What are mortgage loan closing costs, and why do I pay them?

Home buyers, especially first time home buyers, commonly fail to understand all the costs involved in buying a home.  Everyone understands down payment, so no issues there. But mortgage loan closing costs are a whole different story.

I often hear potential home buyer comment that they thought they had saved enough for a down payment, only to be blind sided with mortgage loan closing costs.

WHAT ARE MORTGAGE CLOSING COSTS?

All mortgage loans have closing costs. They include appraisal, credit report, state taxes, title company fees, loan origination fees, state deed taxes, and more.  You also have what is known as pre-paid items, which include pro-rated property taxes on the house you are buying, and paying for the first years home owners insurance up-front.

Actual closing costs and pre-paid items can easily range from about 2% to 8% of the sale price of a home, depending on where you live, and the purchase price of the home.

Your Loan Officer will provide you with a detailed estimate of these closing costs based on the actual home once you pick it out, and can give you a good ballpark number during your initial loan review.

TIP: Anyone telling you closing costs are always a certain percentage is flat out simply wrong.

HOW TO PAY CLOSING COSTS

Yes, closing costs can really add up.  If you were planning on a 10% down payment, this means you really need 12% to 18% of the purchase price of the home.  Yikes.

The good news is, the mortgage industry understands this, and allows you to pay closing costs multiple ways.

Option 1) Pay cash out of pocket. Always the best move, but incredibly burdensome for most home buyer.

Option 2) Seller paid closing costs. You simply ask the seller to pay your closing costs for you when making your offer. Depending on the loan program you are using, the seller can pay between 2% and 6% of the purchase price in closing costs on your behalf. While this sounds free, because the ‘seller’ is paying them for you, the reality is the seller isn’t paying anything. Rather, this is a method of you rolling the closing costs into the loan itself.

For example, the seller is asking $200,000 for the home.  You offer $200,000 – but also ask the seller to pay $6,000 of your closing costs. If the seller agrees, many people think they just got free money.  The reality is the seller has accepted $194,000 in their pocket. So you could have bought the house for $194,000, and paid your own closing costs.  Instead you are buying the house for $200,000, and paying closing costs over time, versus out-of-pocket today.

It is a little more obvious to buyers that they are paying over time, when the same seller who wanted $200,000 refuses to budge, but you need closing costs rolled in to lessen your out-of-pocket burden. In this case, you’d restructure your offer to $206,000, and have the seller pay the $6,000 of closing costs.  The seller gets what they wanted, and you rolled closing costs into the loan, again paying over time instead of out-of-pocket today.

Option 3) Lender Paid Closing Costs (also known as Lender Credits). Under this option, the lender will reduce your actual real closing costs by increasing your interest rate. You can choose to increase your interest rate a tiny amount, for a tiny reduction in closing costs, all the way to completely eliminating all of your closing costs with a much higher interest rate.

This isn’t a good or bad option, rather it is a depends option. How much reduction do you need? Do you have all the closing costs money today? How much higher will the payment be?  How long will you live in the home?

TIP: ALL LENDERS HAVE ESSENTIALLY THE SAME TRUE CLOSING COSTS. When shopping lenders, many people will receive a closing cost quote lower than someone else, giving the illusion of a better deal. Many banks and lenders claims things like they give free appraisals, or never charge loan origination fees. No closing cost loans were all the rage a few years ago.

Little do many people realize that all these lenders are doing is increasing your loans interest rate to cover these items, but not telling you they are doing it. They don’t work for free, and someone has to pay the appraiser.  This lower closing cost ploy makes unsuspecting home buyers potentially pick a lender based on a perceived better deal, when in fact, it isn’t. You pay, you always pay. How do you choose to pay? Lower rate = higher costs.  Higher costs = lower rates.

Option 4) Any Combination. This is actually the most common way people pay closing costs. Many ask the seller to pay some, maybe increase the rate 1/8 or 1/4% to pay some, and maybe a little bit out-of-pocket to pay the rest.

CLOSING COSTS – THE BOTTOM LINE

It is very common for many home buyers through these options, to completely eliminate closing costs as an out-of-pocket expense, leaving them with just needing their down payment to buy the house.

So don’t ever let the fear of closing costs keep you from buying your dream home.

 


Millennials are not buying homes. Is this true or myth?

There has been a lot of talk that millennials are not buying homes. Is this true or myth?

First, while the purchase numbers for millennials are down, millions of people buy homes every year, including millennials.

Most of the talk about millennials centers around the inability to purchase a home because of student loan debt. Studies after study does show that tuition costs are up, and that student loan debt has roughly doubled in the past 10-years. There is also a noticeable decline in homeownership rates among millennials the past decade.

