First Stop 4 Home Loans

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

What is the Take Credit program?  It’s a great opportunity to save money yearly on your taxes.  And what a better time to think about taxes when we are so entrenched in them right now!! 

Take Credit is a Mortgage Credit Certificate program, not a loan – it gives you a credit EACH year in the amount equal to 20% of the mortgage interest you claim yearly to use toward your tax LIABILITY.  Okay, so that’s weird … who wants a tax liability?  Wouldn’t it be better to get money back?  Great questions!  You actually WANT to owe money at the end of the year.  To make this so, you would increase your W4 exemptions for federal withholdings.  This way, you’ll get more money back in your paychecks, pay less in for taxes to the government and then, will have a liability that you can use this credit against.

First time buyers can take advantage of this program in the city boundaries of Minneapolis and St. Paul.  You must be a first time buyer, which means you could not have owned a primary residence in the last three years.  We prove this fact by getting the last three years of your tax returns.  Here are some numbers to know for limits:

$83,900 – maximum household income for 1-2 people

$92,290 – maximum household income for 3+

$276,870 maximum sale price limit

There is no “special” rate for this program because again, it’s not a loan.  You will use this with an investor that allows for the MCC.  So I suppose you want a visual?    I can do that, but first, one thing to know if you don’t … 100% of  your interest on your mortgage as a homeowner is tax deductible.  With this program, that is reduced by the 20% credit, so now you can only write off 80% of that interest.  For example (finally, huh?):

$175,000 Loan Amount

5.5% Example Rate on a 30-Year Fixed

$994  Monthly Principal and Interest Payment

$9566 Total Interest Paid in Year One

$1913 — 20% of the Total Interest Paid, Mortgage Credit

That’s a pretty big number to be able to have as a liability.  Think about it.  If you were normally getting $2000 BACK, then you have $3900 to work on getting throughout the year by changing your W4s.  How do you even start determining what that W4 change should be?  You can certainly see your HR person or accountant.  Or, you can visit a great IRS website to run some scenarios.  Doesn’t it seem like you’re taking money from the government??  Let’s not go that far, but hey, I am sure they owe you something!!

A few things to note.  The MCC program cannot be used with a Mortgage Revenue Bond program, i.e. first time buyer program that uses interest-free bonds to give you a lower-than-market rate.  This program DOES have a recapture tax, which I will address in Tips & Tidbits post soon.  You can do a FHA, VA or Conventional financing and the loan must be a fixed rate.  With rates as low as they are on 30-year mortgages, it would be silly to do an Adjustable Rate Mortgage anyway.  Something you may be wondering … is it a “use it or lose it” kind of program?  Sort of.  You can carry over any unused portion for up to three years.  So let’s say in the example above you owe $1000 to the government.  Due to your credit, you owe NOTHING, but you still have $913 to use for next year’s taxes, which means you need to get on adjusting your withholdings up ASAP.  Let’s say your liability is actually $2000.  Then, you still owe the IRS money, but in that example, it’s only a mere $87.  Pretty sweet deal, huh?

One of the best parts??  If getting money toward your liability wasn’t enough, right?  If you do FHA financing, which so many people are doing these days, we can use that 20% as assistance to help you QUALIFY for more!  Yes, you heard me right.  So, using that same example of your $1913 credit.  If you divide that by 12 months, your credit PER MONTH for qualifying purposes is $159.  In real dollars, that means if you kept the same house payment, you could INCREASE your purchase power by about $20,000, depending on property taxes and homeowner’s insurance.

So why don’t people do this program or why haven’t you heard of it?  First, most lenders don’t do the MCC program and why, I don’t know.  There is a cost to you of $575.  You can see though, that one-time fee is WAY worth the financial benefits you will see yearly.  So, if you need help qualifying for more house in the cities of St. Paul and Minneapolis … I can help and would love to!

Most of us would like to think so.  I’ve watched that show a few times and have thought “I don’t remember learning that”.  Of course, that was over 30 years ago.  Wow am I old!  What I do remember as a 5th grader is breaking my leg and being the first person to ride in our new elevator.  Oh yeah, that was the coolest.  I had a special key and everything — such privilege!   Now, breaking the leg on a school event and being taken to the hospital in a bus… not so much!  I was heckled quite a bit during that time.  Hey, maybe that’s why I don’t remember learning certain things … I was too traumatized by the mean kids.  Ha!

