Tag Archives: loan process

What to Expect when You’re Expecting to be a Homeowner

A little play on a book title, but if you’re like me, you feel better about taking on something new when you’re prepared –whether it’s going to college, starting a new job, becoming a parent or buying your first home. When you understand the process, the task itself isn’t so daunting.

The first thing to realize, as you leap into home-ownership, is the need to get pre-approved for financing. The lending industry is under scrutiny in an effort to protect you, the buyer.  Due to this, lenders are required to prove you have the ability to repay the loan.  This means you will be required to provide supporting documents.  This can become quite cumbersome, and frankly, frustrating.  We understand – believe me!  Our goal is the same as yours … help you get a loan.

The first step is the loan application. To make this convenient, we can gather this

courtesy of Stuart Miles|freedigitalphotos.net

information over the phone, on our internet site or in-person, whatever is best for you.  We need information such as your name, contact information, addresses and employers for the last two years, income, assets and your debts.  The application enables us to obtain credit to determine if you meet today’s credit guidelines, which vary by program and financing type.

From there, if all looks good, we gather supporting documents, such as paystubs, bank statements, etc. This information will initially be reviewed by the loan officer for validity and to determine if income matches what’s on the application, among other things.  It’s important to meet with your loan officer to discuss your options, the costs of buying a home, and most importantly, your comfort level in terms of a payment.

Once pre-approved, you’ll look at houses, and hopefully, will find one you want. At this point, you and your Realtor will draft a purchase agreement stating the terms of your offer – price, closing date, what you may want the seller to pay toward closing costs, earnest money amount and any contingencies you desire, such as having a home inspection.  Assuming you get the “your-offer-was-accepted” call, we move on to the next steps.

You may have chosen to do a home inspection. You will pay the inspector directly; this is not part of the closing costs the lender would have gone over with you.  The inspection will help you determine if you want to move forward on the purchase or not.  Hopefully, you are full speed ahead!

Now that you have a property address and aren’t just a TBD (to be determined) anymore, there will be disclosures that are generated for you to sign. Your lender may mail these, email you a link or sit down with you to sign depending on their process.  At this point, you will receive a loan estimate, which will outline all your costs, including down payment and seller paid costs or down payment assistance, if applicable to your situation.  Your lender most likely went over a similar type estimate at your pre-approval meeting so you had an idea what your costs would be.  The loan estimate is still an estimate but is much closer to actual figures now that we know the price, taxes, rate (if you locked) and closing date.

 

At this point, you can lock in an interest rate. Your loan officer will check to see what rates are for the program you’ve decided to use.  Keep in mind, if using a first time buyer program, they publish their interest rates right out on their sites – so the rate is the same with any lender.  Rate locks have expiration dates – that means we must lock the rate long enough to cover you through your closing date.  And something very important – once locked, you’re locked.  If rates go down after locking, you cannot get a better rate and if they go up after locking, the lender must honor that rate.

Depending on how long the time-frame was between your initial pre-approval and the accepted purchase agreement, the lender may ask for updated paperwork – items that get old, like paystubs and bank statements. Eventually, when your earnest money clears, we will prove that left your account.  And, if your credit report has, or will, expire before your closing date, new credit will need to be pulled.  The life on the report is 120 days.

The lender will process your file, order verifications of income, flood certification, appraisal on the home and title work, among other things. Depending on the lender, the file may go directly to the underwriter, or may hang back while the ordered items come in.  The best advice here – if the lender needs any additional information from you, please provide it in a timely manner to keep your process going as smoothly as possible.

Once all documents are in, including an acceptable appraisal and title work, your loan will go back in for final approval. Either after this, or prior to this, the lender will provide you with a closing disclosure, which you must have in your hands three business days (includes Saturday) prior to closing.  Some lenders require you sign this to acknowledge receipt in that time frame.  This will give you the final figures for your closing.

Now the fun — going to closing and getting the keys to your home! You will sign a bunch of documents, get a check or send a wire for money needed at closing (dependent on your program, down payment, etc) and will possibly have a chance to chat with the sellers to find out more about your new home, and maybe the scoop on your new neighbors!