Too much debt reduces the maximum amount of home lenders will allow someone to purchase. This is known as debt-to-income ratios.  Less that 30% of your income spend on just the home is considered as a safe house payment, while under 45% of income should be spent on the house, plus car loans, credit cards, student loans, etc.

But is is all really student loan debt, or are there other factors involved.

Estimates suggest that around 35% of the decline in homeownership in the past 10-years is simply due to student loan debt. That leaves  whopping 65% to other factors.

Assuming these numbers are accurate, and many suggest the student loan blame is not nearly as high as believed, I as an actual Mortgage Loan Officer, can attest that yes, student loan debt is a factor in some cases. But I see many other factors on a daily basis, the biggest being simply a low desire to own. This primarily resulting from observing their parents, friends, neighbors, and relatives suffer through the housing bust that started in 2007.

Other items I see include very poor credit, and a lack of knowledge on how credit and credit score work. Lack of down payment, and a lack of willingness to purchase a starter home. Many of the millennials believe they should jump right into a big, beautiful, white picket fence dream home as their first home.

Lack of Starter Homes?

I, like many people started with an old small home, in a not so perfect neighborhood.  As I got older, got married, and increased our family income, I moved up into bigger and nicer homes, until now currently being in my existing “big beautiful home” for 19-years.

The me me me, now now now, pay for it later attitude really crept into society over the past 20-years.  Having champagne taste for homes on a beer budget has held back more potential first time buyers from purchasing a home than most other items I see everyday. They simply refuse to buy a starter home.

Granted, a starter home today tends to have a heftier price then years back.  As a percentage of income, low end starter homes suck up more of the owners paycheck than ever before. This too has a huge effect on first time home buyers, regardless if they have a college degree, and student loan debt or not.

Poor Credit

Another major issue I see is simply poor credit. As the days go by, it would appear to me that the population has become dumber and dumber about simple concepts, like paying your bills on time. It is very common for me to see potential home buyers in the 25 to 30-year old range have horrible credit. Then when they realize the poor credit prevents them from buying a home, it may take them a few years to improve their credit.

More than just student loan debt

The New York Fed recently reported that an estimated 360,000 people would have bought a in 2015 had tuition costs remained the same as they were in 2001. There is no doubt student loan debt has been a factor.

As an actual Loan Officer, active in the business currently, and having been so for more than 20-years, I am simply saying there are a multitude of reasons why people don’t buy homes.

The constant banter of it being student loan debt preventing ownership is heard by potential home buyers who have student loan debt. Many clients I speak to start out the conversation saying the don’t think they can buy a home because of student loan debt, and are very pleasantly surprised when I issue them a Pre-Approval Letter.

Of course every person and every situation is different.

Don’t Assume

If you want to buy a home, regardless of age, income, or student loan debt. DO NOT ASSUME. Contact a local mortgage broker in your area (I lend in MN, WI, and SD). Give them a full mortgage loan application so they can zero in on your individual situation.  You too may be pleasantly surprised, and enjoying the benefits of home ownership next month.

 


How higher mortgage rates effect you

Minneapolis, MN: Face it, The super low mortgage interest rates are gone. Higher mortgage rates are here already, and it is very unlikely we will see them go back down anytime soon. Rather, it is anticipated that we should see 30-yr fixed rates into the mid 5% range by the middle of 2018.

mortgage interest rates up

HIGHER RATES = LESS BUYING POWER

As interest rates creep up, your buying power, or the maximum house price you can afford, goes down. As a ballpark quick way to think about it, every rate increase of 1% will lower the maximum house price by 10%.

A $225,000 loan at 3.75% is $1042 a month on a 30-yr fixed, while the same $225,000 loan at 4.50% is $1140, or $98.00 more per month. Another way of looking at it, is you would have to get a $206,000 loan to equal the same payment as the 3.75% rate on a $225,000 loan.

While neither of these should be deal killers for anyone looking to buy a home, it clearly has an effect on buying power, especially for First Time Home Buyers. So don’t delay, buy a home now while before anymore Fed rate hikes eat into your buying power.

For loans in MN, WI, and SD, contact us today to discuss home financing options, or just get started with a quick, no obligation online loan application.

—— Fine print —
Rates samples only. This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of MN stat. Sec 47.206 (3) and (4). Mortgages Unlimited. 33 Wentworth Ave, St Paul, MN 55118. Equal Housing Lender. Not all customers will qualify. Information, rates, guidelines subject to change without prior notice. All loans subject to credit and property approval. Not all products available in all states or areas. Other restrictions and limitations apply. Licensed in MN, WI, and SD. NMLS ID #225504. 


