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Home Buyers

Information and news for home buyers, especially first time homebuyers

Minneapolis Area Medium Home Values UP 12.4%

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Minneapolis, MN:  Metro area home prices were up 3.3% in March according to the widely watched Case-Shiller home price index.

This report confirms what what I have been saying for some time now – that home prices in the Minneapolis / St Paul area are increasing, the market is stabilizing, and that especially in the sub $200,000 price range, good houses are going fast with multiple offers above asking price just days on the market.

All real estate is local. Our increase bucks the nationwide trend.  Overall, U.S. home prices fell in March, ending the first quarter with some of the lowest levels scene since the housing crisis began in mid-2006. During the first quarter, home prices nationally reached new lows, falling 1.9 percent year-to-year.

Nationwide, average home prices are down roughly 35 percent from their peak in the second quarter of 2006.

Demand for homes has been showing some serious signs of stabilization, as low mortgage rates, low home prices, and improved job growth have pushed first time home buyers off the fence and into the housing market.

According to information from the Minneapolis Area Association of Realtors, March marked the first time since 2010 that median home prices had risen in the Twin Cities.  The Minneapolis / St Paul median home price rose 6.4 %, to $149,000. The positive news continued in April, when a shrinking supply of homes on the market helped drive the median sales price up 12.4% to $163,000. Foreclosures and short sales also made up a smaller share of sales in recent months, which helped boost prices.

Forget the national reports. In this market, everyday you wait is going to cost you. Get pre-approved today, and be in your own home next month.

Home prices leap – Time to buy

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Twin Cities home prices bounced up in April with the largest jump since before the housing market meltdown.

A shrinking supply of homes on the market and the reappearance of multiple offers helped drive the median sales price up 12.4 percent to $163,000 over the previous April.

That’s the largest increase since January 2004, the Minneapolis Area Association of Realtors said in its monthly report Thursday, May 10.

Fewer foreclosures also helped boost prices, as traditional sales accounted for a greater share of the market, which “tends to drive up median and average prices since they tend to sell for more than foreclosure properties,” said Cari Linn, president of the trade group.

Read the full story

Check Minnesota Mortgage Interest Rates

 

 

Winning in multiple offers without paying more

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How To Win in a Multiple Offer Situations without paying more!

Minneapolis, MN:  Multiple offers on homes just days on the market appears to be back,  especially for homes priced under $200,000.

There’s a mixed bag of buyers out there:  conventional buyers, FHA buyers, VA buyers, all-cash buyers, and investors.

In a multiple offer situation, the offer price is probably one of the biggest factors when the seller is deciding which offers to entertain or accept.

But what do you do when you’ve reached your affordable max and can’t really come up any more in price?

Here are just a few things that I recommend to my buyers.  Some requires a little investigative work, but it may pay off for you.

1. First, be sure to be fully pre-approved with an approval letter from a rock solid local lender with a great reputation that real estate agents trust. This is almost never an internet lender or the big banks.

2. Find out where the seller is moving to, and what logistics are involved with that – Is is the case where and when they’re moving may cause them need a short rent-back from you?  In other words, after the close of escrow, it may help if they stayed in the home anywhere up to 30 days in which they can pay you based on your P.I.T.I. (Principle, Interest, Taxes, Insurance) calculated on a daily rate, or if you’re in a financial position to do so, offer them a free rent-back period.  A good example is when the seller’s new home is not quite ready to move into and they need just a small amount of time.  Offering the seller a rent-back is HUGE when it comes to these situations.  No seller really wants to have to go into temporary housing and have to move twice!

3. Do the sellers have any pets that for whatever reason will be difficult for them to take to their new home?  Once again, if you’re in a position to do so, offer to adopt the pet.  Or perhaps there is someone you know that may want to adopt the pet.  This is a major relief when a problem arises for those sellers that are moving to an environment where the little guys may not have as friendly and safe of an environment.  And since the pet is already accustomed to that home, there shouldn’t be too much of a transition for the pet other than getting used to their new owners.  Something like this can truly set you apart from the other buyers tremendously.

4. Write a fast inspection period into the contract – Get your inspection done within three-days and have the contingency removed from the contract.  Why? It shows the seller you’re willing to get your due diligence done quickly and efficiently.  That can score quite a few points with both the seller and listing agent.