For most people, this process, starting with the application, will take you 60-120 days depending on your situation and motivation. And for some, it may take nine months or longer J  Either way, hopefully this has given you a little more information on what to expect when you expect to be a homeowner!

A Necessary Evil and A Little History Lesson

If you are like many people buying their first home, or subsequent home, it may be tough to come up with a large down payment or much of any down payment. Whether it’s just hard to save, debts are too high or you aren’t realizing enough equity from the sale of your home, down payment savings are tough to allocate.

Ideally, a 20% down payment is the goal to shoot for in order to avoid PMI or MI– private mortgage insurance or mortgage insurance. Reality is, most people, just don’t have that, so they must contend with the necessary evil of paying for mortgage insurance in their house payment.

But is PMI/MI really all that bad? First, let’s look at some history of down payments.   In the early 1900’s, down payments were commonly 40%- 50% for conventional financing – wow!  Of course, a house back then, may have only cost $5,000 – so $2,500 doesn’t seem like that big of a deal, BUT when annual incomes were approximately  $600-$700/year, that made coming up with that money hard, maybe even impossible

To help stimulate the economy, in 1934, FHA (Federal Housing Administration) came along with an alternative to conventional’s large down payments – they offered a minimum down payment.  With it, they charged mortgage insurance on an annual basis (factored monthly into the payment) and also collected an amount upfront called the Upfront Mortgage Insurance Premium (UFMIP), which is financed into the loan.  Throughout the history of FHA, the required down payment, annual MI and UFMIP amounts have adjusted to FHA’s needs (government loan type).

In the late 1950’s, conventional financing wanted to get in the game and make housing more affordable, so in came Private Mortgage Insurance companies (PMI). This insurance, paid for by the buyer, helped lenders feel more comfortable with smaller down payments.

So what exactly does PMI/MI do? Unfortunately, it doesn’t do anything for you.  It is all about insuring the lender in case you default on your loan.  If the lender has to foreclose due to non-payment, they can fall back on this insurance to help cover some of their losses.

With conventional financing, there are certain coverage percentages which differ with PMI depending on your down payment amount and your credit score. If you use a first time buyer program, with PMI, you may even have a lower percentage, thus a lower PMI payment.

FHA’s annual amount for MI doesn’t vary on the credit score. If you put more than 5% down, you will have a lesser annual/monthly amount for your MI.  Even if you put 20% or more down, you WILL still have the upfront and the annual MI with FHA.

What about getting rid of the PMI/MI? This differs by program.  With FHA financing, you can’t get rid of the MI – it will be on your loan the entire term you have it.  Only caveat is if you start with 10% down, the MI will eventually drop off.

With conventional PMI, it will automatically go away when you reach 78% loan to value (LTV) of the original value (purchase price) of your home – or 22% equity. Fortunately, with PMI, you can be proactive and attempt to remove this sooner than that.  There are essentially two opportunities, but ultimately, the servicer of your loan (company you’re making payments to) will be the decision maker here on whether they allow this.

First, your LTV must be at 80% or less of the original value based on your amortization or actual payments you’ve made.

Or second, if you can show with a new appraisal that you have the necessary equity required by the servicer, you could request the servicer to drop the PMI.  Ultimately, cancelation is still up to the servicer.

So, the necessary evil isn’t really evil at all – it’s really a GREAT opportunity for you to buy a home without needing 20% down, without having to scrape and save every penny you earn. And, if you’re eligible, you could even get assistance for that down payment with one of the many first time/subsequent home buyer programs available in Minnesota!

End result: the necessary AWESOMENESS is that you can get into a home sooner than later due to this little necessary evil!

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!?!

Homebuyer Education that is an A+

Goodness – there is a lot of information available for homebuyers, especially for first time buyers. You can search online and find plenty of information, tips and opinions.  Your family, friends and co-workers are typically willing to give their advice too, not to mention all the books on the subject of home-buying.

