Manual Underwriting on a VA Loan

Minneapolis, MN: I LOVE VA LOANS! But a common misunderstanding is that a VA loan is automatic for Veterans. I wish that were true, but the reality is VA Loans, just like any other mortgage loan has qualifying guidelines. Just like other loans, some people easily qualify, and some are rough around the edges in need of an expert to massage the file to loan approval.

Here I will explain how computerized underwriting approval versus manual underwriting works on VA loans.

VA LOAN INITIAL APPROVAL PROCESS

After taking your application, we pull credit, and run your application though the appropriate computer system for initial loan approval. Lenders essentially get two answers back for the AUS (Automated Underwriting System), either Approved, or Refer. These are known as “findings.”

VA Loans MN, WI, SD

APPROVED

An “Approved/Eligible” finding means the computer accepts the data, and as long as things match, the loan should be fine. For example we told the computer you make $50,000 a year. As long as pay stubs and W2’s match up and say the same thing, you should be fine.

REFER

A ‘REFER’ finding response is not an automatic no, or that your application is dead. It means the computer doesn’t like something within your application profile, and we should REFER it to an underwriter for old school manual underwriting approval.

DIFFERENCES BETWEEN APPROVE AND REFER

Another way to look at the two is that Approved is easier, more forgiving (especially in debt-to-income ratio’s), and needs less documentation. Refer on the other hand is more stringent, has tighter debt-to-income ratio’s, and requires a lot more documentation.

Getting A REFER Approved

When looking to approve a Refer, underwriters have to make sense of the over file. Questions generally revolve around the reason for the Refer, and do you have compensating factors that help strengthen your file to offset the Refer.

A Refer is very common when you have low credit scores (under 620), or a lot of negative credit information, including collections, judgments, and major negative items like a foreclosure or bankruptcy. Underwriting is look with a microscope over your credit report. Why do you have a low score, how recent and severe are the negative events, and is there a logical reason outside of your control for the events.

They are also looking for current compensating factors that improve your loan. For example:

  • A lot of money still in the bank after closing. At least 3 months of payments
  • Longevity at the job. A stable job history versus multiple short term jobs
  • Little or no payment shock – Is the new house payment less than you’ve been paying in rent, or no more than 5% higher than you are paying in rent.

VA LOAN DEBT TO INCOME RATIOS

When getting any home loan, lenders look at two debt-to-income ratio numbers, commonly referred to as front and back ratio’s. You will usually see them express as something like 29/43.

Your front ration is a percentage of your income used solely for the new house payment, and nothing more.

Your back ratio, and the one more common to home buyers takes the new house payment, plus things like car loans, student loans, and minimum payments on credit cards. It does not usually include things not on a credit report, like cell phone bills, car insurance, or utilities (gas and electric).

As an example, lets us assume your pre-tax income is $5,000 a month. Your new home payment, including taxes and insurance is $1,500 a month. That is just about a 20% housing ratio (front end).

Let us assume your card payments, student loans, boat payment, and minimum credit card payments equal $1,000 a month. That would mean your back ratio (house plus debt) is 39%.

The two combined would be represented as 20/39.

As mentioned earlier, Refer files come with stricter debt-to-income ratio’s. VA, like all other programs have generalized guidelines. If you fall below the debt ratio guidelines, approvals are likely.

As you creep outside those guidelines, approvals become harder. It is very difficult to say a specific ratio is approved, and a specific ratio is denied.

But as a rule, the higher your front ratio goes about 30%, and the higher your back ratio goes above 41%, the more difficult approvals get.

I have seen many computer ACCEPT loans get approved with a 55% back ratio, but rare do you see a REFER back ratio above 45% get approved.

The bottom line

A Refer from the underwriting computer is not an automatic kiss of death.

Not all lenders approve REFER loans. Some automatically reject them, many do not. If your VA loan got a Refer, but the lender doesn’t offer Refer options, by all means, try again with another VA lender who does (like me!).

On the other hand, if your REFER file was underwriter reviewed, and still got denied, I do NOT suggest you keep trying. Rather, fix whatever this issue was, and try again in the future.

Ask the VA Mortgage Expert

If you are buying a home in MN, WI, or SD, reach out to me for your VA at (651) 552-3681. Better yes, just get started by completing our VA Application at VAMortgageMN.com.

After a brief conversation we will discuss your qualifications and send you an application link. We are experts in VA loans, including manually underwriting VA loans with higher debt to income ratios.

Equal housing lender. Not everyone will qualify. NMLS 274132. Not an offer to enter into an interest rate loack agreement.


When can you cancel mortgage insurance?

Minneapolis, MN:  Mortgage insurance? Everyone asks when can you cancel mortgage insurance?

The answer can vary greatly bepending on loan program chosen, the down payment size, and market conditions. Understanding the basic’s goes a long way in helping make a loan and down payment decision.

For standard conventional mortgage loans with monthly mortgage insurance:

  If you do notthing special but make your payments:

  • About 110 monthy with 5% down
  • About 89 months with 10% down
  • About 56 months with 15% down

You can ask the lender to remove monthly mortgage insurance earlier if  with the combination of paying down the loan, and home appreciation, you believe the amount you owe on the home is now less than 80% of it’s value.

For FHA Loans

For FHA loans with LESS than 10% down

  • Life of loan (never goes away unless you refinance)

For an FHA loan with 10% down or more

  • Exactly 132 months
  • You can NOT remove earlier even if you fall below 80% loan-to-value

For VA Loans

  • No mortgage insurance

For USDA Loans

  • Life of loan. Never goes away
Cancel Mortgage insurance and save

Other Mortgage Insurance Options

We all want to save some money, so understand that with standard conventional loans, you can also ‘buy out’ of monthly mortgage insurance that may save money in the loan run.  There are two ways to do this:

Lender paid mortgage insurance – This is where your lender increases the loans insterest rate to pay for the mortgage insurance in lieu of you paying it monthly. There are a ton of variables in this option to determine if it makes sense, and is not automatically good or bad.

Borrower paid mortgage insurance – This is where you pay an extra lump sum at closing to buy out of monthly mortgage insurance. Generally the cost is about equal to 40 payments of monthly mortgage insurance, and can really add up. As with lender paid mortgage insurance, there are many varibles to determine if this options makes sense.

