows the programs and can explain the paperwork — not just a notary to stamp after each signature — which is how they planned to handle the signing.  These people could have saved hundreds, not to mention all the time lost in work, on the phone and away from their children.  How do they get that back?  How can they be compensated for what they lost?  They can’t and that is a shame.

Working with the right people doesn’t just mean your Realtor and loan officer.  EVERYONE involved in the transaction needs to have the same goals in mind … YOUR goals in mind.  This obviously includes the title company.  As you can see, they can make or break a transaction — a preventable situation.  I am hopeful that this family can get their lives back in order and I truly hope they can trust again to take that magical step of owning their first home.  They actually gave the title company one more shot and … of course, they still didn’t close.   I pray homeownership happens, as everyone deserves to own a home and more importantly, everyone deserves to be treated fairly, like they matter and be given the common courtesy of great communication.

Huh? What dispute? The one I am having with my roommate or with my parents about buying a home? You may have many disputes going on in your life. The one I am referring to is a dispute you started yesterday or 10 years ago with a creditor.

If you’ve been one to check your credit or maybe have had some issues in the past, you may have seen erroneous “tradelines” on your credit report.  A tradeline is an item of credit — car loan, credit card, mortgage, student loan,etc.  Now, if I were you I would be all over that like a bee to honey.  I’d contact the creditor and “dispute” the inaccurate information.  Wouldn’t you?  The whole goal is to get the right things reporting on your report, not items that don’t reflect your score and ability to pay on time.  True.  BUT one little catch.  Though you’re trying to BETTER your credit situation, you are actually making it harder to get financing.

Seriously?  Helping your credit/disputing an account = tough time getting a loan.  Tough to follow that logic,huh?  FHA is the most popular loan right now and the most lenient when it comes to credit scoring, as well as only requiring 3.5% down.  However, they have this little guideline that has been creating BIG issues for folks getting home loans.  The deal is, if you have disputed an account on your report, regardless of what the dispute consists of, your loan guidelines just got stricter.  Yes, your loan qualifications got tighter because you were trying to help your score improve.  Does that make sense?  Nope, not to me, but lately, many of the “rules” and changes have caused me to scratch my head quite often.

So, what changes with your underwriting guidelines?  For one, your loan must be manually underwritten.  90% of my loans are run through and approved through AUS (automated underwriting system).  Information about you in … decision on a loan for you out.  Slick and easy.  Your file is still processed, verified and still gets in front of an underwriter for the final stamp of approval.  In a manual underwrite, it doesn’t matter what the loan decision is through the AUS.  It’s no longer eligible for this to move to the underwriter faster and with more assurances of getting  your final approval.  It now has to be reviewed in depth and documented in depth in order for an underwriter to make a decision.

The rules to follow:

• Your ratios cannot exceed 31/43%.  This means you cannot spend over 31% of your GROSS monthly income toward your house payment, OR over 43% of your gross monthly income toward your house payment and other monthly debts.  This is concrete; no wiggle room here.  We will use the lesser payment for qualifying when choosing the payment you can be approved for.
• We must get traditional VOE’s and VOD’s (verification of employment and deposits)  So, even though you provided me with W2′s and paystubs, as well as bank statements, we must still get this information from a 3rd party.  No fun especially since some banks and some employers charge a fee to give us that information.  Unbelievable.
• We must do a VOR which is a verification of rent.  Important that we confirm you make rent payments on time.  Don’t worry if you’re not renting and with family; this won’t hurt your chances of getting a loan.
• The biggest one — you must have 2 months of reserves.  In layman’s terms, that means after closing, you need 2 months of your PITI payment leftover.  This can include retirement.  Here’s the thing.  Most first time buyers have a hard enough time coming up with their down payment or minimum investment depending on the first time program the buyer uses.  Now you’re saying we need money left over?  Yup and it hurts.