With so much information from multiple sources, it can be a little overwhelming, not to mention daunting. There is a wonderful resource that we have in Minnesota that can help take the mystery out of buying your first home and give you the one-stop-shop of homeownership research.

It’s called Homestretch. The Minnesota Homeownership Center developed a required class for people who want to utilize first time buyer assistance programs.  This class, however, is not just for first time buyers.  It’s for ANYONE looking to buy a home.  And so much has changed in lending, that getting a refresher after being a homeowner for years isn’t a bad thing!

The class is eight hours long, but is well worth the time investment – not only for the education piece, but also it enables you, if eligible, to participate in many different assistance programs. Talking to your lender will help you determine the programs you might be eligible for.

Homestretch is taught in many locations which you can choose from and can be found by clicking their link on the right side of my blog. You can attend ANY class that’s convenient for you.  If you’re planning on doing any special assistance program, like Neighborhood LIFT or NSP, you will need to attend a HUD-approved Homestretch class.  Their website can direct you appropriately.  As of this writing, there are no more funds in the LIFT program.

During the class, you will learn about becoming a homeowner, how to prepare for this “move” financially, determine your comfort level for a house payment by completing a budget, learn about credit, different loan types, home inspections, the offer process and MUCH MORE! I know I sound like a commercial for Homestretch, but I truly believe in being as educated as possible about the BIGGEST purchase you will ever make.

The in-person class is really the way to go. Since there are other people in the same situation as you, others’ questions can help you learn more than you would from the manual you receive.  Typically, the class will have a few different presenters, possibly a loan officer, a Realtor or a home inspector, to name a few.  These experts can add more value to the printed material too since they know the ropes!

The Homestretch class does come with a cost and each agency that teaches it will charge a different amount ranging from $20 – $50 (typically per household). Also, there are classes taught in different languages, so if English isn’t your primary language, you may be able to find a live class that meets your needs.

But what if you don’t have time to share eight hours with new home-buying strangers? Then you may opt to take the Framework class which is the online version of Homestretch.  This probably won’t take you as long as the in-person class, but you will still learn the same information.  The fee for Framework is $75.  Depending on the program you end up using, as discussed with your lender, you may want to confirm Framework is an option over Homestretch.  Some programs do require the in-person class.

Regardless of what method of learning you choose, in-person or online, this class is the perfect “starting point” for your home-buying journey. It’s best taken prior to even starting your pre-approval process or shortly after meeting with your loan officer.

Being educated on what to expect, what questions to ask and things to avoid is priceless. Homestretch is definitely the way to go if you’re looking for the one-stop-shop for homebuyer education!

Worth Repeating for Smooth Loan Sailing

Getting financing for a new home can sometimes seem a little daunting. It seems like you’re on this never-ending wheel of providing your life history on paper – and then when you think you’ve provided the last of it … the lender wants more.  It’s all to help you get your loan approved so you can realize your homeownership dreams.  Believe me, we don’t want to keep asking you for documents any more than you want to provide them!

Another way to realize those dreams sooner is to keep your nose to the grindstone on a few items that could affect your chances of approval throughout the process. The process of buying a home starts the day you apply for the loan all the way until closing.

This blog is a re-do of a blog I did about three years ago – and it’s worth repeating because even though I go through these items with my buyers, they still “fall off the wagon” and miss some simple steps. My goal is to make it so that you know exactly what NOT to do while you’re in the loan process.

First, and foremost, credit is very important – not only on the day you applied, but even at the time of closing. Lenders will pull credit a few days within closing (called a credit refresh – no scores are pulled) to make sure you haven’t increased any balances, opened any new credit (big or small) or incur any new derogatory items.

So, it should go without saying, continue to pay your bills on time; don’t open any new credit and certainly, don’t increase balances on current credit. Oddly enough, don’t close any accounts either as this could have a negative effect on your scores.

