Tips when buying a fixer-upper

In the market today, many homes are in need of a little tender loving care.  Buying one of these properties can be a great deal, while the next one could be a money pit. The following are some tips to make sure the fixer-upper you are looking at is a great opportunity.

Know your limits

I’ve bought and sold homes needing repair, and I’ve learned a lot over time.  A big item to consider is knowing your limits.  Not everyone is Bob Villa.  Know what sort of repairs jobs you can safely handle, and which ones will require a professional.

Inspect, inspect, inspect

Having a home looked at by an experienced second set of eyes is paramount before buying.  Many people skip this step, thinking they can save a few hundred dollars. I counter that it is some of the best money spent.  Would you rather spend $300 to find out it is a money pit, or buy the house and find out later?

Bones vs Cosmetics

Walking into a home that is in desperate need to paint and carpet is one thing. Attempting to handle a home with serious foundation or structural problems is something different.  Bad leaky roofs are expensive. So is completely replacing a kitchen, and replacing all the old windows.  Leave these type of homes for experienced home flippers.

Dated vs Dud

Homes with good basic bones that just looked dated are excellent homes for a fixer-uppers.  Look for something that is habitable today. Something where you’d like to renovate, yet you wouldn’t “need” to do anything to move right in. Then over time, you can update one room at a time until finished.  Smaller projects that are lighter on the budget spread over time is key.

Don’t over improve

A common big mistake is over improving a home for the area it is in. FHA 203k loan lender in MN WI Putting in a $50,000 new kitchen with granite counter tops and stainless steel appliances in an older neighborhood of  standard appliances and standard counter tops may look great, but you’ll never recover what you paid.  Just the opposite is also true.  Putting in a standard counter and appliances in a newer neighborhood where everyone else has stainless steel is also a problem

Be realistic with a repair budget

Working in conjunction with not over improving the property, make sure you set a realistic affordable budget – and expect to go over it.  If your budget is $25,000 – don’t factor anything higher than $20,000.  Believe me, surprises will crop up, and by the time you are done, you will have spent the full $25,000.  Also get a few bids for each job. The total final cost will usually be somewhere between the low big and the high bid.

FHA 203k Repair Loans

Finally, consider using the popular FHA 203k repair loan.  This mortgage loans allows you to buy it and fix it all with one standard loan.  There are two types of FHA 203k loans, known as full or streamlined.  I suggest buyers work within the streamlined version, which allows for repairs up to $35,000.

Click here for more information on FHA 203k loans in MN and WI.


Losing offers to cash buyers? Here is how to win with a loan

You are fully pre-approved, and actively looking for homes with a Real Estate Agent.  You find the perfect home, but there are multiple offers, and one of them is cash.  Panic sets in, but don’t worry.

Sellers love cash buyers for two main reasons. The first one is super obvious – quick closings.  The second, but bigger scare, is any lender related issues.  Is the client “really” qualified?  Will the house appraise OK? Will the lender require something to be repaired?  How long will it take to close?

Real Estate, Minnesota, Minneapolis, for sale, mortgage rates, interest rates
Get Pre-Approved Today – Click HERE

Ways to beat cash offers: 

If possible, try these tips to make you are your offer as good, or better than a cash offer.

Bigger Down Payment

While it has no bearing in reality, both Real Estate Agents and sellers think you are a more qualified buyer if you put more money down.  So try a bigger down payment if you possibly can afford it.  Interesting, the #1 best performing mortgage loan with the least foreclosures in the market is a zero down payment VA Loan.

Forget the Official Inspection

Most buyers opt to have a home inspection done. Most official inspections find no major items that you likely didn’t see already yourself.  Most buyers end up nit-picking minor little items, then ask the seller to “fix” everything. This is very annoying to sellers.  Look the house over good by yourself, and then skip the official inspection.

Change your price point

Are you constantly being out bid?  Everyone else seem to be willing to pay more?  Consider looking at homes in a slightly lower price point. By looking at less expensive homes, you can be the one that puts in an offer over the asking price, and winds the deal.

Closing Costs

All loans have closing costs.  It is very common to ask the seller to pay your closing costs. The seller isn’t really paying anything, rather it is just a way for the buyer to pay the costs over time, versus paying up front at closing.

For example: If you offer $205,000 and ask the seller to pay $5000 on your behalf, the sellers net is $200,000.  If you offer $200,000 without asking for anything, the sellers net is still $200,000. Unfortunately, most sellers feel like you are ripping them off when you ask for seller concessions. They add up in the sellers mind, which works against you. Try not to ask for ANY concessions, not even a “Home Warranty” (99.9% of the time you’d never need anyway).

