First Stop 4 Home Loans

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

Where have ethics and morals gone in America?  This is certainly a generalization as I know most of you reading this DO have ethics and a good moral compass.  But then there are those people who don’t.  Those people who “stated” income to get into a loan WAY above their means.  Those people who falsified bank statements or W2s or even took another person’s social security number to get a loan.  Those LOAN OFFICERS that suggested these things, suggested doing a 2-year ARM because they can sell in a few  years, suggested the amount of income the borrower “needs” to qualify or suggested a way around the system.  Now, due to this, we’re required to be licensed.   Woohoo … I am sure that will stop people from advising inappropriately.  And speaking of licenses, I officially passed the national exam — so be assured, I am “allowed” to originate loans.  Gosh, I hope so after 16 years of doing this   By the way, this is a long time coming and something I have supported.  Stock brokers are licensed, as are Realtors.  Why we haven’t been is beyond me. 

Did I do stated income loans?  Sure, I did a handful of them — literally less than five.  That’s a very small amount.  Did the people I work with falsify anything?  I have no idea and don’t care to know.  In the instances I can remember, I dealt with self-employed people who made WAY more than what they did on paper, ie federal taxes.  The nice benefit of being self-employed is the write-offs.  As lenders, we appear to penalize them for this.  To some extent we do, but if you tell the IRS you’re making $40K after expenses, but you brought in $100K, then that’s the income — $40K.  It’s a catch-22 for people who are self-employed.  That’s why a stated income program worked.  They’re now illegal in Minnesota and I would be hard-pressed to find a lender willing to do one.  And I get it.  Too many loan officers “coached” their clients.  It’s wrong and it’s caused a world of hurt for the rest of us.

So here we are, in a huge financial crisis and the government is helping people in the above situations “modify” their loans so they can stay in their home.  Don’t get me wrong.  There are thousands of people who were “duped” into certain loan programs with the promise that their credit will improve in 2 years and they could refinance.  This would have been sound advice if the market didn’t tank and values of homes hadn’t dropped.  Now, these people can’t refi AND now can’t make a payment that has possibly doubled.  How can you blame them?  They were told about the best case scenario.  This bugs me, as you can see. 

I am a worry wart — don’t want people upset at me or to come back and say “you told me” and have them in a tizzy over advice I gave.  A few years ago it was practically a requirement to buy a new home NOT contingent on the sale of your old home.  As lenders, we had to count the debt of the OLD house and the NEW house for qualifying.  This makes sense.  But, reality is, how long can someone make 2 house payments?  At some point, just giving up on the old house is easier to do if times get tough.  Heck, it’s not the roof over their heads now.  They still have a place to call home.  I was very upfront with buyers about the potential hazards of doing this.  Ultimately, it’s the buyer’s decision, but I lay it out there — the good, bad and ugly.  And speaking of ugly … in “those” days, if you had a signed lease agreement, you had income we could use to offset the old house payment.  I did a loan where I was given 2 leases for a duplex the borrower owned.  We followed guidelines and used 75% of the rent for qualifying so he and his fiance could move into their new home.  These kids were referred to me by a friend — a loan officer friend that had knowledge of their intent to let the house go.  I found this out about a year later.  To this day, I have no idea if the leases were legit and the renters finally decided to move.  Not a clue.  And I just don’t want to know. 

It’s disturbing to me that I had a part in a loan like that.  I didn’t have the knowledge of the end result, but it makes me feel icky inside that I trusted.  And as my husband will tell you, I trust a little too easy.  It’s my nature to assume you’re being honest unless I see or suspect differently.  Had I known their intention for letting the house go … I would not have done the loan.  My conscience would not have let me.  It’s funny, but we have a disclosure, required by the federal government, that states mortgage fraud is bad, prosecutable to the tune of 30 years in jail and/or one million dollars.  So, what’s funny about that?  The fact we have to “tell” people fraud is bad and not only that, people will still commit it — doesn’t matter if they sign a piece of paper warning them of the consequences.  Unbelievable.

So the moral dilemma as I see it — should we pay our mortgages on time, like we’re supposed to or do we get help from the government for NOT paying them on time?  Hmmmm, reinforcing  and going as far as rewarding bad behavior.  I don’t get it.  Here’s an article that speaks to this too.  I’m not the only one in this conundrum.  And here’s what’s really sad.  Over 50% of those people that modified their loans have already defaulted.  Oh yippee.  That means the government helped subsidize the rate to make the numbers work, paid the lenders a fee to do these types of loans and offer the client a cherry rate.  And what for?

My soapbox is getting slippery and I know views like this shouldn’t be put in blogs, but I feel so strongly about this, about the way the government has handled the misguided, misrepresented and possibly fraudulent buyers that are getting a pat on the back for going against what’s right – disregarding their debts.  As a landlord of a rental unit (used to have two), I am amazed and shocked how many of our tenants pay late or not at all and expected us to deal with it.  How dare us assess a late fee, blatantly addressed in the lease.  When I rented, I paid my rent.  If I didn’t, I was kicked out.  It was that simple.  I was taught that paying what you owe is honorable, ethical and the right thing to do.  It’s how I was raised.  It’s how I will raise my children and how I will continue to advise my clients.  Because these are the right things to do — no moral dilemma on this front.

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.

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!