You can potentially do the old two loan option to avoid mortgage insurance. For example you get a standard loan at 80%, and a second mortgage at 10% (total = 90% financing). I’m not a gigantic fan of this option in most cases because when you do this, generally the first mortgage insterest rate is .125% higher because your risk level is still 90%. Next, most home equity loans are varible rates, with minimum payments of interest only.  I’ve seen many people take this option, then make small interest only payments.  10-years from now, they still owe the full amount, leaving themselves in worse position than if they had taken standard mortgage insurance.

How PMI has Changed

Finally, standard monthly mortgage insurance is very different today than just a few years ago.  For most people, it is a lot cheaper.

All the mortgage insurance companies have switched over to risk based pricing.  A 5% down loan needs to cover your risk 15% (to 80% loan-to-value), and is therefore more expensive that a 15% down loan, which only needs to cover your risk 5% (to 80% loan to value).

Next, credit scores matter too. Someone with excellent credit will pay significantly less in mortgage insurance than someone with weaker credit score.

One other factor is how many borrowers. Generally speaking, two well qualified people buying a home are less risk than just one person, so mortgage insurance even fators than to determine the cost. The simply reason being if there are two borrowers, and one has a job loss, they have less risk of default than just one borrower who has a job loss.

In the end, a good Loan Officer will also have, as part of your loan review, a conversation about mortgage insurance options with you. If they didn’t, call someone else!

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I lend in MN, WI, and SD and would love to be your lender. 

To apply directly with me, and find out what type of loan and mortgage insurance is right for you, just go to iJoeMetzler.com or call me at (651) 552-3681. NMLS274132. Equal Housing Lender

Call Joe Metzler, iMortgageJoe.com


Use your tax refund for down payment

Minneapolis, MN: One of the biggest reasons people don’t buy a home is the lack of down payment money.

We get it. Saving is hard. Tax refunds therefore are popular tools for first time home buyers.

Big refunds or small refunds may be just enough to get you into your own home this year. Don’t assume you won’t have enough even with your refund. Down payment requirements may be smaller than you think, and down payment assistance is also available to those who qualify.

Apply online in just 10 minutes, or call (651) 552-3681

NMLS 274132. Equal Housing Lender. Serving all of Minnesota, Wisconsin, and South Dakota.


VA Loans

Approved VA loan lender in MN, WI, SD

A VA loan is perhaps the most amazing loan in the housing market today!

Minneapolis, MN: Rather than issue loans, the VA instead pledges to repay about a quarter of every loan it guarantees in the unlikely event the borrower defaults. That guarantee gives VA-approved lenders greater protection when lending to military borrowers and often leads to highly competitive rates and terms for qualified active duty personal and veterans.

VA Loan Solutions Right For You!

Whether you’re buying your first home with a VA loan, or you’re an experienced buyer using your VA benefits again, we have the right VA loan for you!a home lending solution just for you.
Get a No-Obligation Rate and Closing Cost Analysis!
VA Loans MN, WI, SD

Benefits of VA Loan

Far and away, the most significant benefit of a VA loan is the borrower’s ability to purchase with no money down. Apart from the USDA Rural Development loan, there are essential no other nationwide mortgage loan programs that offer 100 percent financing. 

VA loans are also a bit more liberal in the underwriting standards and requirements than many other loans. For example, allowing for lower credit scores than conventional loans. These loans also come with no monthly mortgage insurance (PMI), a added expense that other loans require borrowers to pay unless they put down at least 20 percent of the loan amount. 

VA loans offer a few other bells and whistles:

  • Down payment as low as 0% up to $484,350 in MN, WI, SD (where we lend).
  • Interest rates that are routinely lower than conventional rates
  • No prepayment penalties
  • Higher allowable debt-to-income ratios than for many other loans
  • Streamlined refinancing loans (called an Earl) – IRRRL loan with no appraisal needed
  • Cash out refinance – Get up to 100% of the homes appraised value. Use the money for anything you wish!

Realtor’s are wrong about VA Loans

Unfortunately, many Real Estate Agents have a unrealistic negative understanding of VA home loans. If you are making an offer on a home with a VA, many agents will improperly advise the sellers to select other offers over a VA loan offer.

Not only is discriminatory, it is flat out wrong, and usually based on old wives tales past around the real estate agent world, versus actual experience from the agent.

If your Real Estate Agent talks negatively about a VA loan – FIRE THEM – IMMEDIATELY!

I ALWAYS contact the listing agent personally when you submit your offer to see if they have any illogical feelings towards VA loans, and if they do, I set them straight!

Second VA Loan (or 3rd, 4th 5th…)

After getting one VA loan, often veterans think they can’t get a second VA loan. That’s not true. Your VA home loan benefits can be used over and over again. In fact, you can actually have two or more VA loans at the same time. If a VA lender has turned you down for a second VA loan you shouldn’t give up. A second VA loan is allowed by the Veterans Administration!

VA Loan Application

Click to start your VA loan application for homes in MN WI SD
Click to start your VA loan application for homes in MN WI SD

Ready to get started with your VA Loan? We make it easy. Most people start by completing the online application. It only takes about 15 minutes, and all the information you need to complete the application is in your head, No need to go find documents, or look up anything at this stage.

You can always call our local VA loan Experts at (651) 552-3681.

Finally, you can schedule an office appointment at our St Paul location, or schedule a telephone application. Just click the scheduling link, along with a day and time that works best for you.

The Department of Veteran Affairs requires mortgage companies who offer VA Loans go through a stringent approval process. We are a VA approved mortgage lender and are proud to help military families use their VA Loan Benefits for home located in Minnesota, Wisconsin, and South Dakota. We are not acting on behalf of, or under the direction of the VA or the Federal Government. The Veterans Administration does not lend directly to the public, only through approved lending institutions like Mortgages Unlimited. NMLS 274132. Equal Housing Lender.


The FHA 203k Rehab loan

Buy and finance home repairs all in one loan with a small down payment.

Minneapolis, MN: The FHA 203k rehab loan program allows home buyers the needed money to not only buy a home, but the money needed to also improve or repair the home all in one single loan with a small down payment.

There is no doubt that the current real estate market offers a lot of homes needing a little TLC, commonly known as fixer-uppers. Many of these homes are missing appliances, ruined carpet & flooring, holes in the wall, etc.  Standard mortgage loan programs DO NOT finance homes in less than move in condition. Many of us have seen firsthand, or have heard stories about foreclosed home that have been torn up, stripped, vandalized, etc. This is a mortgage loan that helps both sellers sell these homes, and buyer buy these homes. A win-win for sure!