So how do you combat this?  Well, there may be a way to work on getting the dispute removed.  For instance, you could contact the creditor and tell them you don’t want to dispute the account any longer.  About 30 days after you call, we can re-pull credit to make sure the verbiage “account in dispute” has been removed.  It’s not an ideal situation, BUT, it would allow for a faster decision, more leniency on what you qualify for and NO requirement to have money leftover after you close, though there is nothing wrong with that!

The moral of this story — don’t wait to find a house to make an offer to find out you might have to wait due to this rule.  Make sure you’re getting pre-approved with a lender that knows these guidelines and looks for them when reviewing your report.  Also, there are people I can refer you to with regard to credit restoration if you’re in that boat.  Let me help you get ready for the biggest purchase of your life.  Knowledge is power and the more you know and can prepare for now will save a lot of headaches and stress when you do buy.  I think you’ll have enough of that just from doing something new!

You may have heard that it’s getting harder and harder to qualify for a loan.  It’s true.  Though things have lightened up a bit, some old rules have come back into play, as well as new rules are being enforced more than ever.  For the most part, I am referring to FHA financing below as they are the most lenient when it comes to qualifying for a home.  More than 95% of my clients use this loan type due to this, the lower down payment requirement and the ability to receive a gift.

These days, what do you need to know with regards to credit requirements?

• Your credit score must be 620 or higher.  The line is drawn in the sand on this one — higher requirements for conventional financing.
• You must have THREE tradelines* with at least 12 months history.**
• If you have ANY disputed accounts, we MUST manually underwriter your file, per FHA.***
• Judgments and liens must be paid in full prior to or at closing.
• With FHA, collections do NOT have to be paid off.
• With FHA, student loan payments DON’T have to be counted in the ratios for qualifying IF they are deferred and we can get proof they won’t start until at least 12 months after your first payment is due.

For the most part, these are the main things to know about credit these days.  So you know, first time buyer programs aren’t programs that allow anybody, such as people with bad credit, get a loan.  You first have to qualify for a mainstream loan, like FHA, VA or Conventional.  Once you’ve passed their muster, then we look to see what first time programs meet your situation in terms of income, household size and location.

And some tips for dealing with your credit?  If you want to buy a home, you need to watch a few things:

• Make your payments on time — period.
• Bring your credit card balances down to 50% or less of the available credit.
• Don’t apply for new credit or have your credit pulled.
• Don’t consolidate credit cards.
• Definitely don’t close accounts, whether you use them or not.
• Don’t pay off collection accounts unless your loan officer advises you to (if you pay off an old account, it could negatively affect your score)

Certainly, if you have any questions, don’t hesitate to contact me.  It’s best to talk about what you want to do with your credit PRIOR to doing it.  Easier to “fix” a potential problem before it happens.  Once it’s done, it’s done.

*Tradeline is an item of credit on your credit report.  It can be a credit card, house payment, car payment, student loan or another type of installment debt.  Collections and derogatory credit don’t qualify as a tradeline.

**Some first time buyer programs defer to FHA standard rules and don’t require the 3 tradeline minimum or 12 month history.  Check with a first time buyer expert (like myself ) to see what you can do if you don’t meet these parameters.

***Most loans are run through an automated system to get an answer and all still get seen by an underwriter for final approval.  However, if there is a disputed account, the automated system isn’t acceptable and an underwriter MUST look at the file and stick to standard FHA guidelines.

Do you know the answer to this?  Have you thought about the responsibility that comes with homeownership?  It is nothing like renting.  You can’t just call the supe to come over and fix the clogged sink or make a call when your neighbors are too loud.  It’s a really big deal this thing called homeownership. 

In a recent survey, the main reason first time buyers bought was an affordable market.  The two reasons that followed were the tax credit and the low interest rates.  Now, today is the last day you can take advantage of the tax credit.   As you have heard over and over, you need a signed and accepted purchase agreement  by today AND must close on your new home by June 30th. 