Try to talk to the seller

Buying and selling a home can be very emotional.  Talking to the seller about how you’d love to raise your three kids there, just like the seller raised their kids there has serious emotional pull.  It goes a long way when fighting against a typically lower cash offer from someone who just plans of flipping the home.

Winning a bid with a loan

Fighting cash buyers can be discouraging. But, just because they’re dealing in cash doesn’t mean they win. Many investors think they can low-ball with cash.  Show you are super serious with these ideas, and you’ll have a winning bid!

Average Home Prices Now Equal to April 2005

There is some great news in real estate… The FHFA (Federal Housing Finance Agency) reported that home prices posted a 19th consecutive monthly gain in August.

welcome2_FTHB_1On a year-over-year basis, the August report was up 8.5 percent.  This means average nationwide home prices are now equal to what they were in April 2005.

We are getting there, but this report also shows that the average market level is still 9.4% below the price peek of April 2007, right before the housing market crashed.

Values increased in seven of the nine Census Divisions in August with the South Atlantic and East North Central divisions experiencing declines.  The South Atlantic region, which encompasses all coastal states from Florida to Delaware, was down 0.5 percent and the East North Central (Wisconsin, Michigan, Indiana, Ohio, and Illinois) division saw prices go down just 0.3 percent.

The largest value increases were in the Mountain (Utah, Montana, Colorado, Nevada, Arizona, New Mexico, Idaho) and West North Central (North Dakota, South Dakota, Minnesota, Iowa, Nebraska, Kansas, and Missouri) divisions which rose 1.3 percent and 1.2 percent respectively.

The August 2012 to August 2013 changes were largest in the Pacific Region (Oregon, Washington, California, Alaska, and Hawaii) where homes appreciated 18.2 percent and the Mountain division with a 13.8 gain.  The smallest annual increase was in the Middle Atlantic division is Pennsylvania, New Jersey, and New York, where prices were up 4.0 percent.

As values continue to rise, more and more sellers can safely sell their homes – which should help with inventory issues.  It also means that potential first time home buyers really need to jump into the market to buy a home TODAY, as those gains for sellers equals less buying power for buyers.


Lastest Mortgage Rules changes

The mortgage industry is constantly changing. Keeping up with the rules, even for a 20+ year experienced Mortgage Loan officer like myself is very difficult.  The following is a quick breakdown of recent changes for both potential home buyer or real Estate Agents to know:

FHA Loans with Collection and Charge Off Accounts on Credit Reports:

This is a big one. This new FHA rule is going to disqualify a lot of potential home buyers.  Your credit report is going to be even more important than ever before.  Under the old rules on FHA loans, old collections and charge off items did not have to be paid off or dealt with as long as your credit score was OK enough to qualify.  With the new guidelines, FHA is now requiring lenders to include estimated monthly payments on collection and charged off accounts based on 5% of the outstanding balance.

Adding a “mythical payment” of 5% of the balance will dramatically raise these buyer’s debt ratios, resulting in either significantly lower purchasing power, or potentially preventing some from purchasing a home at all.

No More 3% Down on Conventional Fannie Mae Loans:

Fannie Mae has been the last holdout for 3% down conventional loans, but they are switching to a minimum of 5% down.  Freddie Mac switched some time ago. Home buyers will now need at least 5% down payment. The 3% down conventional loan had been a very popular alternative to the 3.5% down FHA loan because of cheaper mortgage insurance and less stringent home condition requirements. Note, in MN we still can offer a 3% down conventional loan tied in with the MHFA Start Up down payment Assistance program.

Debt-to-Income rule change:

During the housing boom, lenders could allow debt ratios well into the upper 50% range.  After the housing crash, Fannie Mae and Freddie Mac dropped that to a maximum of 45%.  The Frank-Dodd Financial Reform and the Consumer Financial Protection Bureau laws are dropping that to a maximum of 43% starting in January 2014.

New Three Percent Rule:

Closing costs and Points paid by the borrower will not be allowed to go over 3% of the total amount of the loan. cfpb_logoWhat fees are included in the 3% have not been clarified. This rule may sound great on the surface – the government is protecting homeowners from lenders charging outragious fees – the reality is just the opposite.  This new rule will have a very serious effect on those looking for smaller loan amounts (typically under about $100,000). As a lender, we already have trouble with loans under $50,000, and this rule is just going to make it worse. A great example is an appraisal. Regardless if you buy a $40,000 home or a $400,000 home, the appraisal fee is the same. About $400 in my area (Minneapolis, MN). On the $40,000 home, that appraisal fee alone is a full 1% of the purchase price, while on the $400,000 home, it is only 0.1%.