This is where a little known program called the FHA 203K Rehab loan comes in. The FHA 203K Rehab loan is becoming very necessary for the purchase of many Bank Owned, foreclosure, and short-sale properties needing repair.

There is a similar program from Fannie Mae, known as the HomeStyle refinance loan, which mirrors most of the requirements of a 203k loan.

The FHA 203k rehab loan comes in two versions. The full 203k, which allows for more expensive, and more complicated rehab, and the 203k streamline loan, which as the name implies, is more streamlined and easier, but also limits the total cost of repairs, and the scope of repairs.

Your Mortgages Unlimited Loan Officer will be able to guide you to which version of the 203k rehab loan will be needed in each case.

203k rehab loan
203k rehab loan

Is a 203k Loan Right for You?

  • Buy a “Fixer-upper” or REO property needing renovation
  • Get funds to both purchase and upgrade your dream home
  • Can be used to renovate your existing home too

Advantages of 203k

  • Loan amount based on the home value AFTER repairs/renovations
  • Only one loan needed to both purchase and improvement
  • Refinance and rehab your own home

Can be used to buy property otherwise not eligible for financing

Who Qualifies?

  • A minimum down payment of 3.5%
  • A credit score of 640 or higher
  • You currently have no other FHA loans
  • You DO NOT have to be a first-time buyer
  • Home will appraiser for the purchase price PLUS repair costs
  • Loan amount meets FHA Loan limits, which vary by county (Check FHA  limits in your area)

 Download a Streamline 203K Presentation

 Download a Free Home Buyer Handbook

We offer the 203k loan in Minnesota, Wisconsin, and South Dakota. It all starts with a simple, no obligation loan application, which most people can complete online in about 10-minutes. You can also call our rehab loan experts, at (651) 552-3681.

Mortgage application
Secure New Home Purchase or Refinance Application. Apply Today, Know Today.


What is the best / worst time to buy or sell a home?

Minneapolis, MN: As a Mortgage Loan Officer for well over 20-years, I get asked on a pretty regular basis about what is the best time of year to buy or sell a home. As many buyers are also sellers, it also makes sense the question can be changed into what is the worst time to buy or sell a home?

My general answer is the best time to sell a home is simply when you need to, and the best time to buy a home is also when you need to.

But if you’ve got time on your side, the following statistics apply to the seasonal trends in real estate for properties here in Minnesota, Wisconsin, and South Dakota, where I lend.

Best time to sell a home, best time to buy a home
Best Time to Sell a Home
Worst Time to Buy a Home

BEST MONTH TO SELL A HOME

April is historically the best month to sell a home in these area. This is the month where you will generally get top dollar as the most buyers are in the market, and willing to pay to get what they want.

As more homes come on the market from the winter sales lows, we see a steady rise in sales prices as we move into February, and March, hitting the peak sales price in April.

May and June drop a little from Aprils peak, but then we see a steady drop each month as we move towards winter.

BEST MONTH TO BUY A HOME

Want to pay the lowest for a home? Buy in November or December.

This is the slowest sales time of the year. The smallest numbers of homes are on the market, and the smallest number of buyers are in the market. This works on your behalf, as sellers tend to start lower, and are more willing to negotiate price.

Starting in July, we see a noticeable drop in the number of active buyers, and homes stay on the market a bit longer. January is the first month that changes the trend, but it really starts moving up in February. I generally see a huge sure in Mortgage Loan Pre-Approvals starting around February 1st.

WHY THE TRENDS?

There are all sorts of reasons for these yearly trends. Here are just a few:

November and December have the holidays. Thanksgiving dinners, and Christmas trees are great family times, but are not so much fun for sellers to have strangers coming through your house. Holiday’s also have so many other things going on, that buyers find it hard to find time to look at homes.

In the winder months, it’s cold outside. Homes and yards are covered in snow. Not so fun house shopping, unless you absolutely need to.

Spring brings people out in droves as the snow melts, and the weather warms, but increased sales has a lot more to do with kids. No one likes changing schools mid-year, so the big push is on this time of year to buy or sell to coordinate with the school year.

July and August fall off, as those are usually busy summer vacation months.

REAL DOLLARS vs MYTH

While these trends can be interesting and can work to your advantage, I still default to the statement that you should simply buy or sell a home when you need to, and not hold out for seasonal trends. Statistics for the Minneapolis / St Paul area in 2018 show on an average $300,000 home had a swing of just $10,241 from a transaction in April versus a transaction in December.


Looking to get Pre-Approved for financing that new dream home? It only takes 10-15 minutes to apply online right now. All the information needed to apply is in your head.

Click to apply online

Equal Housing Lender. NMLS274132. Not an offer to enter into an interest rate lock agreement. Not everyone will qualify.


Fed’s raise interest rates again

Minneapolis, MN: The Federal Reserve raised the Fed Funds Rate today for the fourth time this year, bringing the rate to a target range of 2.25% to 2.50%. This is commonly known simply as a Fed Rate Hike

What is the Fed Funds Rate?

The Fed Funds Rate is only a small portion of what makes up your overall interest rate, and may other things factor in, including the stock market, and global issues, like trade with China and geopolitical problems across the world. For example, 30-yr rates have moved up and down within about a 0.375% range in the past two months.

Fed Raises Fed Funds Rate
Mortgage interest rates increase

So How Does A Fed Interest Rate Hike Impact You on a Mortgage Loan?

For the short-term, those looking for standard loans, like a 30-year fixed really won’t be impacted, as what the Federal reserve does only has a partial effect on these rates.  It would take a noticeable increase in inflation to impact loan-term rates.

Adjustable rate mortgage loans, and home equity loans tied to the prime rate on the other hand should immediately rise. If you have an adjustable loan, with a change due soon, expect that to rise. 

It may be a good idea to refinance those adjustable mortgage loans today. Contact us to discuss your options at (651) 552-3681. For example, if you did a 5-year fixed/adjustable loan 5-years ago, it is going to be going up.  How far depends on many variable based on how the original loan was done, but it may be time to lock in something fixed.

Long-term Mortgage Rates Are Still Historically Low

Looking to buy a home in the near future?  You can still get some awesome rates from a historical picture.  Sure, they are a bit higher than the middle 3’s from a couple of years ago, but pretty attractive compared to the 16% fixed rate I received on my first time home buyer loan back in 1981.