Honestly, how did you answer the question above “Why are You Buying a Home”?  Was it because you could get an $8000 tax credit?  As much as I hate to say this, if your answer to this was yes, you’re not alone.  I have talked to so many people in the last 12 months that decided to buy because of the money the government was giving away.  My advice to them — great incentive to get out and start looking, but only purchase if you’re ready AND completely understand what you’re getting into.  I just tweeted that it’s better to have “lost” $8000 vs. $80,000 or more due to a bad judgment on buying a home just to get the credit. 

Here’s the thing.  Yes, the money will be gone and that’s a bummer.  I can’t help you there.  BUT, what I can do is offer up the other two reasons people bought this year — affordability and low rates.  Seriously, this couldn’t be a better time to buy.  As we discuss weekly on our radio show, MN Real Estate Show on KTLK 100.3, this market is going to be here a little while — at least another 2-3 years.  Home prices are not going to rebound fast because we have more foreclosures to get through.  With that said, homes under $250,000 are still being gobbled up fast if they’re decent homes.  Regardless of that, you have the lowest prices to purchase at in record years.

And what about low rates?  I don’t have a crystal ball — wait, I DO have a bouncy crystal ball, but it doesn’t help me predict the future.  I wish it did and I wish I had that ability.  What I do know is that there are PLENTY of first time buyer programs out there with down payment assistance and lower-than-market interest rates.  I have access to them all, PLUS, we do a few other things that most lenders don’t.  For instance, in one of my blogs I talk about the 203K loan with FHA.  I noted in the paragraph above that homes are gobbled up if they’re decent.  What about the less-than-perfect homes?  As a first time buyer, it’s tough to afford a home and then on top of it have money to do work.  This is your BEST opportunity to make the house “yours”.

These are all great reasons to buy a home.  And there are more, such as no longer paying another person’s mortgage by renting.  May as well put your money into something that will appreciate — though that will take a little time, it’s still a better investment.  There is something to be said about having your own place.  Downside is you will have more expenses, maintenance, including furnishing and decorating.  These are all things to consider.  But, it’s yours.  Not someone elses.  You can do whatever you want to the house.  You don’t have to answer to anyone.  It’s the pride of ownership and that alone is one of the best reasons to buy in my opinion!

Then there’s the “tax credit” you get.  No, not speaking of the one that expires today.  That would be silly.  I am talking about the tax benefit of owning a home.  Most of you probably don’t get to write off any expenses, like the donations you give of stuff or money.  Wouldn’t it be nice to get a benefit from that?  As a homeowner, each year you can itemize all of the interest you pay on the loan and all the property taxes you paid that year.  Did you know, you can also itemize the state income tax that you pay?  Nice benefit there.  I don’t want to mislead you.  Not everyone will get this tax benefit, or I should say, be able to utilize it.  If the loan size is smaller, along with lower rates, you may not have enough itemized deductions to EXCEED the standard tax deduction listed on page 2 of the 1040′s.  And that’s okay.  Sometimes not paying a lot for a home loan is a really good thing!  There’s more to this and I am happy to explain further your benefits based on your situation.

So, the question still stands — “Why are You Buying a Home?”  I’ve given you plenty of reasons that still make sense even though the tax credit is expiring.  My hope is you have other reasons for owning.  But as I said earlier, it’s NOT something to enter into lightly.  As a matter of fact, the best advice I can give you, short of coming to one of my seminars , is to go to a Homestretch Course.  This will not only teach you most of what you need to know when buying, but also what it takes to maintain your home after it’s yours.  Also, this will meet the pre-requisite to be eligible for most of the first time buyer programs.  Look at that — kill 2 birds with one stone — learn about homeownership AND qualify for down payment assistance.  And who doesn’t want interest-free money and lower rates?  Sign me up

Are you buying your first home?  How has your experience been so far — with the realtor, loan officer, even the listing side?  What have you heard about the home buying process?  Is there just one house out there for you or could there be more?  Good questions to ask yourself as you go through this unknown and possibly long process.

I can tell you that everyone’s experience is different.  That’s just the nature of the beast.  But, because this is such a personal decision, you really want to  make sure you’re working with people you can trust and actually like.  I know this may sound silly.  I have known people to buy big ticket items, including houses and not like who they worked with.  Gosh, I hate to say it, but I fell into this category once. 