So seriously, why start a post with this?  As a home buyer, especially those of you looking to buy for your first time, you “learn” a lot about the process, like what lender to use, what to ask when comparing loans and other wonderful tips, mostly from friends, family and co-workers.  I am here to tell you that though they may seem to know the ropes, it doesn’t mean their situation matches yours.  There are plenty of things you can teach them. 

For instance, you may be advised to ask what rates are when narrowing down what lender you want to use.  Knowing the rates is a very smart thing to do.  But, realizing why this question isn’t valid is smarter.  On any given day, rates can change.  One lender can be higher or lower than another and change positions within the same day.  There are many loan officers out there that will quote you an interest rate that “teases” you into wanting to work with them.  Truth of the matter is rates don’t matter one iota unless you have a purchase agreement accepted on a home and you can lock that minute.  Until that time, lenders can tell you whatever they want.  Notice I am being general here.  I am of the mindset that starting honest is a good thing — not only that, there is always a little fear I have, that indeed, you will call back (good thing) and I have to abide by my rate commitment (not so good if I under-quoted).  And so you know, many first time buyer programs have their own rates tied to them.  So regardless of what lender you use, the rate is the rate.  No variance.  This means even though you’re doing an FHA loan, you won’t be quoted an FHA rate, but that of the first time buyer loan program.  And, this also assumes the lender you called can and is willing to do these loans.  Many don’t and will give you bad information to steer you from something that may be the BEST deal for you overall.

Okay, if the rate is the same because you’re going with the first time program, then what else should you compare?  You may be advised to compare closing  costs by getting a good faith estimate.  Again, smart idea to check costs between lenders, but this isn’t the end all for making a decision.  Here’s a question … what is it worth to you to get your loan closed on time or at all for that matter?  Tough to answer since you might not be at that point yet.  I will say that it’s worth it’s weight in gold.  Trust me on this.  In the 16 years I have originated, I have had many people jump ship after I’ve spent hours educating and being there to answer their questions, just to save 1/8% in rate or $500 in closing costs.  And you know what?  I can honestly say that a good number of them call back complaining about one thing or another with the other lender stating they “wish they had stayed with me”.  Nice compliment, but they don’t pay the bills.  Compare your costs; go ahead.  Just remember it’s tough to put a dollar figure on reaching your dream of home ownership.

What else are you hearing?  Had anyone suggested working with a broker because they can “shop” to find you the best rate?  Or maybe they’re suggesting you go with a bank, a lender that does everything in-house.  All good advice.  Keep in mind; you are getting this advice due to that person’s experience with THEIR process.  Gosh, I can’t tell you how many people say to me during a meeting “my friend got this rate” or “my friend only needed to put xxx% down”.  Yes, their friend probably had that experience.  Back to it being THEIR process.  On conventional financing, for example, depending on the amount down and your credit score, you could pay a higher rate than someone whose score is higher.  It’s reality.  Or maybe they “financed” their closing costs so you should too.  Want the education here so you are smarter than the 5th grader — ie your friend, family or co-worker?  Closing costs cannot be financed in the way you may think.  The only way to “finance” costs is to have the seller pay them.  So why would that make them financed if the seller pays them?  As a good student, that is a brilliant question.  Let’s say the house you want is $100,000.  When you make your offer, you ask the seller to pay $3000 toward your costs; the seller agrees.  What did they just agree to?  Making $100.000 on their home or making $97,000?  You got it, the lesser figure.  Essentially, then, you could have paid $97,000 for the home, asking for nothing, and they would have agreed.  Indeed, you are “financing” the costs in this respect.

Okay, off subject on the last one.  It doesn’t necessarily matter what type of lender you choose.  You want someone reputable, honest, knowledgeable about the first time buyer programs, as well as forthcoming with information on them; and most importantly, you want your deal to go smoothly.  All lenders have their down sides.  A bank just offers one product.  A broker gives you options.  Sometimes, this really means the broker has more opportunities to make more money on your loan (which you won’t know and really don’t care if you’re getting what you want for terms and customer service).  Could you get all these things under one roof?  Of course you can!!  We, among a few other lenders, offer both– the security of having in-house processing and underwriting, so control of the process, along with options.  And when searching your options, don’t forget to ask about the first time programs.  If you really want to test their knowledge, let them know you’re a first time buyer and see if they offer programs that would suit your situation. If not, then I submit to you to take a pass on that lender.  They won’t be working in your best interest.