Mortgage Interest Rate Prediction
No one can predict interest rates, but the trend is currently not your friend.

My only suggestion is that as the economy continues to improve, the long-term trend is not your friend. We expect rates to slowly continue creeping up throughout 2019 and beyond. So if you were thinking of buying a home, better sooner than later.

Mortgage application
Secure New Home Purchase or Refinance Application. Apply Today, Know Today.


The Truth about Mortgage Closing Guarantees – Don’t be fooled.

Minneapolis, MN:  We are starting to see them pop up everywhere, mortgage companies,  mortgage brokers, and lenders, making these great sounding mortgage closing guarantees, where they make claims of paying $500, $5,000, or ever $10,000 guaranteed if they don’t close your loan, or if they don’t close on time.

These offers vary from lender to lender, but the basics are the same. Claiming to pay someone if something happens. Some claim to pay the seller if the deals falls apart. Some claim to pay the Realtor, some claim to pay the buyer, some claim to make your first house payment.

Guaranteed Closing Offers

Wow…  Amazing, Awesome.

Or is it?

As with so much in life, it is probably smart to look at these claims and offers with a bit of a skeptical eye. So let’s us take a look at what they are all about.

The first thing to ask is if they are real, with the answer generally being yes, but with the caveat that there is so much small print, that they can make these claims, because they never ever expect to pay them! 

The reality is these guarantees are nothing but marketing ploys to get you to select one lender over another, and most of them come with a price.

The Loop Holes

These claims are incredibly low risk for the lender because in order to offer them, they simply do a complete loan underwrite of your application, except for the appraisal report, and title commitment, both of which can’t be done until after you’ve made a successful offer to purchase.

All of the guarantees have so many loop holes, time parameters, and requirements, that no lender ever expects to pay.  For example, common items are things like; you must find a home within 30-days, or you must close within 60-days. You may no go over your pre-approved purchase price, or monthly payment. No material changes to your application allowed; like changing jobs, or changes to credit score. Basically no changes to anything. They will also say the purchase agreement must be OK, the appraisal must be OK, and that the title search must be acceptable.

They also say they won’t pay if you don’t provide documents in a timely manner, fail to sign documents and disclosures in a timely fashion, fail to disclosure information, and a litany of other reasons.

Many of these offers also come with loan program or property type exceptions. You’ll see things like no FHA Loans, no USDA loans, reverse loans, first time home buyers with down payment assistance, or refinances. You’ll see restrictions of no short-sales, no foreclosure properties, no brokered loans, and even no jumbo mortgage loans.

Oh, and don’t forget third parties too… For example, lenders have no control over appraisers, so if the appraisal takes too long, there is a loop hole for that too.

Restrictions apply covers ever single possible reason a loan would not close, or not close on time, essentially rendering the guarantee worthless. Yup, the small print matters.

The Guarantees Negatives

OK, but what is wrong with the claims? 

Nothing, but gimmicks are gimmicks. Just because they make a guarantee claim, does this make them the best interest rate? How about the lowest closing costs? Does this mean you are getting the best loan? Does this mean the Loan Officer is experienced?

Paying a higher interest rate, or higher closing costs, and especially being put into the wrong wrong program by an inexperienced Loan officer in not exactly smart in exchange for a fluffy offer that will never be paid if something were to go wrong.

The sad reality is lenders know most people fall for gimmicks, and never read the small print. They use that as a tool to make more money with higher rates and costs. Sad… 🙁

For Real Estate Agents, there is a down side too

I was recently at lunch with an agent who advised their client to accept the offer from buyer who was using a company with one of these offers, making note that if the transaction fell apart, they were guaranteed $5,000.

When that deal actually did fall apart, and the lender refused to pay because of some of the aforementioned loops holes, the seller fired the agent because the agent talked highly about the guarantee.  Oops.

Two Types of Mortgage Pre-Approval

Fast and pretty good, or slow but super accurate?  It’s your choice.

In order to offer these guarantees, the lender offering it must do a full and complete underwriter reviewed loan approval. This means you must complete a full application, submit all your paperwork, meet any and all additional conditions, plus wait for job and IRS tax return verification’s to come back.

Mortgage Loan Paperwork
Mortgage Loan Paperwork

This means the typical person will have to wait roughly two to three weeks or longer after loan application before being issues a Pre-Approval Letter. This assumes the person submits all their requested documents quickly, and the lender gets their job verifications, IRS verifications and more back quickly,

While there is nothing wrong with this, and it is actually the better way to go, it can cause real issues if you fall in love with a home before the pre-approval is ready, or you are otherwise trying to make a quick offer. The home can be long gone while you wait for the Pre-approval.

Historically, most home buyers situation are pretty straight forward, so a basic traditional Pre-approval can be very quick. Walking into my office and leaving with a Pre-Approval Letter is common. This faster pre-approval is still by far the most common way lenders do pre-approvals.

We here at Mortgages Unlimited offer both the fast basic Pre-Approval, and the slower full Underwriter Pre-Approval.  Your choice…

The Bottom Line

The bottom line is feel free to pick whatever lender you want to work with, but don’t pick them just because of marketing gimmicks, and worthless guarantee – especially as they usually come with higher costs.

 


Why smart mortgage shoppers don’t get burned, and other do.

Minneapolis, MN: I get it. You are buying a new home, or refinancing your existing home mortgage, and are looking for the best mortgage interest rate. But buyer beware, the internet is full of places to avoid.  So here I’ll give a little primer on the process, along with some common lender games, and show you why smart mortgage shoppers don’t get burned, and other do.

BASICS OF MORTGAGE LOANS

The most important shopping tool is to understand how the mortgages work, from mortgage interest rates to closing costs.

UNDERWRITING GUIDELINES

First, we all underwrite to the same guidelines. FHA loans are FHA loans, VA loans are VA loans, and conforming conventional fixed rate loans are conforming fixed rate loans regardless of where you get the loan. So one lender over the next is meaningless in terms of the vast majority of loan approvals.  Conforming conventional loan means the loan is underwritten to Fannie Mae or Freddie Mac guidelines. Conventional loan just means it is not a government backed loan.