About 9 years ago, I went to buy/lease a car at Lexus.  Now, I drive a mini-van — nature of the “mom” beast!!  Anyway, we only have 2 options in the MN area for Lexus — I chose the closest one to test-drive on December 31st for their “December to Remember” event– so I was under the gun to BUY before January 2nd.  I test drove a car with a salesperson who I am happy to say is no longer there.  I found the car I really wanted, but needed to negotiate the buyout of my other car — I got an estimate from them, lower than what I KNEW I could get.  I was determined I was going to buy a car THAT DAY, so I brought my husband for his seal of approval.  I had the price of the new vehicle just where I wanted it — now for my trade.  A heated discussion ensued between my husband and the used car sales manager about HOW they determined the price — Kelly or NADA.  Oh, what a night of poor behavior on both parties, even me for not standing up to the rude behavior.  To end it all, the salesperson yelled us out the door saying he never wanted to see him in the dealership again — real professional!

My husband was walking … but I wanted the car.  Being a person of great determination and getting my way, I actually went back to the dealership on January 2 and bought the car.  Yes, I bought the car.  I was blinded by my desire to have THAT car, that it didn’t matter how they treated my husband or us.  Looking back, I am ashamed I let something cloud my judgment and my ethical standards.  To this day, that whole deal frustrates me.  I know how people in sales and the service industry should behave.  Though the customer isn’t always right, they deserve to be treated with decency, care and the utmost respect.  We were NOT respected and I still went through with the deal.

Okay, so where am I going with this?  A car purchase is NOTHING in relation to purchasing a home — a VERY big financial decision.  It makes ALL the difference in the world to not only like who you work with, but who you trust.  As first time home buyers, many Realtors and loan officers don’t “have the time of day” to help you.  Maybe your price point is too low or your knowledge is less than a previous home-owner that they don’t want to INVEST in something that may not reap financial rewards.  I know loan officers AND Realtors that have this mindset.  I do NOT do business with those Realtors.  I want someone who shares my similar values and philosophy — doesn’t matter what price, loan amount or what type of knowledge you have.  It is my responsibility to serve you, to educate you and make sure you are comfortable with the process — a process that can be scary and can be blinding by the new “shiny” house.

So what does love have to do with it?  EVERYTHING!  You don’t have to “love” the people you work with, but you definitely have to enjoy and trust them.  Another point of all this — I bought a car from someone who didn’t care about me, who treated me and my husband with disrespect.  A car … how many of those cars are out there?  I had options.  I did NOT have to buy from them.  With houses, this is the same.  You may fall in love with a home that is perfect for you and your family.  It just may be, but what you need to understand is there are other homes out there.  This isn’t the ONLY home that meets your needs.  The Realtor your working with isn’t the only Realtor out there that can help you.  I am aligned with so many AWESOME agents that really do their job for you.  That’s why we’re here.  Sure, we make money and sometimes not enough to cover the time invested.  BUT, it’s not always about the money — it’s about providing a service with our expertise and show you that we care, that we love what we do and we would like you to love the experience.

There you have it.  So, if you’re in a ”bad relationship” with your Realtor or loan officer, don’t give in.  Don’t think that you can’t do any better, that you have to settle.  I’ve done that and it feels horrible.  Nine years later I remember that experience like it was yesterday.  Just think if I was LIVING in that house that someone sold me that wasn’t my best fit or the payment was really out of my range?  Now how do you think I’d feel?  LOVE the characteristics, knowledge, personality and personality of the people you invest your time with to spend the most money you have ever spent before!

That all depends on who you ask. The first time buyer tax credit ends on April 30th. What exactly does that mean? Do you have to close  on a home by that time – because that’s only 2 weeks away and you’d be hard-pressed to do that. 

The reality is you just need an accepted purchase agreement by the 30th of April. So, that gives you 2 weeks to look at houses and make offers like homes are going out of style. Houses are moving quickly, especially in the first time buyer price point — under $250,000.