Credit reports are good for 120 days, so if your process takes longer than that, you may need to have a full credit report (with scores) pulled again. If credit does need to be re-pulled, lower scores could mean not qualifying for the program you want, increased interest rate or increased monthly PMI.  It’s important to keep your credit as shiny as possible just in case.

Here is the list of items to avoid while you’re in the process relating to your credit. Some items may be unavoidable, so it’s always best to chat with your lender about these or any future changes.  Your lender is your ally – we are all trying to get you to the finish line!

  1. As mentioned, don’t open any new credit – credit cards, interest-free accounts for new furniture, etc, cars, co-signing for someone – anything. Just say “no!”
  2. Don’t close any accounts – this is something you can do after you close on your home if you really want the account to no longer be available to you. But again, it could bring your scores down temporarily.
  3. Don’t increase balances – you basically want all credit card balances to stay status quo during the process – a little up or down is okay. Believe it or not, just an additional $25 added to your debts could make it so you cannot qualify for your loan any longer – and that is NOT what you want to find out a few days before closing!
  4. Please don’t buy or lease a car – refer to #1
  5. Don’t pay off any collections unless your lender has advised you to do so.
  6. Try not to incur any collections. I realize this isn’t something you have control over, BUT, if you happen to get a past due notice during this process, please pay your bill so it doesn’t go to collection.

And what about your assets or your bank accounts? Believe it or not, changes to those could possibly affect your loan approval.  For instance, with many first time programs, the buyer is required to have $1000 of their own money into the transaction.  If there are a lot of cash deposits into the account, the lender will have a hard time proving the money is theirs, since cash is not acceptable for the transaction.

Here are the things to avoid with regards to your bank accounts.

  1. Don’t make any cash deposits. Though the money may be yours, we have no way to prove this. If you need the money for closing, the best advice is to use your cash for bills and spending money so your employment income can just keep building in your account. That is easily verifiable.
  2. Try hard not to bounce any checks. This can be a sign of money mismanagement.
  3. Please copy any checks you deposit that might not be from your work. Better yet, contact your lender first to make sure putting that money in is okay – they will advise what to do in order to document this is your money.
  4. Talk to your lender FIRST before receiving any money as a gift. There are steps to follow and it’s much easier to document forward vs. having to chase down paperwork.
  5. Don’t deposit any unsecured funds. Loans you take out not tied to your 401K or cash advances on a credit card are unacceptable sources of money for closing costs or down payment, so please don’t do that. 401K loans are acceptable and please discuss with your lender if you intend to go this route.

Last, your job could change things too. A few days before closing we will contact your employer to confirm you’re still employed.  SO, the simplest advice is to KEEP YOUR JOB.  If you have the opportunity to change employers or change positions within your company, please let your lender know first.  A change in pay structure, like going from salary to salary plus commission, could affect your chances of getting your loan.  Or, if you’re doing a first time buyer program, a raise in income (though a GREAT thing) could put you over income for a first time buyer program, taking away your down payment assistance.  It’s best to chat with your lender so you know what your options are before making a job move.

Ultimately, as a lender, we want your loan process to sail as smoothly as possibly. With the right current and rudder to guide you (information above), you should have no problems making it to your homeownership destination!

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

No Credit = No Loan … or Not?

You hear all over the news and in advertisements how important your credit score is. I agree … your score is absolutely important and has become the first go-to thing lenders look at. We want to know what the score is, how long you’ve had credit and how well you pay your bills on time.

But what if you’re one of those people who don’t have a credit score? It happens, even to some people who have some credit established. Maybe the history isn’t enough for a FICO (Fair Isaac Corporation) score to be generated or there are just too few items on the report.

credit  cardI’m here to give you some hope. Not all loan programs require a credit score. The main criteria – you must meet the eligibility requirements of a Minnesota first time homebuyer program. In conjunction with this, we will use FHA financing which allows us to evaluate credit not necessarily reported to the credit agencies.

Really, what it all comes down to is what you have for debt obligations outside of a traditional credit report. It’s imperative that we review credit for the lending process. This means we’re looking for accounts that you pay on a monthly basis, ON TIME and over the last 12 months. Our goal is to analyze three accounts, but that’s not set in stone.