So technically all lenders are equal – but they are not. There is something known as individual lender overlays. This is where some lenders add they own additional rules to the standard guidelines. The most common overlay is a credit score overlay. For example, FHA rules say lenders can offer the small 3.50% down payment of an FHA loan all the way down to a 580 credit score, but because of risk, many lenders will not go below a 620 credit score. So if you are a weak 585 credit score FHA loan client, one lender over another may make a difference.

MORTGAGE INTEREST RATES

Lenders don’t just make up interest rates. Calling around to a lot is just a waste of time, when shopping just a few is all that is needed to give you an idea of where the real rate market is currently at.

low mortgage interest rates

Mortgage interest rates are determined by one item, the mortgage backed security market. All lenders base daily rates off the exact same MBS bond market on the same day at the same time. If my rates go up, so does everyone else. If my rates go down, so does everyone else.  There are many factors that go into determining how the mortgage backed securities move everyday. I’ll save that for a different article.

Just understand that essentially this means we all pay the same wholesale rate for the money, and the only real difference is the margins needed by different lenders.

LENDER MARGINS

So if all lenders start at the same point, its all about the margins.  As one can expect, this means the most lean and mean company needs smaller margins, and therefore passes along the best real interest rates to consumers and still maintain a sustainable profit margin.

Fat companies, with too many layers of management, too much brick and mortar buildings to pay for, expensive all day everyday advertising, and even stadium naming rights all have to be paid for. The only way they can do that is to have higher margins, and those higher margins translate into higher mortgage interest rates for consumers.

LOAN CLOSING COSTS

This is another area of huge consumer confusion. ALL LENDERS essentially have the exact same closing costs!  How mortgage lenders, banks, and mortgage brokers present that to you can vary greatly, leading to consumer confusion.Real estate

First part of understanding closing costs is understanding the biggest percentage of closing costs are not even the lender, but rather all the other parties involved.  Appraiser, credit bureau, title companies, state taxes, county recording fees, pro-rated property taxes, home owners insurance, and more.

The actual lenders have costs too, which generally are loan origination, processing, and underwriting costs.

HIDING COSTS

If you’ve done any mortgage shopping whatsoever, you’ve gotten plenty of different interest rate and closing costs quotes. When one lender has significantly high or lower rates, or higher or lower closing costs – it generally is just about presentation.

The lower the interest rate, the higher the closing cost. The lower the closing cost, the higher the interest rate.

A common difference is many lenders will quote a rate based on you paying all normal closing costs, plus the industry standard 1% loan origination fee. Many other lenders quote without charging a loan origination fee, giving the appearance of lower closing costs. Some going as far as making silly claims, like they don’t charge that, or they will waive it “just for you.”

But deep think about that. Loan origination goes to the lender to cover the cost of originating the loan, from Loan Officers, and a significant amount of back office staff, to rent, phones, and more.  So you think they are working for free?  Of course not.

Here is how it actually works.

On most days, paying or not paying loan origination up-front equates into a 1/4% rate difference on a conforming fixed rate loan. This can vary depending on the market, but holds true most days.

Assume this two different quote example:

Lender A) A quote of a 5% interest rate on a $200,000 loan, with 1% loan origination ($2,000).

Lender B) A quote of a 5.25% interest rate on a $200,000 loan, with no origination (appears to be a $2,000 savings, but rate is higher).

Neither one of those quotes are automatically good or bad. They are just options.

If you have the up-front money today, and you are going to be in the home a long time, paying loan origination and obtaining a lower interest rate is smart. On the other hand, if you are tight on cash today, opting for lower out-of-pocket costs today by taking the slightly higher interest rate may be a good option.

I always explain these rate and cost options to my clients, but I know many mortgage companies, mortgage brokers, and banks don’t. It’s your loan, your money, your payments… You pick what is best for you – but you have to know there are options.

MORTGAGE SHOPPING TIPS TO AVOID BEING FOOLED

The first tip is education.  Reading this article has already made you smarter than most when shopping for a mortgage loan.

The rest of the tips include only using someone local. There is nothing on the internet you can’t get from the person down the street.

Avoid big banks and big internet companies with lots of overhead.

Statistically, using your local mortgage broker will always get you the best deals.

SCAM QUOTE EXAMPLES

While it is better today that it was years 15-years ago, the market is still ripe with slight of hand quoting.  I’ll give two recent example I’ve run across.

Example 1) Client was shopping standard 30-year fixed rates. Client was quoted an interest rate a full 1/2% lower than my fixed rate quote, along with no loan origination costs. Knowing that was completely impossible, but digging deeper, we discovered the other lender was actually offering a 5-year adjustable loan, but he kept saying “it’s a 30-year loan.”  Clients mind kept hearing 30-yr fixed, when it clearly wasn’t!

Example 2) A well know big internet lenders who is pretty Quick, and has Rockets. Client was looking on their web site at posted interest rates, which looked competitive to mine. Being down this road many times before, I had the client go back to their web site, but this time scroll down to the rate disclaimers. Here I showed him that while they showed the same physical interest rate, it clearly showed that to get that rate from them assumed a 75% loan-to-value loan (25% down), and would cost an additional 2.125% in points.  Each point is 1% of the loan amount.  So with the “same” mortgage interest rate, their closing costs were 2.125% HIGHER than mine.

DON’T GET BURNED BY THE SMALL PRINT!

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We lend in Minnesota, Wisconsin, and South Dakota – and we’d love to be your lender.  Call (651) 552-3681, or just apply online at https://joemetzler.com/application.  NMLS274132. Not an offer to enter into an interest rate lock agreement.  Not everyone will qualify. Equal Housing Lender.







Veterans Day 2018 is Nov 11th

Veterans Day 2018 is Nov 11th.

One of your most amazing benefits for your service is the VA Home Loan.

Why are VA loans so good?

  • No down payment on loan under $453,100 (in most parts of the country)
  • Small down payment over $453,100
  • No mortgage insurance (big savings)
  • Lower VA interest rates than conventional loans
  • Federally mandated lower closing costs
  • Mandate to assist the veteran if they get in trouble on the loan
  • Loan is assumable

We are proud to offer VA loans for homes in Minnesota, Wisconsin, and South Dakota.  Visit https://VAMortgageMN.com for more info, or to apply online for a VA loan.

Thank you for your service.

VA lender in MN

Equal Housing Lender. NMLS274132
#Minnesota #Veterans #Army #Navy #AirForce #Marines #VALoan







Inquiries on your credit report – What is the real story?