5. Offer to inherit personal property that would be difficult to move – Is there any personal property that is large or difficult to move that would create a huge cost factor for the seller?  Offer to keep the personal property or purchase the personal property depending on what type it is.  Maybe there are some old paint cans or bricks/boards, etc. on the property. This can save the seller a lot of money not having to pay to move items that could create a substantial moving expense.

6. Write a personal letter to the seller that you’ve found you have a connection with – Do you and the seller both have children?  Pets?  Belong to the same organizations / clubs / charity?  Share the same spiritual beliefs?  Taste in architecture?  Perhaps you share similar life experiences?  Writing a personal letter to the seller that is sincere and makes some kind of connection or that creates some kind of bond with them can be HUGE in their decision to choose a buyer in a multiple offer situation. From personal experience, this helped me win the home I am in today!

The best advice I can give a buyer is:  BE A STRAIGHT SHOOTER AND WEAR YOUR HEART ON YOUR SLEEVE.  Don’t be crafty or coy.  It never works and you’ll always create an environment of mistrust and animosity, and that’s a recipe for disaster.

Adjustable mortgage loans popular again. Here is why.

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Adjustable (ARM) Loan Resets Cause Foreclosures – Fact or Fiction?

Saint Paul, Minnesota: Requests for adjustable mortgage loans dropped to near zero the past few years because of the general belief that adjustable loans are bad, and that recent high levels of foreclosures was because homeowners were doing fine with their loans until their adjustable loans reset to higher rates.

Lenders are again starting to see inquiries about, and home buyers again taking adjustable rate loans because of the super low adjustable loan rates.

FACTS VERSUS FICTION:  According to recent nationwide data, the number one reason homeowners default on their home loans was because their income was cut. This accounted for just under 60% of loans in default. Once traditional causes of foreclosure are factored in (divorce, major illness), cash flow problems added up to a whopping 80% of all “causes” of defaulted mortgages nationwide.

Adjustable payment loans resetting to a higher payment alone accounted for just 2%, according to the data. Rather than being the cause, they appear to be the final straw that breaks the camels back of people who were already in financial trouble.

ADJUSTABLE RATE MORTGAGES: Adjustable Rate Mortgages (ARMs) became one of the most popular and effective tools for helping some prospective homebuyers achieve their dream of homeownership between 2000 and 2007. Initially developed during a time of high interest rates that kept many people out of the housing market, the ARM offers lower initial interest rates by sharing the future risk of higher rates between borrower and lender.

IS AN ADJUSTABLE MORTGAGE RIGHT FOR YOU? Talk to a local licensed Loan Officer (not an unlicensed bank application clerk) about the benefits. ARMs can be an excellent choice of financing under certain conditions, such as rising income expectations, high interest rates, and short-term homeownership plans. But because payments and interest rates can increase, either steadily or irregularly, homebuyers considering this kind of home mortgage loan need to have the income to keep up with all possible rate and/or payment changes. Each ARM has four basic components:

  • Initial interest rate, which is typically one to three percentage points lower than that of most fixed rate mortgages.
  • Adjustment interval, at the time between changes in the interest rate and/or monthly payment will be.
  • Index, what lenders use to determine future rate changes. This is usually LIBOR.
  • Margin, or the additional amount the lender adds to the index to establish the adjusted interest rate on an ARM.

Typical adjustable loans come in 1-year, 3-year, 5-ya, 7-year, and 10-year initial fixed term options. The 5-year adjustable is super popular. The rate is fixed for the first five years of the loan, then becomes adjustable on a yearly basis.

Is the real estate market going Up or Down?

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Is the real estate market finally going up, or still in trouble?

It depends on what market statistics you are looking at. Is there a real estate recovery, or is this just a small blip in the radar of a longer housing cycle?
For the 7th month, home prices of non-distressed properties have declined, according to Inman News. Not good news for sellers, but awesome news for buyers.
In another report,  pending home sales are up in March, an indicator of a real estate recovery, according to the National Association of Realtors. That index is now 111, and 100 or above is considered a healthy real estate market. The index in March 2011 was 89. The index right now is what it was in 2001 before the market started climbing.
But the public appears to be wary of all the discord between the talking heads, and all their doom and gloom. Buyers appear to be finally getting off the fence, taking advantage of super low mortgage interest rates,  and house prices not seen in a decade.
What’s different today? Is this just an uptick on the graph that will quickly be pulled down by the shadow inventory and new distressed sales?  Are we truly pulling out of the mire of dismay and dismal market we have suffered through since Fall 2008?
From my individual perspective, there is a change in the real estate market that I have not seen in years. Buyers are eager to buy, they are making offers, they are NOT sitting on the fence any longer, and good homes, priced right, especially in the under $200,000 market, are once again selling in just days with multiple offers.  The buy versus rent question is clearly leaning towards home purchase once again, especially for first time home buyers.
Buyers need to be fully pre-approved from a licensed mortgage loan officer and ready to make an offer.