So, what do we look at? Are you renting? Are your payments on time? If it’s a management company or apartment complex you pay, we can verify directly with them your timeliness. If you pay a private party, such as a private landlord, or your parents, we want to see the last 12 months cleared checks, or auto withdrawal, from you to demonstrate you’ve paid on time. As a tip, if you’re living at home, it makes sense to pay something to your parents, EVERY month, for 12 months, always due the same time (say, the 1st of the month) and by check. This way, regardless of the amount, we can look at your history as a source of credit.

What about other sources? Here is a quick reference list of items that you may pay monthly that can be used to develope your credit history. This list isn’t all-inclusive, but a way to get you thinking about what you have out there and how it can help you get your first home! Remember, these items must be in your name.

Utilities, cell phone, car insurance, weight loss plans, lot rent for a mobile home, renters insurance, health club payments, child support/alimony paid separately from your work paycheck, Netflix, gaming sites, internet services, lay-away or monthly payments to a doctor

Not all lenders allow the evaluation of credit from these sources, so you’ll want to ask ahead of time. The main idea I want to get across is that having no credit doesn’t necessarily mean no loan. It’s best to find a lender you’re comfortable with and one that has the ability to walk alongside with you to make your dreams become reality! I am here to help if you so desire!

 

Inspection and Appraisal – Two Peas in a Pod, Right?

The quick answer to this is no, but it helps to understand why they aren’t the same and what purpose they play in your home purchase process.

The inspection is for YOU.  This is the time you can decide to move forward with your purchase, or opt to cancel due to new information, or maybe, you just get cold feet.  The inspection period is the time to reflect on your purchase.

The inspection is NOT a requirement of financing for a home.  It’s optional, but highly recommended.  The cost of the inspection is not part of your loan closing costs.  It is a separate payment made directly to the inspector and can range from $250 – $400.  You choose the inspector, usually with guidance from your realtor.

Most people will make their offer “contingent” on an inspection.  That ID-100270859means, you’re telling the seller you want to move forward, BUT, you first want the home inspected.  Typically, you have a window of time to get the inspection done and that window is defined in the purchase agreement.

The inspector will look for hazards and any immediate concerns, as well as urgent repairs needed after you purchase.    For instance, if the basement shows major water damage or settling of the foundation, this may raise concerns about the soundness of the home.  You may opt to not buy the home knowing that you may be getting into something that you can’t afford in terms of repairs.

The inspector will also look at the positives – let you know what’s good about the house, such as new mechanical equipment or a new roof.  They will also walk you through basic information – how do you shut off the gas or the water in case of an emergency?  How often should you change the filter on the furnace?  They will provide you with great maintenance tips for homeownership.

The appraisal, on the other hand, is for the LENDER.  Of course, you will get a copy of it for your records, but the appraisal is required for you to obtain financing.  The lender wants to make sure that the home used for collateral is not only worth what you paid for it, but also has good future marketability.

As long as you’ve decided to proceed after the inspection, the lender will order the appraisal.  It’s done randomly, meaning the appraiser is not a choice.  This is to protect both the lender and buyer from steering or having influence on the appraiser’s decision.

The appraiser will also look for safety and hazards, but they will also dig a little deeper.  They will compare similar homes – if you’re buying a rambler, they will compare ramblers.  If you are buying a townhome, they will compare similar style townhomes, preferably in the same complex.  They must consider sold and closed properties within a certain radius of the home (typically within a mile) and within a certain time period (typically within 6 months).

There is so much more involved with appraisals and inspections.  Two peas, yes, but not the same pod.  The biggest thing to take from this is that one is optional and for your purposes – the inspection.  From this, you can determine if you want to move forward with the purchase.

The appraisal is for the lender in order to determine if the home is a good risk and will help determine if they can extend credit, as it’s required to secure financing.  In any instance, the hope is that both the inspection and the appraisal are in your favor!

*photo courtesy of hywards/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!