Minneapolis, MN:  As a Mortgage Loan Officer, I’ve pulled and reviewed a lot of credit reports in my day.  I’ve also spent an incredible amount of time debunking the irrational fear so many people have about inquiries on your credit report.

This one sentence is all most people need to know.

STOP worrying about it.

For the vast majority of the people, the vast majority of the time, you should never ever give a second thought to an inquiry on your credit report. It just isn’t what people think.

Credit score factors

So What Is A Credit Inquiry?

Whenever you apply for credit, a credit report is reviewed, and a notation that a creditor reviewed your credit file is added to your report. This is known as a hard inquiry.

A soft inquiry has no effect on anything, and is when creditor review your credit so they can offer things like pre-approved credit cards, or when you review your own credit report.

Where all the fear comes from, is that it is true that inquiries may have the potential to impact your credit score.  MAY HAVE and POTENTIAL and important words.

Do Inquiries Hurt My Credit Score

Maybe, but doubtful in any measurable manor most of the time.

Everyone needs to have credit reviewed. Doing so really doesn’t mean anything to your credit score. It is only when you have a large number of inquiries in a very short period of time that might have a small impact.

Credit scoring models see it as a sign of higher risk when someone applies for a lot of credit in a relatively short window of time. Statistics show a lot of inquiries may show that someone is having financial difficulties.

The scoring models also understand sometimes people have multiple inquiries simply because they are shopping for a loan. This is especially true for car loans and home mortgage loans.

For example, all mortgage loan inquiries in a 30-day window only count as one.

Inquiry Effect Different People Differently

Someone with a 820 credit score and maybe five inquiries in the past 90-days might only see a 5 point temporary drop, but someone with a 641 score to begin with might see a larger drop.

If you temporarily drop from 820 to 810… who cares, you have awesome credit! On the other hand, if you dropped from 641 to 631, this may result in a loan denial, as you were already on really shaky ground, and now went below a minimum score requirement.

Then, as the inquiries age past generally 120 days, the effect on your score goes away. IT’S ONLY TEMPORARY!

Credit Inquiries – The Bottom Line

If you need to apply for credit, apply for credit, and don’t worry about it. On the other hand, probably not a wise idea to accept every Department Store at the malls offer for a credit card at the register when Christmas shopping if you will be looking for make a large purchase in the next few months.

If you think you will be applying for a large loan, like a car or mortgage loan, try to limit the number of hard inquiries in the proceeding 90-days.

Yes, a lot of inquiries in the past 90-days may have a very minor 10 point or so effect temporarily on your credit score, but one 30-day late payment,  and max’d out credit card balances will kill your score.

Relax… Be smart, and for 99% of people 99% of the time – don’t worry about inquiries.







Do Pre-Approval Letters Really Mean Anything?

Do Pre-Approval Letters Really Mean Anything?

Minneapolis, MN: When buying a home, everyone will tell you that you need a Pre-Approval Letter, and pretty much no sellers will look at your offer without a Pre-Approval Letter being attached to your offer. But do Pre-Approval letters really mean anything?

The correct answer is yes, no and maybe.

The intent of a pre-approval letter is incredibly valid in the home buying process. It is designed to inform a potential home buyer that their odd’s of final loan approval is strong. For sellers and Real Estate Agents, it tells them the buyer has met with a Loan Officer, who has reviewed their application and documentation, and everything looks good for final approval once they select an actual home.

iMortgageJoe.com Certified Pre-Approval Letter

Pre-Approval is very different from basic Pre-Qualification

Pre-Qualification is always the initial step in the home loan process. The client provides and application, and the lender generally pulls a credit report for review. The client provides an overview of they situation, including jobs, income, assets, and debt. Usually just verbally.

Other than maybe a credit report, little, if any actual supporting documentation is obtained. It is more of a sounds like you should be fine type conversation on certain assumptions.

This is generally adequate for early kicking around the idea of buying a home, and can be done rather quickly on the phone.

Standard Loan Pre-Approval

The more typical standard mortgage loan Pre-Approval starts with the steps of Pre-Qualification, but the Loan Officer also collects and actually reviews your standard supporting documents, like pay stubs, W2’s, bank statements, and tax returns. The Loan Officer will also usually submit the application information through an automated underwriting computer system (AUS) to get a computerized initial loan approval.

This is a huge step above a Pre-Qualification, but is almost always limited to just the Loan Officer’s review. In-experienced Loan Officers, and not reviewing all documents may result in being told your are Pre-Approved, but the application may actually be denied.  It is extremely important to have an experienced Loan Officer who has seen just about everything on your side to eliminate future issues.

This is the most common form of Pre-Approval, and fits well for the vast majority of clients. It can generally be done in a day or two with most lenders.

Full Underwriter Pre-Approval

Full Underwriter mortgage Pre-Approval is when your application and all supporting documentation are reviewed and approved by an Underwriter.  This includes reviewing all your documents, and completing all the job verification, tax return verification, and fraud check that lenders do as part of the approval process that are not done with a standard Pre-Approval.

This is also sometimes known as a full credit approval. It is still not a guarantee of closing, as the lender will need to get an appraisal and review a title company commitment of clean title once you have a successful offer on a home before, but all credit related issues have been cleared.

As this is a full credit approval, this generally can take two weeks or more to complete.

Underwriter Pre-Approval Carries More Weight

Mortgages Unlimited offers both your standard Pre-Approval, and a Full Underwriter Pre-Approval, depending on the clients needs. We call it our process of Underwriter approval a Certified Pre-Approval.

Certified Pre-Approval, Underwriter Pre-Approval

Underwriter Pre-Approval holds more weight, and is more attractive to sellers, especially when looking at multiple offers. Home sellers like it better knowing that more pieces of the approval puzzle have already been reviewed and signed off on by an actual underwriter. It puts your offer on top of any standard Pre-Approval, and especially any basic Pre-Qualification.

This is why we at The Joe Metzler Team at Mortgages Unlimited offer both options. The speed of a basic Pre-Approval Letter, and the Confidence of an Undewrwriter reviewed Certificed  Pre-Approval Letter.

We lend in MN, WI, and SD. To apply directly with me, and find out what type of Pre-Approval is right for you, just go to iMortgageJoe.com, my personal web site, or call me at (651) 552-3681.







Gift for down payment money – What you need to know

Gifting down payment money? What you need to know.