Qualified Mortgage (QM):

More new rules because of the Frank-Dodd Financial Reforms laws, and the creation of the Consumer Financial Protection Bureau.  Lenders will be given “safe harbor” from homeowner lawsuits if the loan they provide you fits the more restrictive definition of a Qualified Mortgage.  They are still hammering out the final details of what a QM loan will be, but bigger down payments, lower debt ration quidelines, and more “proof” of income are just some of the items that will be in the final QM rule. The end result means more and more people will NOT qualify for a mortgage as lenders tighten guidelines even more to fit the Qualified Mortgage rules.  An article I just read said only 1 in 5 current loans would meet the new definition.

Common home selling mistakes to avoid

Selling your home?  Here are some common home selling mistakes to avoid

Minneapolis area Home selling mistakes
Selling your Castle? Tips to have a smooth transaction

Minneapolis, MN:  The time has come to sell your home.  Sadly, I still see a lot of people make these very common mistakes.   Hopefully this quick article is full of tips to help you have a happy and successful sale of your home.

Sideline your Emotions:   Sentimental value?? Forget it. A buyer doesn’t care how much you love the house or anything about your memories there.  Be realistic.  Treat the sale of your home like any business transaction.

Setting an unrealistic price.  It’s important that you’re not married to your price.  Most people who are do so because of emotions (see first item).  Regardless of what you feel, the local market sets your price.  You need to be competitive with the same or similar homes in your neighborhood in order to sell your home.

Not hiring a Real Estate Agent.  FSBO, or For Sale By Owner may sound like you are saving money by not paying listing fees.  More often than not, after months of frustration, you will end up with an unsold home, then listing with an agent anyway. Real Estate Agents exist for a reason.  They are licensed and trained. They know how to properly set sale prices, market, and negotiate the deal with all legal requirements met.  Sure, some people can do it, but the other 99% can not.

Skimping on listing photos:  Photos sell homes!  Everyone looking on the internet these days will “see” your house if they are searching for your neighborhood and price point.  What makes them stop at your listing and want to see the house?  PHOTOS!  Make sure your agent takes great pictures, and that they put as many as their local MLS will allow online.  It is also worth hiring a professional photographer, and isn’t very expensive

Trying to sell a dirty or cluttered home:  We know you need to live in the home until it sells, but when viewing your home, buyers want to envision how their furniture would look.  Cluttered houses and a “lived in” look will simply detract the average buyer.  Move out clutter, put it in storage if you have to, and keep the house as shiny and spotless as possible for showings!

Hiding problems:  Don’t try hiding problems with the house.  Most people have an official inspection. It just wastes everyone’s time to start the process, only to have it discovered later.

Not getting pre-approved for your next house:  If you are going to be buying a new home, don’t assume.  Talk to a local licensed mortgage professional BEFORE listing your home.  The rules have changed.  You may assume you’ll be able to get a new mortgage loan, and you may be right.  But knowing for sure, what possible payments will be, how much money you’ll need, and current underwriting rules just reduces one more level of stress.

By keeping these common mistakes in mind and doing your best to avoid them, selling your home should be relatively quick, and free of problems.


New FHA rules allow new home purchase just 1-year after foreclosure

​The Federal Housing Administration (FHA) recently announced a significant mortgage rule change that will allow some borrowers to get a new FHA loan as early as just  one year after short-sale, deed-in-lieu, full foreclosure, or bankruptcy as part of their new “Back to Work – Extenuating Circumstances” program.

Back to Work Eligibility guidelines are pretty strict. 

FHA Back to Work Program in MNPotential borrowers must be able to prove that a major economic event, such as a job loss, or severe reduction in household income (20 percent for at least six months) was the main catalyst in losing their home.

Potential new homeowners will also need to document and prove their income has since fully recovered, and that their credit score are now satisfactory. Finally, potential borrowers will need to complete a one-hour one-on-one housing counseling session.

Borrowers will need to meet all other standard FHA eligibility criteria for an FHA mortgage loan.

To be deemed with “satisfactory credit,” borrowers will need to meet the following guidelines for a minimum of 12 months:

  • No collection accounts or court records reporting (other than medical and/or identity theft).
  • No history of delinquency on rental housing payment.
  • No more than one 30-day late payment due to other creditors.

Prior to the major economic event, the borrower’s credit must have been satisfactory and in good standing.