So what do you need to get that offer accepted? Most importantly, a SOLID pre-approval. These are tough to find. Many lenders aren’t able to stand behind their pre-approval letters. We can and we do. If you haven’t given your lender your W2s, federal taxes, paystubs and bank statements, you haven’t been fully pre-approved. Your lender is just “assuming” the information you provided is accurate. Proof of these things is crucial to make a backable decision — as is running your loan through an automated system.

Okay, so you have the pre-approval.  Have you been informed of all the first time buyer programs that are available to you or is your lender just brushing off their importance?  Lately, I have had so many people ask how they can get down payment assistance, but they’re pre-approved.  Weird, since their lender should be telling them about ALL their options.  Have you had this happen yet?  I hope not.  These programs may be able to help you get into a home sooner than later too.

The other important date … June 30th.  This is the date you need to close by.  Another important reason to make sure you’re working with a reputable lender.  Seems like this isn’t a problem, it’s over 2 months away, right?  Some lenders aren’t getting things done in a timely manner.  If you have your pre-approval figured out ahead of time, then it’s a quicker process once you’ve found the home.

Long and short, you’re not too late.  You just need to make sure you start looking now.  Oh, and not only is your pre-approval important, but so is the Realtor you choose.  Realtors play a huge part in whether this $8000 can become a reality.  Are they looking for homes every day within your search parameters?  Are they having you act immediately on homes that interst you?

There’s a lot to this puzzle.  It can easily be put together if you have the right corner foundations — reputable lender, knowledgable Realtor, backable pre-approval and desire to be a homeowner!  All the other stuff will fall into place.  As long as you make the efforts to be open to looking daily, willing to take the advice of your Realtor and are willing to supply all paperwork required by the lender in a timely manner. 

So, let me know what I can do to help you reach that pot of gold at the end of the home-buying rainbow — more importantly, give you all the pieces you need to complete your home purchase!  And if we’re lucky, we can help you get that $8000 just for “showing up” to buy a home.

As you may know, there are so many things available for first time home buyers — ending soon is the federal tax credit of $8000.  You need an accepted purchase agreement by the end of April and must close by the end of June.  There have been lower rates and of course, plenty of first time buyer programs.  One in particular is the Ramsey County FirstHOME. 

If you’re looking in Ramsey County, or I should say, the “suburbs” of Ramsey County, you could take advantage of a great opportunity.  If you’re looking in the city of St. Paul, then there is a different program you may be interested in — the CityLiving program.  But, if you want to live in one of the many cities* of Ramsey County, this may just be the program for you.

Available as an interest-free loan, is up to $20,000 that you can use toward closing costs and down payment.  There’s a few ways you can use this money to your benefit.  One, is to help your buying power.  The $20,000 may allow you to afford a larger home or higher sale price.  Speaking of sale price, the maximum purchase price on this program is $200,000.  Or, two, you could keep the price range you’re pre-approved for and bring your payment down.  Not a bad deal.  Did you know that for every $10,000 in price, it’s about $70/mo in your payment?

There are a few guidelines that are specific to this program.  Like all first time buyer programs, there are income limits.  These income limits take into account the total income from the household, not just from the person on the loan.  This even includes children 18 years or older that are working.  Along with this, there is a requirement that you have at least THREE years of working full-time.  The FirstHOME program is not a solution to help first time buyers coming right out of school to qualify for down payment assistance.  A year or so ago, a GREAT change occurred to this program — you no longer have to WORK in Ramsey County to qualify, which opens a lot of doors for more people to qualify.

You must attend the first time buyer Homestretch class overseen by the MN Home Ownership Center.  Even if you didn’t have to take this 8-hour course, I highly recommend it.  It will go over everything from the process with your loan, buying the house and even talk about “what ifs” as you’re a homeowner, such as foreclosure prevention.  And hopefully, with guidelines that are getting tighter and tighter, you won’t have the opportunity to get in ‘over-your-head’ with a house payment.  Trust me when I say, this is never my goal.  Sure, I want to help you get the house you want, but it should never be a the expense of you not being comfortable with or able to make the payment.