I know there’s more to being smarter than a 5th grader and plenty more scenarios I can throw at you.  Bottom line … make sure your questions are handled, options are proposed and the company has enough support to handle your loan through the process.  Oh, and tell your friends, family and co-workers “thank you” for their advice and let them  know you’ve got your situation handled.  There are other ways to put this, but if you still want to keep them as friends … you may want to tread lightly!  Oh, and one last thought. By no means am I saying to stop listening.  Some advice will be good; it’s just choosing what advice to listen to.  Good luck!

If it wasn’t great enough that we just got a new issuance of money in the Dakota County area; we now have NEW first time buyer money in the Minnapolis and St. Paul area under the City Living Program. This money is just available in the geographical limits of the Minneapolis and St. Paul area, so no other areas of Hennepin County or Ramsey.  Having this program available is such good news. 

How do you qualify for this?  First, you must be a first time buyer, someone who has not owned a primary residence in the last THREE years.  There are income limits you must fall under and HOUSEHOLD income is calculated off all members in the household over age 18.  Here are the limits:

83,900   1-2 person household

92,290   3+ person household

There is also a purchase price limit of $376,870.  You cannot go over $1 above this!  I don’t think you’ll have any problem since this limit is quite sufficient to handle any properties that are perfect for first time home owners.  The sale price/purchase price limit is $376,870.  Another thing to know is NO personal property can be included in your purchase agreement.  That means anything that isn’t attached to the home — applicances are the most commom.  Don’t panic though — you will still be able to get these things agreed upon.  You definitely want to make sure you’re working with a knowledgable agent in this area.  I have a few partners that I can highly recommend!

Want the REALLY, REALLY good news?  Rates … and it’s all about rates isn’t it?  It shouldn’t be; but again, that’s another post.  Please note that you still must qualify for a regular loan.  Here’s the way I like to explain this.  As a buyer, you need to qualify or meet the guidelines for an FHA, VA or conventional loan.  Let’s call this the “Cake” you’re dying to eat!  Once you’ve got this qualification, then we can see if you meet the guidelines for the City Living program, which we’ll call the “Icing”.  If you’re like me — cake is ONLY good with icing!  So, again, you have to qualify for the cake and then have to meet the qualifications to get the icing drizzled all over it.  Nummy.  The “Sweet” taste of this is a rate of 4.75% on a 30-year OR a rate of 4.99% WITH 2% of the loan amount to be used toward down payment or closing costs.  Another important point, you DO need $750 of your own  money into the transaction, which cannot be a gift. 

They will FORGIVE this second loan if you occupy the home for 7 years.  If you sell under this time, the full amount you got for the second loan is due.  Fortunately, this loan is 0% interest and NO payments are ever due during your loan.  It’s like getting a “loan” from Mom and Dad — “just pay us back when you’re done with it”.  So, you sell, you pay back.

Since this is a first come first serve program, you definitely want to make sure that you’re not only pre-approved with a lender that knows these programs, but also knows how to explain the important nuances of them.  I can help you navigate the waters and make sure you’re sailing strong  during your trip as a first time home owner!!!!!!!

Okay, so this isn’t new news.  This is the third go-round with the first time buyer tax credit.  The subsequent tax credits have been ”bigger and better” with new additions, making the most recent credit the “best”.  Remember last year — the tax credit that would expire at the end of November?  Wow were people hustling to get their home loans closed by that date. There was a call to action, an actual deadline.  Buy your first home now or lose money!  Let’s get real — you can’t lose money you don’t have, so that wasn’t a great way to get people off the fence and buy.  It was funny how first time buyers were coming out of the woodwork last fall to “cash-in”.  Many of those buyers are still waiting for their “check in the mail”.   It will come and that’s the good news.