Credit tips for first time home buyers

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 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.

Appraisals baffle consumers

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St Paul, MN: The appraisal process often baffles consumers.  May people feel that their home is worth more than true fair market value, so the appraised value doesn’t always make sense to them.

The bulk of your homes value is based on finished square footage.

It is important to know that the appraiser is completely independent from lenders, buyers, sellers, and real estate agents, and that the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae.

In most states, the mortgage lenders must also disclose the purpose of the appraisal, as each transaction carries its own set of rules. In essence, these important guidelines help appraisers put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value.

For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal. Upgrades can usually be expressed at a higher percentage of their value in newer homes because the only way to obtain those upgrades was to put more money into the cost of building the home. On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because typically 25-40% of the project involves demolition and the fixing of issues that aren’t uncovered until the project has already begun, such as plumbing or wiring that may need updating.

Ultimately, the value of the upgrades must be supported by comparable examples within the same marketplace. These comparisons must be drawn from current market activity. The general rule is ‘same or similar, sold within the last six month, within a one mile radius’ of your home. This is a safeguard to prevent appraisers from attaching too high a value to the home in question, and opening up the appraisal for review. This guideline further states that appraisers can only base their opinion on the value of home sales that have actually closed.

Maintenance items don’t increase value. That new roof you just added doesn’t really add any value.  It was maintenance. If your home previously didn’t have a roof, and now you added a roof – that would add value!

Don’t confuse curb appeal with maintenance. Following the same roof theory. A brand new roof sure makes a potential buyer feel better about your home – but how much more would a buyer pay? Not much.

Mortgage lenders and Loan Officers must follow  the guidelines in the Home Valuation Code of Conduct, which among other things prohibits a lender picking the actual lender (must be randomly assigned),  from having any contact with, or influence on how the appraiser values a home.

Wondering what your home is worth? Thinking of selling your home, or refinancing to a lower interest rate? Only an actual appraisal from a licensed appraiser will give you a true number, but here is a online tool that can help give you an idea of what your home is worth.

 

Lowest Interest Rate or Lowest Closing Cost – Which is better?

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Lowest Interest Rate or Lowest Closing Costs – Plus No Lender Fee, or No Closing Costs Advertising

HOW DO THEY WORK?

A common mistake shoppers make is to simply ask: “What’s your rate?” or “What are your closing costs?” Both logical questions to ask, but they do not give the response most borrowers need to make a proper decision. Borrowers must understand both rates and fees.  Interest Rates are only half the answer to getting the best mortgage deal. It is possible end up with the lowest rate, or with low or no closing costs, but not necessarily the best deal.

Remember that nothing is ever free. Lenders simply use “reverse points” whenever they claim to offer any sort of low closing costs, or no fee mortgage.

Simply put, the lowest rate & the lowest fees do not go hand-in-hand. NO LENDER can offer both together. I can give you rock bottom rates, but it will cost you in fees. I can give you the lowest fees, but it will cost you in interest rate. Most lenders quote their best rate in combination with covering all third party fees (appraisal, credit report, title company, state taxes, county recording fees, etc) with 1% origination. See the example below.

Here is an example of Rate vs. Costs on a $150,000 – 30 year fixed loan

Here is an example of Rate vs. Costs on a $200,000 – 30 year fixed loan
Lower Rate Standard Quote

Low Cost

Total NO Cost

Rate

4.75%

5.0%

5.25%

5.75%

Origination

1%

1%

None

None

Discount Points

1%

 None

None

None
Closing Costs $5042 $5042 $3042  $0.00

Closing Costs with Points

$7167

n/a

n/a

n/a

Monthly P & I Payment

$1043.29

$1073.64

$1104.41

$1,167.15

10 Years of Interest

$92,352

$95,240

$98,151

$108,037

20 Years of Interest

$155,609

$162,618

$169,718

$188,181

30 Years of Interest

$181,300

$190,232

$199,311

$221,909

WHICH LOAN VERSION is RIGHT FOR YOU?