An interesting requirement for the FirstHome program has to do with ratios.  Ratios are a certain percentage of your GROSS income (pre-tax) that we can use toward your house payment (housing ratio) or your house payment and your other monthly debts (debt ratio), which ever is less.  For all practical purposes, we are limited to keeping your debt ratio under 45%.  In order to be eligible for the assistance, your “housing” ratio needs to be OVER 30% of your gross income.  The purpose then, for the assistance, is to bring your housing ratio down as close to 30% as possible.  If you are under 30% to start, then this program won’t work for you .

Wanna know something else that’s cool with this program??  How about the ability to use this WITH the MN Housing program, where you not only can get a lower-than-market rate,  but also could qualify for another $5000.  Yes, another $5000 — you could receive a total of $25,000 to use for your new home purchase.  Wowsers!

Anyway, this is a super program!   Let’s see if you can make these monies work for you while you’re still a first-time homebuyer.  If you want further information, please don’t hesitate to give me a shout or email.  I am here to help. 

*Cities eligible for the program:
Arden Hills, Falcon Heights, Lauderdale, Little Canada, Maplewood, Mounds View, New Brighton, North Oaks, North Saint Paul, Roseville, Shoreview, Vadnais Heights and White Bear Lake

As much as I’d like to say pre-approvals are all the same — they’re not.  Though you can buy the same pair of jeans at numerous stores, you cannot get the same pre-approval from numerous companies.  So why not?  If an FHA loan is an FHA loan, then I should get the same product anywhere I go, right?  Not so much.  The thing is, it’s more that all lenders aren’t created equally, meaning you won’t get the same answer or loan suggestions from everyone.  Also, many lenders don’t have access to the first time home buyer programs.  Due to this, you may very well be steered into a program that may not be right for you OR you may be steered away from those first time programs because they’re “too much work”.  Cry me a river.

The question remains, why aren’t pre-approvals the same?  A pre-approval means different things to everyone.  For instance, one lender may see the pre-approval as just running your numbers over the phone, pulling credit and then issuing you a pre-approval letter.  What’s wrong with this picture?  Isn’t this what pre-approval means?  Nope.  The reputable lenders, me included , realize there is a lot that goes into saying “you can buy a house”.  Yes, we need to run numbers and yes we need to get credit; there is still much more to do.  Your loan must be run through an automated underwriting system (AUS).  This is a program with a million different checks and balances to identify risk or maybe conclude it isn’t a risk at all.  We can run FHA, VA and Conventional loans through this system.  And, it’s HIGHLY advised.  Sometimes the program alerts us to something we missed, such as an issue in credit that’s pages down in the credit report and we missed it.  Other times, it helps us pre-approve a buyer that may not have qualified otherwise.  For instance, let’s say the normal guideline is to take 41% of your gross monthly income toward your debts and proposed house payment.  Maybe this is a bit limiting for what you’re looking for.  Looking at your credit and assets, I can determine that you are well qualified to extend yourself a bit.  (NOTE:  I am not here to increase your payment just so I can do a bigger loan.  You need to spend what you feel is comfortable.)  After I run it through AUS, I may get an approval up to 45% of your income.  This just made it so you can afford a larger loan amount and possibly the house you want.  If the payment is something you can live with, then off to the races we go.  If not, then let’s chat about where you want to be.  Ultimately, this decision should be driven by a budget — something that lays out what you owe and what expenses you have monthly in relation to your NET income (after taxes).  You know, things like clothes, dinner out with friends, a $4 cup of coffee every Monday and Friday, or whatever.  It’s crucial to budget.