Minneapolis, MN: A relative, usually a child has asked you to give them down payment money to buy a home.  As parents, we are usually very willing to help.  Here we will explain gift for down payment money – what you need to know.

Gift Rules:Down Payment gift money rules and guidelines fha loans conventional Minneapolis MN

First, the gift has to be from a blood relative.  There are two major and different gift rules.  One being the rules for gifting money on a conventional loan, the other gifting money for an FHA loan.

Gifted down payment typically involves extra paperwork for the person giving the gift. At a minimum, the gifting person must sign a gift letter. The gift letter has the name of the person giving the gift, their relation to the recipient, the amount of the gift, where the gift money is coming from (bank), and the fact that it is a true gift, and that the gift will never be paid back.

The rules require the gift come from a blood relative, and are designed to ensure the gift really is from the relative, not some sort of kickback from the realtor or seller. Lenders will require various levels for paper trailing the gift depending on the transaction type (conventional or FHA).

THE ACTUAL MORTGAGE GIFT LETTER

The mortgage industry uses a standard mortgage gift letter.  Be sure to tell your Loan Officer you want to use a gift for down payment, and they will provide you with the required letter. Do NOT try writing your own.

FHA DOWN PAYMENT GIFT

On an FHA loan, the entire amount needed to buy the home, both the actual down payment and any closing costs can be a gift. FHA rules require the signed gift letter, and also requires we get proof the giftor had the money to give, which means we need to see a copy of the bank statement of the account the money came out of.

PROOF OF GIFT

FHA requires proof the giftor had the money to give. This means the giftor must provide the lender with the most recent bank statement from the account the money is coming from to prove they had the money to give. Lenders will also need to see the money deposited into the buyers account, and may even request a copy of the cancelled check from the giftors account.

Alternatively, the giftor can electronically transfer the money, or give the buy a cashiers check.  If giving a cashiers check, the buyer should NOT deposit the check.  Rather, just bring the original cashiers check to closing. The lender will also need a copy of the cashiers check before closing.

Bank wire transfer from the giftor directly into the Title Company a few days before closing is also allowed, but we still need a copy of the giftors bank statement, and make sure the wire comes from the exact same account listed on the gift letter and bank statement they provided.

CONVENTIONAL DOWN PAYMENT GIFT

On conventional loans, many times, we just need just a signed gift letter.  Just like on an FHA loan, the letter (provided by your lender) will state the money is a true gift, and no repayment will ever be required.

UPDATED 2018: Current guidelines on conventional loans allow for 100% of the down payment (and closing costs) to be a gift

OLD Rules: The amount of the down payment gift is different on conventional loans:

  • – If the gift is 20% of more of the purchase price, the entire down payment can be a gift
  • – If the gift is less than 20%, the FIRST 5% of the down payment MUST be the buyers own money.

PROOF OF GIFT

Proof the gift actually came from the gifting person on conventional loans varies depending on how the gift was given.

If they gave you a personal check, just like FHA loans, we need to see the giftors bank statement showing they had the money to give, AND prove the money now in the recipients account.

If they give a cashiers check, the check MUST have the donors name in the Memo field on the check. Make sure the bank puts it there!  The recipient should NOT deposit the cashiers check. Send a photo copy to your lender, and bring that exact same cashiers check to closing.

Finally, the giftor can do a bank wire transfer of the gift amount directly into the Title Company a few days before closing. Make sure the money is wired from the exact same account listed on the gift letter.

RELUCTANT PARENTS

We often times see the gift giver reluctant to share bank statements with the gift recipient. We understand.  They often do not want the person receiving the gift to see what they have in their accounts.  This isn’t a problem, as the gift giver can send the bank statements directly to the lender…  and we promise to never share that account information with the gift recipient.

TAXES on Down Payment Gifts?

I often get asked if there is a gift for down payment tax. My best advice is to always consult a tax professional, as I am not. But in consulting my personal tax professional, here are some of the main items he indicated.

The recipient of the gift has no tax liability. It’s a gift.

For the giftor, the general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

  1. Gifts that are not more than the annual exclusion for the calendar year (slowing going up every year, so check for the current number).
  2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  3. Gifts to your spouse.
  4. Gifts to a political organization for its use.
  5. In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

 







Low interest rate vs low closing costs. What is best?

Minneapolis, MN:  As a Mortgage Loan Officer for over 20-years, I am constantly asked the same two main questions. What is your interest rate, or what are your closing costs? The answer isn’t actually very simple. Low interest rate vs low closing costs, and what is best for you depends on many factors.

Interest Rate and Closing Costs Education

The first thing to understand is that for the most part, all lenders, regardless of them being a bank, broker, or actual mortgage company all do the same thing, have the same rates, and same costs

For example, FHA guidelines are FHA guidelines no matter who you get your loan from.  If your situation puts you on the far fringe of a programs guidelines, you may run into lenders have have an individual company risk overlay, but I am speaking about the vast majority of loan applicants. 

We all get our base interest rates based on the same mortgage backed security bond market. If my rates go up, so do theirs.  If my rates go down, so do theirs. Lenders don’t just make up rates. Today’s bond market plus our margin equal todays rates

We all have the same REAL closing costs, most of which are not actually the lenders costs. Appraisal, credit report, title company, state deed taxes, county recording fees, and initial pre-paid items of taxes and insurance are all the same, or so close as to not make a difference no matter who you deal with.

We all also don’t work for free. Anyone claiming they don’t charge a normal cost, no lender fees, or things like free appraisal are making up up somewhere else.

Interest rates can vary based on many items, including loan program, credit score, state, property type, and down payment size. because of this, my opinion is most instant online interest rate quotes are worthless. 

Different Interest Rate Quote Techniques

Differences in standard quoting techniques are everywhere, and super confusion to most home buyers. There are four main interest rate and closing cost options. Understanding all four makes you a better shopper.

STANDARD RATE QUOTE:

The traditional mortgage loan interest rate quote is based on today’s lowest rate for your situation, combined with you paying all standard and traditional closing costs. There are no discounted cost, no free appraisals, and no discount points to artificially buy down the rate. This is the most commonly quoted option.

NO LOAN ORIGINATION FEE QUOTE

The mortgage loan interest rate quote is based on today’s lowest rate for your situation, combined with you paying all standard and traditional closing costs, EXCEPT the lender does not charge you the standard 1% loan origination fee. Sounds great, but no lender works for free. The no loan origination is achieved by increasing your loans interest rate by typically 0.25%. The actual amount will vary based on program and loan size. This is the second most popular interest rate quote.