The combination of rate & fees can be very confusing. One lender is screaming “No closing costs.” A second lender may quote you just $000 in fees, while another lender is offering an amazing rate.

So are closing costs and fees bad? Well if you ask everyone’s brother who has a real estate license and knows everything about mortgages, then the answer you will most likely hear is yes.  I am here to tell you everyone’s brother is probably wrong.

Good enough answer?  I didn’t think so…

Begin by asking yourself “How long am I going to be in this property?” This is the single most important question to determine which option is best for you. Now look at the chart above. It becomes very obvious based on how long you are going to be in the home if ‘Best Rate or Lowest Cost‘ makes the most sense for you and your family.

Congratulations, you are now smarter than everyone’s brother, mother and sister with a real estate license.

ZERO DOWN USDA RURAL DEVELOPMENT LOAN – Not just for Rural Areas

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ZERO DOWN USDA RURAL DEVELOPMENT LOAN – Not just for Rural Areas

Minneapolis, MN: One of the biggest difficulties many first-time home buyers face is a lack of down payment, and the necessary money to pay closing costs. Most “zero down payment programs” disappeared with the mortgage market meltdown that started in 2007, so in most parts of the country, the only true no money down programs are just the VA home loan for Veterans or the USDA Rural Development Loan.

Guaranteed by the USDA (United States Department of Agriculture), this program might make you think that you have to buy farmland or live “in the country” to qualify, but this is often not the case. In fact, you might be surprised to see just how many neighborhoods actually do qualify as rural development areas. For this program, the term “rural” really applies to those areas with a lower population, or fewer homes, not necessarily those areas or farmland far outside of the city. To see what areas qualify for the USDA Loan, click here for the property eligibility map.

There are several benefits of the USDA loan program besides no money down. The program has very low private mortgage insurance costs compared to other loans, and the seller is allowed to pay all of your closing costs and pre-paid items up to 6.00% of the total sales price of the property. While this is great news for first-time home buyers, it’s important to note that you don’t have to be a first-timer to qualify for a USDA loan.

Other than the location of the property you’re seeking to buy, there is one other important aspect to the USDA loan.  It has income guidelines. Click here to see if your family incomes qualifies for the USDA loan. Luckily, however, these numbers have recently increased to allow more potential buyers to take advantage of this special program.

For the USDA program, a great rule of thumb is no major metropolitan areas, and any town with less than 20,000 population.

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Are mortgage rates going up?

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ARE MORTGAGE RATES GOING UP?

Minneapolis, MN: Mortgage interest rates jumped up last week, putting a scare in those sitting on the fence, thinking about refinancing, yet waiting form rates to drop a bit lower. Lucky for them, Minnesota mortgage interest rates moved back down slowly to about where they have been holding for some time.

The big question is how long can mortgage rates remain this low? 

Mortgage rates have been stuck at these amazingly low levels for the past five months. According to Freddie Mac weekly survey of mortgage rates, last week was the first time that interest rates on a standard 30-year fixed-rate mortgage rose above 4 percent, only to slip back below this week.
It’s very clear that mortgage rates can’t stay this low forever. It was big news when 30-year rates fell below the 5 percent mark in March 2009 – a level unimaginable just a few years before. Now we’re a full percent lower than that. When you consider that rates rarely fell below 7 percent prior to 2001, and often ranged much higher, it’s clear that rates will eventually move back toward more historical norms. When I bought my first house in 1981 – I paid 16% for an FHA 30-year fixed mortgage.
The question is, when will that happen – and what will trigger it?  So, is it smart to keep holding out for lower refinance rates? Probably not…  Is it wise to not buy a house today?  Probably not, especially with these interest rates and zero down programs like the VA loan program, and the USDA Rural Development Program.

The YourGage? Pick any mortgage amortization loan term you like

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Who said you have to pick a standard mortgage loan term?

Design your own mortgage loan. Pick any term loan amortization period you want – from 6 to 30 years.

A big internet lender likes to call this “The YOURgage“, and claims it is “only available from them!”  They go as far as to make it sound like they “invented” it. Well, that is far from the truth. Actually, it is a little know loan option available from a large number of MN mortgage lenders.

Mostly used for refinancing, but it can also be used to purchase a home.  Let’s say you have a 30-year mortgage with just 18-years left. You’d probably like to refinance to today’s super low mortgage rates, but you don’t want to go backwards to a new 30-year loan, or even a 20-year loan.