Okay, so now you know we need to have the loan run through the automated system.  Now what?  We’re all human.  There is that element of imperfection — typing something wrong, from income to assets — the information is only as good as the accuracy of the data entered.  The next part of the pre-approval is gathering documentation for your loan, paperwork that supports what you supplied on the loan application.  I have had this happen before — a client told me he worked an extra 4 hours a week in overtime.  I confirmed verbally that this has been going on for the last 2 years (need a history of this type of income).  He stated that 4 hours was on the low end and sometimes it’s more.  To be safe, I used the lesser number to avoid a possible inaccurate pre-approval.  It was crazy when I finally got the paystub and low and behold, overtime didn’t really exist at all!    Either he’s not telling the truth (and I always give the benefit of the doubt) or the company isn’t paying him as they should be.  Turns out it was the latter.  Bummer, huh?  Needless to say, my income was off, so it was putting a damper on their qualifying power.  We had to adjust their searches down.  As simple as this may seem, it’s not.  I liken it to buying a TV.  Let’s say your research shows that based on your savings, you can afford a 27″ TV (do they make those anymore??).  You head over to the “big box” store and right there, first thing you see, is a beautiful, crystal clear 32″ LCD TV.  Now, I don’t know about you, but that TV is going home with me TODAY!  I’ve seen what I could have (if I could afford it) and know that’s what I want.  Looking at the piddly 27″ TVs just doesn’t cut it.  This is the same experience with buying a home.  If you’re looking at homes in a higher price range and then come to find out you don’t qualify that high because your paystubs don’t support the higher income, you’ll be disappointed.  Nothing compares to the home that was $20000 more than your new approval amount.  And the truth is, nothing will compare.  It’s tough to wean yourself off something so much nicer, bigger or what-have-you than what really works in your budget.  It’s critical that your lender gets this documentation ahead of time before you start looking.  No sense getting your hopes up for something that isn’t obtainable.

Okay, so now we know the AUS system has pre-approved your home loan and your documentation supports that — now what?  How can the pre-approval differ if the lenders are playing by the same rules?  Another great question.  First, not all lenders know what to look at with the documentation or how to even calculate your income.  Sad to say, but true.  And, not all lenders are supported in the back end to fulfill their commitments to your pre-approval.  Anyone can say you’re pre-approved; but can they actually process your loan in a timely manner, underwrite the file in-house AND fund the loan on time locally?  Not many lenders can say this.  The “big box” lenders are having a very hard time getting deals done in a 60-90 day window.  Don’t get me wrong; they can be great lenders.  It’s tough to give great customer service and attention when there are so many pieces of business coming in — too much they just can’t handle it.  Truth be told, some lenders, more specifically loan officers, just flat out lie.  Many years ago, the lending industry got an “escape” clause if you will.  Essentially, per MN Statute, the pre-approval and the full approval are NOT guaranteed since things may change.  Remember the stuff you shouldn’t do while in the home-buying process?  People do those things, such as quitting a job a few days prior to closing.  I mean really, you couldn’t wait 2 days?  It was just that bad?  He didn’t think it was an issue — we had him approved and ready to go.  Bummer is that investors are requiring a verbal verification of employment within 5 or even 3 days of closing.  We MUST call your company to make sure you still work there.  You can imagine our surprise when the answer was no.  He was stuck — closing supposed to happen in 2 days, no job, no loan.  We did the only thing we could — wait until he got the job.  Since this wasn’t my deal, I have no idea how the listing agent/seller reacted to this big delay.  My guess is they weren’t too happy.  Can you blame them?

And last, the company, and/or the loan officer, can make or break whether that pre-approval is just a piece of paper with no value.  There are a few good loan officers out there that do the right things to insure you are actually pre-approved for a home loan.  Then there are those who somehow survived all the changes and still don’t have a clue how to read a paystub, let alone ask for one.  It’s common sense.  If someone mentions that they get paid tips a huge flashing light goes off saying “Verify Income” sooner than later.  Why?  Well, tips vary and we need a 2-year history of earning them to use that type of income to qualify.  Oh and those tips that don’t make it to the W2 or tax return … can’t use them.  You will find that Realtors who have been around a long time, know and recognize those lenders and loan officers who perform with their pre-approvals.  Admittedly, I made a mistake last summer using alimony income.  I took the word of the borrower that it was consistent, month after month she was receiving it.  When I received the bank statements to confirm the stability of this income, I failed to look closely for the consistency.  When the underwriter can’t see a pattern, it’s really tough to use the income.  Holy cow did I learn my lesson by doing a loan that was completely free – no income for my company and no income for me.  But that’s what you do … stand behind your letters and do what you say you’ll do.  I put it out there and I will make it happen.  You need to find a lender that will do that — of course, I would love to be that person for you!