Low down payment, no down payment loan options for 2017

Minneapolis, MN:  Just 10-years ago, 30-year fixed rates were 6.125%, and the real estate market was hot. With rising interest rates, 2017 may be a bit more challenging for home buyers. But the biggest challenge for most people who wish to buy a home is down payment.

You do not need 20% down payment to buy a home! I repeat, you do not need 20%. This large down payment myth has been around forever, but it simply isn’t true for the vast majority of people buying their first primary residence. There are many program that allow for no down payment, or low down payment. Some jumbo loans buyers (loans over $424,100 in most parts of the county), as will people buying investment properties will usually need a large down payment. But for the rest of us, there are many low down payment, no down payment loan options for 2017.

First Time home buyers, Down Payment Assistance

First Time Home Buyer programs:

The term first time home buyer program covers a wide net of potential programs and options. To be a first time home buyer, you simply must not have owned a home in the past three-years. If you owned a home in the past, but it has been longer than three-years, you are a first time home buyer again. Some options allow for lower rates, cheaper mortgage insurance, and even down payment assistance. Most come with additional strings attached, like household income requirements, lower debt to income requirements, and that you must take first time home buyer education classes.

FHA Loans:

FHA backed loans are very popular, and only require a small 3.50% down payment. The down payment can be your own money (checking/savings/retirement), a gift from a family member, or can come from a down payment assistance program. FHA loans are more forgiving than other loans, for example allowing just a two-year waiting period if you have a previous bankruptcy, and a three-year waiting period after a previous foreclosure. Maximum loan limits apply based on the medium income of the county the property will be located.  Check FHA Loan Limits

Conventional 97 Loans:

Both Fannie Mae and Freddie Mac offer a 3% down payment program.  The down payment can be your own money (checking/savings/retirement), or a gift from a family member. This is a great program, especially for those with higher credit scores, or homes that need a little TLC that might not pass FHA loan inspections.

Conventional HomeReady™ Loans:

Fannie Mae offers an additional 3% down loan called HomeReady for first time home buyers. You need to take a home buyer education class, but you’ll be rewarded with lower interest rates, and lower mortgage insurance than the standard 3% down conventional loan.

Conventional 95 Loans:

Both Fannie Mae and Freddie Mac offer a basic 5% down payment program.  This is your everyday, plain vanilla mortgage loan available to everyone.

VA Loans (100% financing):

Available for active or retired U.S. Military personal, the VA loan is truly one of the best benefits this country offers for your service. The VA loan is a no down payment program, and also has no mortgage insurance whatsoever. This is a huge savings per month over any other low or no down payment loan. Closing costs can be rolled into the loan, making for a home purchase, that for most people, is about as close to zero money out of pocket to buy a home as you’ll ever get.

USDA Rural Housing (100% financing):

Available to those wishing to buy in more rural areas of the country, the USDA Rural Development loan does not require a down payment. While the loan does have mortgage insurance, the cost is very low compared to other loans.  You need to meet household income, and property location requirements.

Down Payment Assistance:

Down payment assistance comes in many different flavors from neighbors, city, county, and even state programs. Welcome first time home buyers. Apply onlineGenerally these are in the form of a loan that needs to eventually be paid back, but there are a very small number that are actually forgiven if you live in the home a set period (like 9-years or longer). The assistance loan can be combined with a standard loan, like an FHA loan, to be used for down payment. Household income, and property location are common requirements.

The Bottom Line:

If want to own your own home, you have OK or better credit, a stable income, and at least a little money in the bank, by all means, you should apply for a home loan. Your Loan Officer will review your loan application, then go over the various program to see what programs you qualify for, how much house you can buy, what the payments might look like, and finally, how much cash you may, or may not need to put it all together.

Best case, you’ll be in your own home sooner than you thought.  Worse case, your Loan Officer will go over what you need to do to be in position to buy a home in the near future.  Either way, a win win for you.


5 low down payment home loans

5 Low Down Payment Home Loans

Minneapolis, Minnesota:  Face it, for most people, the biggest obstacle to buying a home is a lack of down payment.  Here are 5 low down payment home loan options to help you get into your own home.

Zero Down Payment

  1. VA Loans: Available for U.S. Military personal, both current and former is a no down payment loan with no mortgage insurance. By far the most amazing home loan available.  Get VA Loan information
  2. USDA Rural Development Loans: Available for those wishing to buy in rural areas. This program is no down payment required. Income limits apply. Get USDA loan information.