So how does it work? Simple. Just tell us how many years you want for your home mortgage, and that is what you get!

Does it cost more?  What are the interest rates? No, it doesn’t cost more. Rates are calculated based on the closest standard fixed rate term. For example, if you want an 11-year mortgage loan, you get the standard 15-year interest rate. On the 18-year loan, your interest rate will be the same as a 20-year loan.  If you wanted a 22-year loan, you get the same interest rate as a 30-year loan.

Other than that, it is simply a standard home mortgage loan.

Use this online mortgage calculator to determine what YOUR mortgage payments ( YourGage ) would be, then APPLY with a local MN based direct lender.

 

What day of the month is best to schedule a home closing?

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I just read this on a site primarily for Real Estate Agent:

“For the first time home buyer who is low on Cash, I would highly recommend closing at the end of the month.”

WOW…   As a licensed mortgage professional, I completely disagree with this statement from Real Estate Agents!” The days of interest scare, and false illusion of some serious savings has caused many problems for many people over the years.

My advice: CLOSE WHEN IT IS CONVENIENT – Not simply at the end of the month.

On any mortgage loan closing, you start paying interest the day you sign. Many people tell you to close the end of the month because you will save a lot of month in closing costs by doing so. This is misguided advice.

You are NOT paying “additional” closing costs – you are simply paying interest starting the day you purchase the home. Close whatever day makes most sense for YOU!

Let us take a $200,000 loan, 30-year fixed, at 4.00%

  • If you close March 30th, your first payment is 32 days away (May 1). You pay two days of interest at closing ($44.00)
  • If you close April 2nd, your first payment is 58 days away (June 1). Sounds great, but you will pay an additional 28 days of interest at closing ($622.22)

Appears to be some significant savings – but lets do more math. With either closing date, your mortgage (loan only) payment is $954.83.  So if we assume the 60-day window of the “closing month” and when the first payment is due using either method, and calculate what each person will have needed to pay out-of-pocket including their June 1st payment, we get:

  • Option 1:  Pays $44 for two days of interest plus two mortgage payments  = $1953.66
  • Option 2: Pays $622.22 at closing, plus one mortgage payment = $1577.05

Completely opposite of what the Realtor said, you actually just saved $376.61 by closing on the 2nd day of the new month, versus the last day of the last month.

Another aspect – The last week of every month, is extremely busy for both the Closing Agent and your mortgage lender. There is a larger possibility that an error may be made during this time. You may also find the Closing Agent much more relaxed and personable if she doesn’t have 8 other closings scheduled the same day as yours. Anytime between the 4th and 24th of the month are good days to close.

Moving considerations: Let us say you expect to closing on your new home and move out of your current residence the last day of the month. You give notice to your landlord to end your lease and arrange for movers or to rent a truck. Then, your loan closing gets delayed for 5-days. This happens ALL THE TIME, especially with foreclosures and short-sales. You are now homeless! New tenants could be moving into your apartment, and the movers are going to charge you for wasting their time. You could be forced to live in a motel for a couple of days!

A Better Plan: allow for a 5-7 day overlap between closing and moving. In the long run, it is not nearly as expensive and it will sure give you peace of mind.

Moving trucks/movers: Go price out moving trucks. They are significantly cheaper if renting in the middle of the month versus when everyone else is moving at the end of the month.  The “cash strapped” buyer could have easily spent the difference in the cost of a moving truck.

TIPS FOR A SMOOTH HOME LOAN CLOSING – by a guy who has been to thousands.

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Condo Insurance – What you don’t know can cost you a lot of money

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What you MAY NOT know about Condo insurance

Get a FREE Condo Insurance HO6 Policy Quote

Newer lender regulation REQUIRE people owning a condo and even some town homes to get homeowners insurance. This policy is similar to a “renters insurance policy“, but is actually called an HO6 policy.

If you or one of your clients owns a Condo or a Townhouse, there is an important coverage to consider.

It is called “extended protection”.  this coverage protects the owner for any damages that may occur that the owners association will not pay because the master policy for the association has a deductible of $5,ooo or $10,000.

If for example, the owner grills out on the deck and gets too near the vinyl siding and damages it,  the association will make them fix it but will not pay for repairs until the deductible is reached.  So the owner may be on the hook for that 1st  $5,000 or $10,000.

