Tag Archives: low rates

Should You Jump on Too?

The market has improved in pricing and rates are certainly looking good. Just because rates have gotten better and “everyone” seems to be refinancing, does it make sense for you to jump on the bandwagon too?

As with all financial decisions, it makes sense to understand your current mortgage situation. Here are some questions that will help a lender give you the best possible advice on the viability of a refinance and the possible benefits.

ID-100265173What is your current rate now? The general rule of thumb for a refinance to make sense is to drop your rate by 1 – 1.5%. If your loan amount is under $150,000, you may need the rate to drop 1.5 – 2% before refinancing will make financial sense.

Do you owe on any second loans, home equity loans or did you get any down payment assistance when you purchased your home? If you have these types of loans, and your goal is to pay them off, the new loan may be called a cash-out refinance. This type of refinance will require you to have more equity in the home and may have a little higher rate.

If you have a second loan, you may have to keep it depending on how much equity you have in your home. If the second loan was used for a down payment to buy your home, we may be able to use one of MN Housing’s refinance programs. Feel free to contact me if this situation applies to you. I would be happy to explain it in more detail.

What is your home value? Fortunately, the market is improving. Certain loan types will require you have a minimum amount of equity in your home or you may have to carry mortgage insurance.

Will the savings offset the closing costs? With all refinances, there will be costs involved, from the lender, title company and third parties. Also, a new escrow account will be established for future payments of taxes and insurance. Lenders can run these numbers to determine the charges and figure out the period of time to recoup the fees. The rule of thumb is to recoup the fees in less than 2 years. The costs may be covered by the lender (pay a higher rate), covered by you out of pocket, or rolled into your loan.

The last, and most important question – How long will you live in the home? If all the numbers align, but you only plan to live in the home another 2-3 years, refinancing may not make sense.

These are just a few of the questions to really determine if refinancing is right for you. Just because your friend, family member or co-worker is doing it, doesn’t make it the right financial decision for you. I’d be happy to assess where you are and where you want to be, to see if you should jump on the bandwagon too!

*Image compliments of Stuart Mills|freedigitalphotos.net

Dakota County Program Just Got Better!

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

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

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

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

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

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

10% of Purchase Price
5% of Purchase Price
3.5% of Purchase Price

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

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

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

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

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

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

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

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

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

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

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

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

Need Assistance, but NOT a MN First Time Buyer? No Problem!


First time buyer programs, as the name implies, are down payment assistance programs for MN first time home buyers.  People buying their subsequent home weren’t eligible for assistance because they didn’t meet the first time buyer definition.  Go figure!  For some, just getting out of their current home might be costly, let alone needing to come up with down payment on the new home – it makes going to the next home nearly impossible.

MN Housing saw this need and came to the rescue about a year ago when they began offering down payment and closing cost assistance to NON-MN first time home buyers via their Step-Up program. The caveat, as with all first time programs, is that the household income must be under their defined limits, which currently, for a 1-2 person household, is $83,900.

courtesy of cooldesign|freedigitalphotos.net
courtesy of cooldesign|freedigitalphotos.net

MN Housing has improved their Step-Up program and it’s better than ever.  As with the change to the Start-Up program for MN first time home buyers discussed in my last blog, the definition carries forward.  Household income is calculated by the person ON THE LOAN and who will be living in the home.  There are two additional differences with the Step-Up income calculation vs. the Start-Up calculation.  With Step-Up, the spouse’s income is NOT counted, whereas with Start-Up, the first time buyer program, it is counted even if he/she is not on the loan.

Second, and most exciting, is we only have to count qualifying income.  Remember I mentioned above that household income includes overtime and bonus, even if we can’t use it as a lender for qualifying?  Well, with Step-Up, if we can’t use it for qualifying, then we don’t have to use it for the household income calculation.  THIS IS HUGE as it will allow MORE second and third-time buyers get assistance.

These are great changes and we applaud our MN Housing partner for this change.  This change is not across the board with all first time buyer programs, so please contact me to find out if these changes can help you get into your second, third or even fifth home sooner!

Not Your Parents’ Interest Rate

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!

What about the first time buyer programs*?  Yup, their rates are soooo low, it’s crazy.   You can find their rates by visiting their sites — MN Housing and Dakota County.

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 — hypothetically, 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% (APR 4.191%), 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

The Rate Stars are Aligning for First Time Buyers

The past few years have been sensational with first time buyer programs and rates. Recently, a few of the popular programs REDUCED their rates again, making this an even better time to “go all in!”

courtesy of Grant Cochrane|freedigitalphotos.net
courtesy of Grant Cochrane|freedigitalphotos.net

MN Housing, a program that is well known throughout the Minnesota area, has got a few programs. One of their programs offers no assistance, BUT, a low rate.  That is incredible!  And, if you want, or qualify for, down payment assistance, you could be looking at a little higher rate. All of these rates are subject to change, are 30-year fixed terms and have NO pre-payment penalty!  Keep in mind, they do have a recapture tax, which all subsidized bond programs have.  Don’t let this scare you though … most people don’t have to worry about this when they sell.

Another great change occured with the City Living Program. This is the program availalbe to homes in the cities of Minneapolis and St. Paul. They reduced their rates AND increased their down payment assistance from 2% of the loan amount up to 2.5%! Plus, you may be eligible for funds in certain neighborhoods making the pot even sweeeter!

The Dakota County program also dropped their rate . They offer 3 different tiers of assistance depending on your household income. And speaking of household income — all the programs have adjusted these limits down just a tad, so please inquire if you’re interested in pursuing one of the programs.

