Tag Archives: VA

You ARE Worthy!

Life is hard, and at times, just not fair!  Things happen – whether it’s a job loss, divorce, decline in home values, medical emergency or death in the family.  These things wreak havoc with our financial well-being.

The above reasons, and I am sure many more, played a large role in people filing bankruptcy, losing their home to foreclosure, or for some, having to sell their homes as a short sale just to get out from under.  It’s tough, and for those of you who experienced these major set-backs, I am truly sorry you had to deal with such devastation!

ID-100142021You might be thinking your chances of owning a home for the first time, or ever again, will never happen after these experiences.  I am here to tell you that we all have second chances and you are worthy of being a homeowner!  But how?

First, it helps to know the general guidelines for loan qualification after a short sale, foreclosure or bankruptcy.  The guidelines vary by the type of loan you take out.  FHA, the Federal Housing Administration, will be more lenient than Fannie Mae or Freddie Mac, which offer conventional loans.  Sometimes, there are extenuating circumstances that could lessen the wait period, but those are considered on a case-by-case basis.

Bankruptcy – home financing eligibility date is taken from the date the bankruptcy was discharged from the courts.  It is also dependent on the type of bankruptcy – Chapter 7 or 13.  I will advise for Chapter 7 bankruptcies, but the wait period may be less with a Chapter 13 if certain requirements are met.

  • FHA & VA:              2 years
  • Conventional:   4 years

Foreclosure – eligibility date is taken from the latter of the sheriff’s sale date or the date the claim was paid to FHA.  The claim date is only applicable if the loan foreclosed upon was FHA financing.  This date is usually 3-6 months after the sheriff’s sale.  Conventional financing could have a shorter waiting period depending on circumstances and other criteria.

  • FHA:                          3 years
  • VA:                             2 years
  • Conventional:    7 years

Short Sale – eligibility date is the date the sale of the home took place.  The waiting periods are the same as a foreclosure, except with conventional, where the waiting period can vary depending on the circumstances, as well as the amount of money you have down.

Once you’re over that waiting period, then what?  As lenders, we certainly want to see that you’ve re-established credit.  We understand that your credit and finances took a beating during that time – it happens!  But, we want to see that you came out in a better place.  We’re looking for on-time payments and a lack of derogatory credit, such as collections or charge offs.

Long and short of it – you ARE worthy, and after having a bankruptcy, short sale or foreclosure in your past, there is hope of becoming a homeowner!  We’d love to help!

*Image compliments of Stuart Miles — freedigitalphotos.net

 

FHA, PITI and LTV … Oh My!

If you’re looking to get financing for a home, you’re probably hearing a lot of acronyms flying around.  The mortgage industry is famous for them; but if you’re new to this process, they can be a little confusing.  As I was sitting here working on my RD loan, I started to think that maybe a little explanation might help.

IMG_1283Let’s start with my “RD” loan.  RD stands for Rural Development and is a great loan that requires NO down payment.  There are certain restrictions for this loan type — the home needs to be in a rural area, as determined by the RD website, and there are household income limits.  RD is like VA, in that VA doesn’t require a down payment either.

VA is the Veteran’s Administration.  This loan is specifically for a veteran of the armed forces.  They could be in the reserves or active.  We get a COE – certificate of eligibility — to prove a borrower is eligible for this type of financing.  This is the creme de la creme of all loans.  Literally, the seller could cover all costs, making it so the veteran needs nothing out of pocket.  Also, there is no PMI on this type of loan, making payments lower.

PMI stands for private mortgage insurance.  This is required on all conventional loans with less than 20% down.  PMI doesn’t insure you, but insures the lender in case of default.  This is part of your house payment and will automatically go away after you reach 22% equity.

Speaking of conventional financing – meet Fannie Mae (FNMA) and Freddie Mac (FHLMC). Fannie Mae is the Federal National Mortgage Association and Freddie Mac is the Federal Home Loan Mortgage Corporation.  They purchase conforming loans — loans that are under a $417,000 loan amount and “conform” to their guidelines.  Typically, a conventional loan has a little more lenient appraisal process than FHA or VA.

What’s FHA?  It stands for Federal Housing Administration.  One of the oldest loan types.  FHA is a government backed loan and many first time buyers use this loan because it has the most leniency in credit scores and only requires 3.5% down.  Typically, FHA loans have a lower rate than conventional financing and usually is a little more lenient with DTI.

DTI stands for debt-to-income.  In the lending world, we look at numbers called ratios to determine your qualifications.  The debt-to-income ratio looks at your monthly debts in relation to your gross monthly income (before taxes) to determine the PITI you can qualify for.  Ratio limits vary by loan type.

What’s a PITI?  a.k.a. PITI-A.  This is what your house payment is comprised of — principal & interest on the loan, property taxes, insurance (HOI & PMI) along with adding a possible “A,” which are the association dues if you buy a townhome or condo.  You’d pay dues separately to the association.

Homeowner’s insurance, a.k.a. HOI, is the same as hazard insurance and property insurance. This insurance is required for your home in case of loss.  This is something you set up with your own insurance agent.

And last, well, certainly not the last acronym in the mortgage world, is LTV.  This means loan-to-value.  For instance, if you put 5% down, you would have a 95% LTV.  The maximum LTV is determined by the loan type — VA and RD are 100% LTV, FHA is 96.5% LTV and most conventional loans have a max LTV of 95%.  To avoid the PMI on a loan, you need an 80% LTV.  The LTV drives the interest rate, the cost of your PMI and may even determine if you get a loan approval or not.  It’s a very strong acronym in the lending world.