In a nutshell (of say 1600 words or so ), you can see that more things go into a pre-approval than just “running your numbers” on a calculator and calling it a day.  Knowing the lender you work with is so important.  The Realtors I work with are number one in the Minnesota area and realize the importance of working with someone who can perform, even if the audience did pay for the show!  Be cautious and be certain that you work with the best lenders who come through, day in and day out.  It’s not just a piece of paper that is the same no matter who you work with; it’s truly the “ticket” to whether you get on the home-buying train or have to get off right before your destination.  No fun being dropped off in the middle of nowhere with nothing to do but start the journey over — assuming you can find a ride that can get you there.  Hope to help you get there soon!

Another month, another seminar frenzy.  It’s all about you — it’s in my Vision for You and truly is part of who I am.  To me, education is key to owning your first home.  Sure, I want to help you navigate through your first financing experience on a house.  The Realtors I work with want to help you find your very first house.  Business is business, right?  Partly.  As a team, we have an alterior motive — we want you to be as prepared as possible for buying a home.  So, to this end, I dedicate three nights a month to first time buyer seminars with the help of some very awesome Realtors.

So, what’s in it for you?  My hope is that you will walk away with a greater understanding of what the process is, how to get started, what programs can help with down payment assistance and other information to understand what you’re “getting into”.  There are many people out there, maybe you included, that have a desire to own a home, but hang in the shadows due to fear, credit challenges or even stories about your friend’s bad home-buying experience.  With something so big as buying a house, you do not want to go in blindly, not to mention work with people that don’t have the market knowledge and extensive resources for assistance.   This process should be educational, stress-free and believe it or not, fun!  I get reminded quite often while talking to people refinancing that lenders and Realtors are not created equally.  Not everyone gets to experience this knowing the facts, being given options on first time buyer programs or being led through the process.  Many of my clients who weren’t first time buyers with me were slammed into the system of homeownership without a clue about the loan they were doing, consequences of certain programs, and some were even put into loans that they didn’t have to be in. 

How would you like to get a grip on your first home-buying experience?  The awesome team I surround myself with would love to help “get your education on,” with NO obligation.  We’ll discuss the process from the first step of pre-approval to the last step of closing on your home and getting the keys!  Oh, and did I mention it’s FREE*?

I have THREE seminars coming up in March.  These are the same seminars, so feel free to pick the one that fits with your work or home location. 

The South metro seminars are on Monday the 15th and Thursday the 18th from 6:30-8pm at the Cornerstone Mortgage office located at 436 Gateway Blvd. in Burnsville.  I will be presenting these steps with trusted partners, Brandon Hedges — Homes of Minnesota Team, as well as Steve Howe – Minnesota Real Estate Team.  We will help you take that first step to home ownership. 

If the North metro is a better fit, then join us Thursday the 25th from 6:30-8pm at the Shoreview Community Center — 4580 Victoria St N #203.  This time, I have the pleasure of presenting with Steve, as well as Tony D’Agostino, also with the Minnesota Real Estate Team. 

Trust me — you will go away knowing so much more about the process AND will feel more comfortable now that you’re armed with information – info that many lenders just don’t share!!  Both will be a fun and educational evening. 

Please register by calling 952-808-0042 as space is limited.  Hope to see you there!

*ALL of our team’s seminars are FREE of charge. Cornerstone Mortgage is proud to be a drop-off site for the CAP agency, which is a non-profit organization that collects food items and gently used clothing for Scott, Carver and Dakota Counties. If you can, please donate a canned food item, baby food or clean clothing so we can continue to support the families in need in the communites we serve!