With that all said… my company, Cambria Mortgage, will be happy to review you for approval under this new program.  The first steps are:

  1. Have borrower document the 20% drop in income.
  2. Have borrower take counseling
  3. Then take full FHA mortgage application

A list of acceptable housing counselors can be obtained by calling 1 (800) 569-4287 or online at www.HUD.gov


Mortgage Underwriting Red Flags – Things to avoid

Getting a mortgage loan?  Does it feel like the underwriting process is over zealous?  It is… but the reasons why are justified.  During the real estate boom from around 1999 to 2007, fraud was rampant.   A big reason for the fraud was that the lending industry was a bit too trusting.  So today, when the industry verifies everything, it feels a bit intrusive.

I simply ask this:  If you were to give a stranger hundreds of thousands of dollars, what would you ask for to be comfortable?Mortgage Fraud

These days every Mortgage Application is examined very carefully for any sign of possible fraudulent activity.  There are several high areas of possible fraud activities that Underwriters look for in all loan applications:

  • Mortgage Application fraud
  • Occupancy fraud (really a rental)
  • Credit Reports
  • Employment Fraud
  • Down payment money fraud
  • Income documentation fraud
  • Appraisal fraud
  • HUD-1 (Settlement Statement shows suspicious items)

Underwrites also look very closely at  the Purchase Agreement.  We deal with numerous issues on the contract that Realtors may just be sloppy, or are trying to hide something. Being aware of what these Red Flags may be can help to avoid underwriting nightmares.

  • Any item that has been whited out.
  • Numbers appear to be squeezed together due to alterations.
  • Different handwriting and signatures for the same individual.
  • Earnest Money Deposit equals the whole Down payment or is an odd amount.
  • Earnest money check not from the actual buyer
  • Non Arms-Length transaction.  For example the Seller is a Real Estate Agent, Broker, Relative, Employer, etc.
  • Seller is not presently listed on Title.
  • Seller has only owned the home for a short period
  • Multiple buyers on contract but only one applying for mortgage
  • Buyer has been added to, or deleted from the Sales Contract
  • Power of Attorney transactions.
  • Personal items on contract (boats, lawn equipment), then “removed”
  • Earnest Money Checks have inconsistent dates.  For example Check #101 is dated 11/12, but Check #103 is dated 10/28.
  • Contract is filled in, in very few areas with several areas left blank which is not typical of a normal Sales Contract.

The above list is not all inclusive, but it gives a good idea of how closely Underwriters Look For Red Flags During The Loan Approval Process.  The more aware Realtors are of what Red Flags Underwriters are looking for in a Sales Contracts, the more questions they can help eliminate, and reduce issues and closing delays.

Buying a new home? Are you really Pre-Approved?

Seems like every week I get a new client, who has been working with another lender, and suddenly, their mortgage application was denied very close to closing.  A common statement they make is, how can that be, I was Pre-Approved?”


The answer is yes and no.  Under the standard procedure most lenders follow is that the loan officer takes an application.  Next the loan officer should pull credit. This should give the lender a good preview of the potential final outcome.  Many lenders will give a pre-approval letter at this point, but they really should not.


If the application looks good, the lender should now collect and verify your supporting documents.  This includes W2’s, tax returns, pay stubs, bank statements, and other needed documents depending on your situation, like divorce and bankruptcy papers.

Upon a successful review of the application and supporting documents, your Loan Officer should be able to provide a valid Pre-Approval letter.


Your Pre-Approval is not a guarantee.  But at this stage, a properly reviewed application from an experienced Loan Officer is as close as you can get to knowing your application will be approved.  There are many more steps between this stage and closing. Unfortunately, this is where a lot of loan applications run into trouble.  Poorly trained, unlicensed, and inexperienced Loan Officers miss many important items at this stage.  The list of items they miss is too long to list here. Understand that 80% of loan officers are NOT LICENSED.


Your application will now go through a processor.  That person will usually order the appraisal, title work from a title company, an IRS copy of your tax transcripts, and generally scrub the file to make sure the minimum items needed are in the file.  Once everything is back, the full file goes to underwriting for review.  Assuming everything was entered and done correctly up to this point, the vast majority of loans are fully approved and cleared to close.


Surprises that show up at this stage included incorrectly calculated income, unqualified income,  appraisal issues, inappropriate funds to close, and surprises on your tax transcripts, like small self-employed side jobs, or large un-reimbursed employee expenses. At this point, we even run into people who during the application process have lost their jobs!


As you can see, there are a few items that can truly pop up to kill an application that are not discovered until during the underwriting process. BUT THE VAST MAJORITY are not surprises.  Most were there to be discovered at application.

10% of the success of your mortgage application is the company you chose.  90% of the success is the Loan Officer you chose.  Chose wisely!