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Low Down Payment

  1. Conventional 3% down. This low down payment loan for first time home buyers just recently came back into the market from Fannie Mae and Freddie Mac. Good credit or better required, and must take first time home buyer education classes. Get 3% down HomeReady loan information
  2. FHA Loans: This program only requires 3.50% down payment, and is probably the most popular loan. Very flexible underwriting guidelines compared to other programs for everything from weak credit, to higher debt-to-income ratios, and shorter waiting periods than other loans for past bankruptcy and foreclosure.  Get more FHA LOAN information
  3. Down payment assistance programs: Combine one of the standard loans with a down payment assistance program to ease your out-of-pocket expenses to get into a home. Most of these programs are loans that need to be paid back, require you to be a first time home buyer, and to take home buyer education classes. Program vary greatly by city, county, state, or community programs. Talk to a Loan Officer in your area for local program information.  Learn more about down payment assistance programs in MN.

 


Minneapolis Down Payment Assistance

Minneapolis Down Payment Assistance

Own Your own Home!

The City of Minneapolis, in partnership with Minnesota Housing,  the Minnesota Homeownership Center, and Mortgage lenders like us here at Mortgages Unlimited are getting together to provide access to down payment assistance, quality, affordable mortgages and free, non-biased housing experts that can help you become a successful home owner!

Maybe you’ve thought homeownership wasn’t possible, or you didn’t know where to start. Maybe you thought your credit wasn’t good enough or you haven’t saved enough for a down payment. We can help!

Down Payment Assistance – Homeownership Opportunity Minneapolis

The City of Minneapolis wants to make affordable homeownership a reality for you. The City is providing up to $7,500 to qualified buyers to cover down payment and closing costs when purchasing a home anywhere within Minneapolis city limits. To qualify for this program, you must meet the following income eligibility requirements:

  • Homebuyers with household income up to 115% of the area median income (currently $99,500) are eligible for up to $5,000
  • Homebuyers with household income up to 80% of the area median income (currently $69,280) are eligible for up to $7,500.

Quality, Affordable Mortgages

Minnesota Housing, the State’s Housing Finance Agency, offers mortgage loans for first-time homebuyers with affordable interest rates. Our Minnesota Housing loans work seamlessly with down payment assistance products like those offered by the City of Minneapolis.

How To Get Started

Your first step is to apply for the mortgage loan itself. Your Mortgages Unlimited Loan Officer will review the application, your credit, etc.  They will discuss with you if you qualify, how much house you can afford, what the payments might look like, and what assistance you may qualify to receive. Click HERE to apply online (easiest) or call (651) 552-3681.

If that all looks good, you will need to submit standard loan documentation, which includes photo id, last two pay stubs, last two bank statements, and the last three years of W2’s and federal tax returns.

If that still looks good, you will be issued a Pre-Approval Letter, put in touch with a high quality Real estate Agent agent, and sent out to find your dream home.

In between the initial approval and closing on your new home, you will need to take the homebuyer education class listed next.

You do not have to have perfect credit, but you can NOT have BAD credit. All applicants must have a middle credit score of at least 640.  Next, while you are receiving assistance, you can’t buy a home with no money.  You must have at least $1,000 of your own money to put into buying the home.

Homebuyer Education

If you are a first time home buyer, this program from the City of Minneapolis, just like all first time home buyer programs requires all first time homebuyers to attend home buyer education.

There are two options:  Attend a physical 8-hour class (Home Stretch) or take an online class (Framework Classes). Click the links below for more information of the required training.

Sign up for HOME STRETCH: In-person workshop  Your first time homebuyer class can be taken in person in multiple locations throughout the state. The cost of this class is typically $25.

Sign up for FRAMEWORK: Online Education An online homebuyer education class can be started and stopped, and finished at your leisure. The cost of this training is $75. Most people take the online training.

When Your Class Is Completed: Print your Certificate of Completion and give  a copy to your Loan Officer

More Information

Contact:

Joe Metzler, Senior Loan Officer. NMLS 274132

(651) 552-3681

www.MNHomesAndLoans.com

 


Economy stimulated by low mortgage rates

Minneapolis, MN:  As mortgage rates continue to hover near the all-time historic low rates that we saw last November (2012), the nation’s overall economic outlook has seemed to improve.

saveIn November 2012, rates fell down to levels that had not been seen since 1971. While current rates are not at all-time lows, they are just slightly above those rates, and at levels that have not been seen since January.

The low mortgage rates are helping to stimulate the recovery of the housing market. They low rates have helped to increase home sales and home refinances. Many current homeowners have taken advantage of the low rates by refinancing their home loans, freeing up money to be spent elsewhere.

While the Federal Reserve plans to continue to keep mortgage rates low through the purchase of mortgage-backed security bonds, mortgage rates are not likely to stay this low forever. CNN Money expects that as the economy continues to improve over the course of the year, mortgage rates will begin to rise this fall – but just slightly.