Like I said, that wasn’t the last acronym and I am sure there are more that I failed to mention.  These are the important ones and hopefully, you now have a better understanding of the part they play in your financing.

It would be my pleasure to help you muddle through these acronyms and educate you on the process of buying your home!  TTYL!!

 

What’s My First Step?

How do you get started buying your first home — short of actually looking at houses or driving around on a Sunday and visiting open houses?  There really is a “first” step in the home buying process.  It’s to get pre-approved.  Now, don’t mistake pre-qualify for pre-approval.  These are two totally different thing!  A pre-qualification is nothing more than gathering some info on your income, assets and debts to let you know the amount you can afford for a house payment and a sale price.  This process does not hold any water and certainly doesn’t tell a seller you can get home financing.

Being pre-approved means a couple of things.  First, you’ve applied for a loan – which can be done via the phone, in person or mycompany  website which is the option many take.  Our online application is a secure site which will only take you about 5-10 minutes, depending on how long it takes you to type!!   A one-on-one meeting is not necessary at this time, BUT, I do suggest we meet PRIOR to you looking at homes.  There is a lot to learn about the process, the money you need to purchase a home and the different loan programs and first time buyer programs you could qualify for.  I would be doing you a huge disservice if we didn’t take the time to meet.  Generally, my meetings take 1-2 hours.  I try so hard to keep them manageable for you, but it’s my goal that you leave the appointment with a full understanding of what happens next.  And, you feel like ALL of your questions have been answered.

The second piece to a pre-approval is pulling your credit report.  The credit report is important for a few reasons.  First, regardless of whether you are buying your first home or fifth, you must have at least a 620 credit score.  Though it is true that loans insured by FHA (Federal Housing Administration) and VA (Veteran’s Administration) do not have minimum score requirements, it just doesn’t matter.  FHA and VA are not buying or servicing the loan — the end investor is.  THEY are the ones requiring the 620 score.  And, there are some investors that require a 640 score.  This part of the pre-approval puzzle has become crucial to qualifying for financing.  It didn’t used to be this cut and dry.

The third part is submitting your loan to an automated underwriting system or to an underwriter.  In order to confirm your pre-approval, it’s important that I collect documentation to support the information you provided on the loan application.  The following documents will be required from you to complete this process:

-most recent paystub

-last 2 years W2s AND last 2 years federal taxes (it’s the last THREE if you’re applying for a first time buyer program)

-most recent MONTH bank statement, all pages, all accounts

-copy of your driver’s license (this is part of the Patriot Act that came about due to 9/11)

-any court papers, such as bankruptcy, divorce or child support

Because everyone has a different situation, there may be more documents requested.  For instance, let’s say you had a $3000 deposit into your account from the sale of a car.  Your “extra” paperwork would include a copy of the title, cashier’s check you got for the sale and a copy of the blue book value to substantiate the value matches what you sold the car for.  Now you may be asking why this is any of our business, and truthfully, I would do the same thing too.  All lenders want to source the funds you receive.  If you have deposits other then income, then lenders want to know where the money came from — if it’s a loan, then we need verification of that and need to count payments in our debts.  If it’s a gift, then we need to document that according to the specific program you’re doing.  This can be a lot of back tracking which is why during our appointment, I will advise you what NOT to do while in the home-buying process.  It’s better to know what you need to get to verify deposits then having to re-create documentation that may not even exist.

One of the main reasons this is the FIRST STEP in the process is two-fold — first, it insures that you can get financing and two, you will know what price range you can look at, as well as what payment you’re comfortable with.  Sellers will require that you’re pre-approved.  And just so you know, all pre-approval letters are NOT created equal.  Just because a lender says you’re approved doesn’t mean this is true.  Some lenders don’t take the step of verifying the information provided.  Some don’t understand the rules of the first time buyer programs or don’t know the ins and outs of the loan type you’ve applied for.  The paper the letter is written on is sometimes worth more than the actual “pre-approval”.  More times than I can count, I was presented with a pre-approval letter from another company via the Realtors I work with.  Low and behold, they were coming to me to “save” the deal because indeed, the person was NOT pre-approved.  So, how can you tell?  I guess the only suggestion I have is to work with a reputable company, one that’s known for your special needs (i.e. first time buyer programs).  Listen to your agent’s advice.  Even then, they aren’t always connected to the right people.

Woohoo — you’re pre-approved.  Now what?  It’s time to get excited because the fun begins — you get to look at houses and find one that fits your needs, as well as your budget.  Speaking of budget.  This is a VERY important thing to keep in mind.  A lender can tell you your max payment is $1500, but in your heart and on paper, you know going over $1200 would put you in the poor house.  Staying withing your comfort zone is key to having a great home -buying experience.  I don’t plan to make your house payment so you would be wise to have a number in your head for that “max” payment you’re willing to exceed.  When you do put some numbers down as a budget, don’t forget things like insurance, meals out, entertainment, clothing, etc.  Many people forget these things — hey, even a coffee each day adds up!  Another note … being pre-approved with take a lot of disappointment away from the process.  If you start looking at houses you THINK you can afford and then come to find you don’t fall in that price range; you will be frustrated and bummed.  Believe me; I’ve seen it.  It’s better to know what your range is before you start looking — either on your own or with an agent.

So, take the first step to your home buying experience by getting pre-approved.  It’s the one piece of this home buying puzzle that will help all the other pieces fall into place.

Take Credit Program Still Available in Minneapolis & St. Paul

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!

City Living Program BACK for Minneapolis & St. Paul

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 under 5% on a 30-year OR a similar rate 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!!!!!!!

Dakota County Buyers — First Time Buyer Program is Back!

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.  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.