But here’s the better news.  The government is willing, yet again, to pay you to buy your first home.  Oh, and if you’re not a first time buyer, no problem.  You get to reap the benefits too if you meet a few qualifications – you must have lived in your home for at least 5 consecutive years out of the last 8 years.  For the non-first time home buyer, you can get up to a $6500 tax credit!  For the first time buyer, you could pocket up to 10% of the sale price with a maximum amount of $8000.  Seriously, I wish I was in the market to buy a home.  There are income restrictions, which most people will fall under, so it’s a mute point.  There has been some talk out there that you can use this tax credit as down payment for your home.  Hmmmm, wouldn’t that be nice … getting money for buying a home prior to actually buying it.  Essentially, this was ixnayed by most, if not all, non-profits because it was too risky to be fronting that kind of money.  Makes sense to me.

The current tax credit is the last tax credit, so they say.  When it’s done, it’s done.  No more Mr. Nice Government.  So what do you have to do to qualify?  Buy a house.  Yep, for the most part, it’s that simple.  Get an offer accepted on your first home, or subsequent home, by April 30th, 2010 and close by June 30th.  My guess is you would have already filed your taxes by the time you close.  Well, I hope so since taxes are due April 15th.  No worries.  You can complete a few forms, the 1040x amendment to your personal taxes and the 5405 which is the specific form for the home buyer tax credit.  This way, you won’t have to wait to file your 2011 tax returns.  Oh, the stuff you can buy to fix up your first home!  Not that you have to use it this way, but the government’s philosophy behind all this is that you will go out and “stimulate” the economy by buying goods and services.  It would sure help me if you did, but there is nothing wrong with using that money to pay off some debt or set aside savings — all are good uses of FREE money!!

But wait; there’s more — can you hear the infomercial music?  If you are a first time buyer, you can use a down payment assistance program and STILL get this credit.  There is plenty of money out there just waiting for you to use.  Best part about this money … it’s totally forgiven if you live in your home for three years as your primary residence.   That’s another blog on it’s own.

So, assuming the government keeps their word and doesn’t extend this tax credit, you do need to act NOW.  I mean, come on, houses at all time lows, rates at all time historic lows and money to help you fund your down payment.  Wowsers, can you say “incentive”?  I think I have beaten this topic a bit too much.  My advice is to ONLY buy if the time is right for you.  Sure, the call to action couldn’t be stronger.  But, if you’re not financial willing or able or have commitment issues, then wait.  There is no reason buying your first home or buying another home if your conscience is saying “don’t”.  I would hate that the pressure to “act now” pressures you to buy.

Feel free to give me a call or email if you want more information on this.  And please, only “act” on this if you won’t regret it later.

Can you say FINALLY???  We have been waiting patiently, or maybe for some, impatiently, for more money to come available.  It’s here.  And a week later, you will see money come out in the cities of St. Paul and Minneapolis for the City Living program – very similar to this.

The skinny on this first time buyer program?  Well, you need to be one, which means you could not have owned a home in the last 3 years.  Because this is a bond program, you will be offered a lower than market rate and good news … it doesn’t change with market volatility.  The rate is 4.99% AND depending on your household income, you could qualify for up to $10000 in down payment assistance.  The first time buyer assistance isn’t forgivable, meaning you need to pay the zero interest, down payment money back when you sell.  If you get $7000, then you pay back $7000.  It’s pretty cool — here’s money to help and just give it back when you’re done using it.  Oh is this awesome!

There are sale price and income limits for this program, as with all bond programs.

$83,900 1-2 person household

$92,290 3+ household

Maximum Sale price is $276,683

This isn’t like the other first time program they had called Silver Lining.  It’s not as restrictive.  No crazy strings like the house needs to appraise at 1% higher than the purchase price and there is no requirement for a special home inspection.  One thing that IS required is you have to attend the Homestretch class where you can sign up at http://www.hocmn.org .  If you’ve taken this course, it’s acceptable to use your current certificate of completion pending it’s not over a year old from the date of closing on a house.

So, now you have the AFTER closing tax credit up to $8000 and you can get up to $10000 BEFORE your purchase to use toward down payment and closing costs.  By all means, please call if you have any questions or want to take advantage of this program.  It’s first come first serve, so get out there and buy some of those great deals in Dakota County.  Oh and one important point, you DO need $750 of your own  money into the transaction.  This cannot be a gift.

By the way, not all lenders have access to this program.  Make sure you’re working with an expert in first time buyer programs.  It’s important you’re educated on how the program works, what the recapture tax is and other parameters for the program.