Taking advantage of mortgage rates while they remain low is essential. First time home buyers can afford to purchase a property that is on average 20 percent more expensive than they were when mortgage rates were in the 4-5 percentile range. Refinancing to shorter term can also help buyers pay off their home in less time and lower their monthly mortgage payments.


Credit tips for first time home buyers

 Credit tips for buying a home

We all should know that it’s important to have solid good credit when thinking about buying your first home. We all know that lenders and banks want to see solid credit in any borrower.

But what exactly does that mean for first time home buyers?

It means having some credit.  It means having a score in the mid-to-upper 600 range (although that doesn’t mean you’re out in the cold if you’re in the low 600’s).  It means no major negative items like a repo or bankruptcy in the past few years.

In short, it means you’re responsible with your money, and you pay your bills on time.  The way lender determine if you are doing these things is with a FICO credit score.

How do you make sure your credit is good in general? Let’s explore 6 credit tips for first time home buyers that you could follow even if you’re not a first time buyer.

  • Pay your bills on time, every time. This is a simple rule when it comes to establishing good credit (not always easy to follow, but it’s vital). You have to keep your bills current.
  • Have a diverse credit portfolio. This can include secured credit cards, a small car loan and maybe a store credit line. A diverse mix shows that you are able and willing to pay your bills.
  • Keep your credit charges below 30% of the limits. Going above this number will reduce your credit score. Paying the debt down is the best way to make this happen. You could also ask the credit company to raise your limit (but don’t charge more if they do!).
  • Check your credit history every quarter. You have a right to know what’s on your credit report. Thanks to the government, you actually have the legal right to get your credit report once a year from each of the 3 credit bureaus. That means you can actually check your credit report 3 times per year.
  • Keep your lines of credit open. Closing a paid-off account is a good step after you have your mortgage. A longer, more diverse credit history is important.
  • Once you have a few lines of credit, don’t open any more. Continuously opening new credit accounts is risky, and your score will reflect this.

You can explore more on how to get your credit ready to become a first time home buyer with reading “The Understanding Your FICO Score” at the button below. The Pamphlet covers what makes up a credit score, how to improve your FICO score, steps to rebuilding credit and more.


Top two myths about Real Estate Agents

With millions of web sites to look at for home for sale listing, it is becoming more and more common for people to feel they don’t need the help of a licensed Real Estate Agent.

More specifically, people seem to ONLY be calling listing agents for the properties you want to see. The thought behind this I suppose is “I can get a better deal if I don’t involve another agent and contact the listing agent directly.”

While the listing agent loves you only calling them, here is why is is usually a costly mistake for home buyers.

Myth # 1- I will get a better deal if I call the listing agent directly.

That listing agent is contractually bound to do what is in the best interest of the seller, and that means getting the highest dollar amount for the sale of the home. NEVER disclose your top dollar or financial ability to get a bigger mortgage loan to them because by law they have to go back to the seller with this information.

Remember…your goal is to pay as little as possible, while the seller’s agent’s goal is to get as much as possible for the seller. No matter what a Real Estate agent claims, this is a clear conflict of interest.

Myth # 2- I can find more homes for sale by calling more than one agent, or looking at multiple web sites.

The days of each real estate office having big books of only their companies listing are long gone. It is mutually beneficial for all Real Estate Agents to have all properties in the same database (call the MLS – or Multiple Listing Service)

All Real Estate Agents in the same area therefore pull the same list of homes available  for sale from the same multiple listing service database. Local agent sites typically interface with the local MLS site a minimum of once per day. If a new house for sale gets added today, EVERYONE local should have it listed tomorrow.

If you saw a home on Zillow, or some other national site, but that particular home didn’t come up in the local agent’s site, remember sites like Zillow & Trulia are NOT updated as often as the local MLS database real estate agents can pull from are. If it is not on the local MLS…  chances are the house that you saw has already been sold or is already under contract.

More importantly, the opposite is more often true. You find a home on a local real estate web site but NOT on the national sites. This is because some local companies do NOT report to the national systems. In my area (Minneapolis / St Paul, MN), the biggest player in the market (Edina Realty) recently stated they will no longer let their listing be show on the big national sites.  This means if you are looking at home for sale here, but on a national site versus a local site, you a NOT seeing over 20% of this areas listing!

The bottom line is the smart move for home buyers, and especially first time home buyers in MN and WI, is to use the services of a good, licensed local real estate agent in any home purchase transaction, and save yourself a lot of time by only looking at one LOCAL REALTOR web site.