LOW RATE WITH DISCOUNT POINTS QUOTE

This option is based on today’s base rate for your situation, combined with you paying all standard and traditional closing costs, PLUS additional closing costs known as discount points to buy down your interest rate. For example, maybe you pay an addtional 1% of the purchase price in closing costs today, and this may get you and interest rate 0.25% lower. The amount of points you pay, and the actual rate change will vary based on program and loan size. This option is highly quoted on internet rate quote comparison sites.

NO CLOSING COST QUOTE

The mortgage loan interest rate quote is based on today’s base rate for your situation, but where you typically do not pay any loan closing costs, except for any initial escrow account set-up costs, like pro-rated property taxes and insurance. Again, there is no such thing as no costs, they just hide the costs in a higher interest rate. The actual increase inthe interest rate will vary based on loan size, and dollar amount of real costs the lender needs to bury into the interest rate. It is not uncommon to see interest rates 0.50% to 0.75% about the standard quote rate.

HOW TO SHOP INTEREST RATE OFFERS?

Most people call and ask “What is your interest rate.” A good question, but based on the various quoting techniques, can leave you with confusing answers for comparison purposes.

I usually advise people to PICK on of the offer options, then when contacting lenders, be sure to tell each lender you desire the same type of quote. Standard offer vs Standard offer, or no origination versus no origination.

Another good tool is to ask based on a hard closing costs number. Ask everyone for a quote based on closing costs being $7,000 for ecample. Then the only difference is interest rate.

More information on How to Shop Interest Rates

BEWARE OF LOW QUOTING TRICKS

Since the real estate collapse in 2007, rules and regulations have been improved dramatically, but there are still common tricks. The current biggest being under quoting pre-paid items of taxes and insurance.

I recently quoted a client estimated home owners insurance of $1,400 for the year. The competition quoted $700 for the year. Needless to say, the client was thrilled with the $700 cheaper quote, and wanted to go with the competitor.

I informed the client that this was just our guessing, and that whatever his insurance policy premium actually cost, would simply be passed on and adjusted in his final numbers.

I also informed him that while a guess, we are supposed to be as accurate as possible, and that maybe he should hand up and call his insurance agent.

His actual quote was $1290. So I was a little high, but the competition was way off low.

Low interest rate vs low closing costs. What is best?

There is no correct answer, and one is not better than another. Your answer lies in your individual situation.

If you are a first time home buyer who can barely come up with your down payment, you may opt for the no loan origination fee, or the no closing cost loan. Yes, your interest rate and payment will be higher, but if you don’t have the money, this may be a good option.

The next person may be selling their small first home, and buying their bigger forever home. They may also be netting a nice profit. Therefore not only do they have plenty of money for down payment and closing costs, they may also have plenty to buy the interest rate down – which saves them a lot of money over the long haul.

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Mortgage broker in MN, WI, SD

Ready to apply for a home loan?  For home mortgage loans in MN, WI, and SD, just click here to get started. If in another state, we suggest contacting a local mortgage broker in your area for the best deals and options. Joe Metzler, NMLS #274132. Equal Housing Lender. Not an offer to enter into an interest rate lock agreement.







Myths that Keep Renters from Becoming Buyers

Minneapolis, MN:  There are plenty of myths that keep renters from becoming buyers. As with many myths, urban legend, folklore, and old wives tales, there may be a little truth to the story, but most of it is false.

As a Mortgage Loan Officer for over 20-years, it is a constant battle to dispel these stories, So here are a few myths versus facts to better educate prospective home buyers.

Mortgage myths vs mortgage facts

Myth 1:

Nearly 50% of renters believe they need a down payment of 20% or more.

  • FACT: While a few programs and situations require large down payments, most don’t. There are plenty of low down payment programs like HomeReady accept as little as 3% down.  FHA loans are just 3.50% down payment. VA loans and USDA loans have no down payment required.

Myth 2:

1/3rd or renters believe they need a credit score over 700 to buy a home

  • FACT: Your best loan options are with a 640 or higher credit score, but there are also plenty of programs that will potentially approve a client with as credit low as 580.  If you have a really big down payment, all the way down to a 500 score is possible.

Myth 3:

The most common reason renter cite for not buying is the lack of down payment

  • FACT: Sure, having a big down payment helps, but down payment assistance is available for qualified buyers. Gift from parents is a popular option, as is taking money from your 401k for down payment.

There are plenty of myths that keep renters from becoming buyers, now you know the facts.

My best advice is to simply not assume anything. If you would like to own a home, and you are not sure about your qualifications, I’m always happy to review your situation, go over the numbers, and explain all your options to buy a home.

If we can’t help you today, we will go over what would be needed in your situation to help you tomorrow. You have nothing to lose, and everything to gain.

If you are looking to buy a home in Minnesota, Wisconsin, or South Dakota – I can help.  Simply call me at (651) 552-3681, or apply online at www.FirstTimeHomeBuyer-MN.com.

Mortgage application

If you are in any other state, I suggest you contact a local mortgage broker in your area. Stay away from the big banks and the large Internet Lenders.







Buying a duplex, or multi-family home

Buying a duplex or multi-family home.

Minneapolis, St Paul, MN: From a duplex or multi-family home owner’s perspective, buying a multi-family property can be especially appealing because you can live in one area of the building and collect rent from the tenants living in the other area of the building.

What you’ll find is that a multi family home can actually help both your short term and long term finances. For example, let’s say the mortgage loan on a triplex is $1800 per month, but you can rent out the other two units for $2,200. You’re essentially completely covering the loan, and making $400 to boot. Cool…

Not all properties work out this nicely, but even if you could cover 75% of your mortgage with the other units… how nice is that?

Multi family home

Not only does this save you money on your personal housing expense, but it can also help you build equity much quicker if you choose to make larger payments because of the rent you collect.You get your own home and an investment property all in one.

With an FHA loan, you can buy a duplex, triplex, or 4-unit property with as little as 3.50% down payment.

If you want to buy a true investment property that you will not live in, your required down payment will be a lot larger.

Contact our loan experts at (651) 552-3681, or online at www.MortgagesUnlimited.biz.

There is never any obligation for us to review your situation and options.

Equal Housing Lender. NMLS 225504