Remember, you’re only a first time buyer once and if you can take advantage of a special program to reduce your rate and possibly help with costs, do it!!!

Lower Rates on Zero Down Payment Loan

A quick look at the rates today for the MN Housing programs sent us all into an uproar at the office.  MN Housing is quoting 3.75%* for a government 30 year (yes, 30 years, not 15), fixed rate.  This is for their MMP program which doesn’t require the 8-hour Homestretch class, offers no down payment assistance, but DOES offer a great rate.  And when I say great rate, I mean “out-of-this-world-I-can’t-believe-it’s-not-an-adjustable-rate-Macaulay-Culkin-shocked-look” rate.  This is off the charts.  Who would have guessed we would not only see rates this low, BUT, see them on the special first time buyer programs?  Certainly not me!!

Let’s look at some figures using a loan amount of $150,000 (these estimates do NOT include taxes, insurance, mortgage insurance or dues):

  • Rate:  3.75%**
  • Principal and interest:  $695
  • Total interest over 30 years:  $100,042

Compare this to the rate prior to 4 PM today …

  • Rate:  4.25%**
  • Principal and interest:  $738
  • Total interest over 30 years:  $115647

So, the monthy savings is just $43/month, which means $516 a year.  Okay, so not really a HUGE difference; BUT, check out the 30 year savings in interest — over $15,000.  That’s just crazy!  You could take that $43/mo and add another $6000 or so to your purchase price.  That may be worth it just to get into another price bracket.

So what about the zero down payment program?  That rate came down too — also by 1/2%  — from 5% to 4.5%**  Remember, this program’s primary benefit, other than NO down payment, is that there is no private mortgage insurance (PMI).  A regular 30 year right now is about 4.5% or less without using a first time program.  Well, if you had less than 20% down, you would be required to have PMI.  On the above $150,000 loan the PMI would be about $65 in  your payment, eating away at what you could afford.

We are in some crazy times right now, but I cannot say it enough — NOW IS THE TIME to buy a home.  There hasn’t been, and will probably never be, another time in our lifetime to have so many benefits — low rates, low home prices and many special first time buyer programs just waiting to help you get into your first home.  Let me be the one to do that too!

*Rates are subject to change without notice.  This is not an offer to enter into an agreement.  **Assuming 5 days of interest on a $150,000 loan amount, the APR for these rates are 3.899%, 4.403% and 4.656% respectively

Is Refinancing Right for You?

This is a common question now that rates have fallen to the lowest levels in well over 40 years.  It would appear that everyone who has a mortgage should refinance because if you can get a lower rate, why wouldn’t you?  In some instances, I would agree; but, the answer is in the numbers.

Currently, I am telling all clients that there will be NO reason for them to refinance.  It won’t make financial sense; their rate is just too low.  As a homeowner, you may get solicitations to refinance because mortgages are public record.  Thing is, the lender doesn’t know your specifics, nor do they have your best interest in mind.  My current clients, from the last year or so,  know I won’t call them to refinance since I DO care whether they do the right thing.

calculatorSo when does it make sense?  One general rule of thumb is the new rate should be more than 1% lower than your current rate.  This isn’t true for all people though.  If what you owe is less than $150,000, you may need the rate to be closer to 1 1/2% – 2% lower.  And if your loan is less than $100,000, I would say it almost never makes sense to refinance.  You’re better off making principal payments.

Why though?  Since you’re taking out a new loan, you will have origination charges along with all the fees involved with a new loan — title company fees, setting up your escrow account and county fees.  Sure, you may hear that there are no closing cost refinances, but I am here to say nothing is free.  Your charges are either added to your loan, covered with a higher interest rate or being paid out of pocket by you or a combination thereof.  It’s time to run numbers!

To get a true sense if a refinance is a sound financial decision, you’ll want to gather the following information:

  • approximate value of your home (tax assessed values are actually higher than current values)
  • your current loan balance(s) on any first, second or home equity lines of credit
  • your current loan rate(s)
  • annual property taxes
  • annual homeowner’s insurance if a single family home
  • current principal and interest payment
  • your goals — reduce rate, take cash out, etc.
  • type of loan, i.e. fixed rate, term or ARM
  • occupancy of the home, i.e. owner occupied, second home or investment property

These will enable me to run figures and determine the “payback” time frame.  I recently had a past client do a refinance.  They were saving $200/month.  That’s a lot of money!  Their costs were about $4400 which covered lender fees, title charges and county charges.  Setting up the escrow is not figured into this equation.  Escrows are pre-paid expenses that cover future payments of taxes and insurance.  My client would pay for these regardless of refinancing or not.

Anyway, the calculation I run is based on the savings per year – $2400 – divided by the costs of $4400.  He’s going to re-coup these fees in 1.8 years, so under two.  This is the second rule of thumb.  If it takes longer than two years to recoup the costs, then refinancing may not be the right move.  Now, going to a shorter term or going from an Adjustable Rate Mortgage (ARM) to a fixed may make sense even if the time-frame to recoup is higher.  Biggest question here … how long will you be in the home?  Though we never really know the answer, it will certainly help guide the financial soundness of the refinance.

For those of you with second loans or home values close to or  than what you owe, refinancing may just NOT be an option, regardless of the savings.  Long and short — “maybe” is the answer to the title question.  It’s not right for everyone.  And when you work with me, I will make sure you know whether it’s right for you or not.  I would rather give you the straight scoop than have you upset that you did something you should not have.

Send me the answers to the bulleted items above.  Let’s see if refinancing IS right for you!!