With extended protection,  insurance will pay the damage up to the deductible.  And the coverage is relatively inexpensive.

The death of FHA Loans – Starts April 1, 2012

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The Federal Housing Administration (FHA) is following through with absurd increase in FHA loan mortgage insurance.

When consumers get an FHA loan, they pay UMIP (Up-front mortgage insurance premium), which is added to their loan amount, and a monthly mortgage insurance fee. Starting April 1, FHA will hike its upfront premium by 75 basis points to 175 bp on all single-family loans, including jumbos. The monthly mortgage insurance will remain the same, at 1.15% for loans over 95% loan-to-value.

On a $200,000 loan, borrowers would actually end up making payments on a $202,000 loan. ($200,000 X 1.00%). After April 1st, 2012, the same person will now have a loan of $203,500. ($200,000 X 1.75%).

According to FHA, the fee increases are designed to strengthen FHA’s capital position and “have minimal impact on the market and borrowers,” according to FHA acting commissioner Carol Galante.

These premiums are expected to dramatically slow down new FHA from $218 billion in the current 2012 fiscal year that ends September 30 to $150 billion in FY 2013 as consumers continue to rely more heavily on standard Fannie Mae and Freddie Mac loans, which now have cheaper mortgage insurance.

In a smart move, FHA noted that FHA streamline refinances are exempt from these new premium hikes.

Stupid Appraisers?

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FHA guidelines state that a house has to meet MPR (minimum property standards) for existing houses, and MPS (minimum property requirements) for new construction. FHA is very concerned with the three S’s: Safety, Security, and Soundness.

When a Realtor was asked what the three FHA S’s were, he replied, “Stupid, more stupid, and seriously stupid FHA appraisers,” which I thought was pretty funny, however, a little off the mark. The three FHA S’s have to do with the following:

Click here to READ the FULL STORY

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NO Closing Costs Loans COST Money

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I constantly receive requests for a No Cost loan. Sadly there is no such thing.

All loans have closing costs associated with putting the loan together.

Just like you, participants in the mortgage loan process don’t work for free. The Appraiser, Title Officer, Title Insurance, County Recording Fees, Minnesota Mortgage Registration Tax, as well as your lender all need to get paid as part of the process.

Each of these parties charge fees for their service in processing and funding your loan. The Lender’s responsibility is to explain to you what the services and costs are, and to give you an estimate of the total costs when you apply for a loan. This estimate comes in the form of a document titled Good Faith Estimate of Closing Costs. It is only an estimate, but it should be very close to your actual costs. Lenders are not allowed to pad, or add onto the costs charged by these other parties, but rather simply pass on what they charge. The vast majority of closing costs go to third parties, not your actual lender.

The real question is: How do I get a loan so I don’t have to pay for these required services? The simple answer is you can’t. What you can do is determine how they get paid.

Purchasing or refinancing, it basically works the same way. All of the costs associated with transaction are paid in one of four ways: By you in cash, by the Seller (in a purchase), by rolling it into the new loan amount (refinance), by the Lender, or a combination thereof.  The most common way in a refinance is by rolling the closing costs into the new loan amount.

Now you may be saying “Wooh-Hooh, let the lender pay”, but you need to know how the lender can do this, and why it may not always be such a smart move.

To have the lender pay your closing costs, you agree to accept an interest rate that is higher than what is considered a “Market Rate.” In doing this, the lender receives more cash than just the face amount of the mortgage loan when they sell it to an investor on the secondary market. This excess cash is what the lender uses to pay some or all of your closing costs. This means that over the life of the loan, you will be paying more interest to the lender than you otherwise could have.

Does this strategy make sense for you? Maybe. It depends on several factors. How much higher is the mortgage rate and what is the monthly cost to you in increased payment? How big or small is the loan? How long do you plan to stay in this loan? Do I have the cash to pay the costs out of pocket?

This is where it becomes important to work with a Licensed Mortgage Originator and not a bank employee. As I have said many times, A Mortgage Banker / Broker is required to be Trained, Tested and Licensed in all aspects of Mortgage Origination. A bank employee is usually just registered, not tested, not licensed, and not required to be educated, tested, or licensed.

A NO COST loan is not automatically good or bad.

A local licensed Loan Officer will do the math with you, and take the time to show you the pros and cons of each method of paying closing costs so you can choose the best option in your particular situation.