The DANGER of automated mortgage pre-approvals via your cell phone

The danger of automated mortgage pre-approvals via your cell phone

Minneapolis / St Paul, MN: Can you really get a mortgage pre-approval online in 10 minutes? Yes. Should you? Probably not. It’s 2018 as I write this, advancements to our lives, along with instant gratification is everywhere. Why go to the store when you get better selection and two day shipping from Amazon. No need for old fashion video stores, everything is on Netflix, Amazon Prime video, or your HBO Go app.  Twitter, Facebook, the internet, and of course Smartphones and iPads have replaced home computers for many people.

So it is no surprise that many mortgage lenders are now advertising instant 10-minute mortgage loan pre-approvals while you stand in front of the house you just looked at. The biggest company pushing these is Quicken Loans ® “Rocket Mortgage”®.

Sounds cool, and their commercials are really funny… But wait a minute… This is the largest financial transaction of your adult life. Can it really be done on your cell phone?

 The Traditional Mortgage Loan Process

The traditional process is you complete a loan application. You do that in person, over the phone, or by completing an online loan application. From there, a real live person reviews the information, pulls your credit report, talks to you about your situation, uses knowledge and expertise to explore all avenues, issues, and different loan options (all good ideas).

Assuming that all looks fine, your application is processed through one of the major AUS (automated underwriting system) of Fannie Mae, Freddie Mac, FHA, etc, to get your initial “looks good” answer.

ffThis automated underwriting system process only takes a few seconds, and with the initial “looks good” answer to your loan application, you got a loan, right? NO, not even close.  This is just AN INITIAL step.

Next, just because the AUS indicates ACCEPT (yes), there are still pages of information and requested items that need to be received and reviewed for accuracy BY ALL LENDERS. Common items are W2’s, pay stubs, bank statements, tax returns. Depending on your situation, you may need further items, like bankruptcy papers, divorce decrees, and more.

You generally need to gather all those documents and submit them to your lender for review to receive a proper Pre-Approval.

PRE-APPROVAL IS NOT A LOAN GUARANTEE

After you find the exact house and sign a purchase agreement, the lender orders the appraisal, title review, and everything else is sent to the underwriter for final review. Generally speaking, a proper professional pre-approval will equal a successful final approval by underwriting in the final stage of the process. A sloppy pre-approval, not properly review??? Scary stuff.

Your largest financial transaction of your life is too important to trust to just anyone, let alone a computer. You need the wisdom and input from a licensed, experienced, and professional Loan Officer.

The Quicken Rocket Mortgage ® 

The difference with their app, is that after taking the initial application information online (like thousands of other lenders), their app jumps right to running your information through the major automated underwriting system to get that initial pre-approval. Yes, that can take just 10 minutes.

Next, they attempt to gather some of your basic supporting documents electronically. Rocket Mortgage ® will ask you to link your financial accounts to their program. This allows them to check your financial statements online without you having to send them the physical copies of your banking information. Again, sounds cool, but in the day of cyber hacking, do you really want to give them access to your information electronically?

Next, a huge portion of applicants are not able to take advantage of instant document verification, and still need to submit many, if not all of their documents the traditional way – completely eliminating the cool factor.

You can also get instant rate quotes, cost quotes, and options like to buy discount points. Again, sound nifty, but…

The first major issue is simple. Garbage in equals garbage out.

I review a LOT of online mortgage applications.  Rare is it that I don’t need to change or adjust any application data before running it though the computers. Data errors, missing data, and income that isn’t allowed to be used for qualifying are all too common.

For example, I recently had a client input $50,000 a year for his wife at a job she has been at for about 9 months. But, as I interviewed him, I discovered that her new job is 100% commission based. Standard underwriting rules for commission based income require the person to have two-years on the job, and that we average the two-years of income.  Therefore her job qualifying income was ZERO.  Oops… Now you are running around with a quick pre-approval looking at houses you will never actually get final approval to buy.

Another recent applicant answer the “Do you pay alimony or child support” question online NO. But when I physically reviewed his pay stub, it clearly showed the deduction for child support. This additional debt lowered the maximum house he could buy $50,000. Again, potentially someone running around with an invalid pre-approval letter.

 The Big Disadvantage of Instant Online Approvals

For as cool as all this sounds, it has huge disadvantages.

First is not having the opportunity to talk to a human loan officer. Consumers may lose out by applying for a mortgage that isn’t necessarily the best choice for their situation. I get clients all the time who complete my online application for one loan type, but I end up switching them to something better suited for their situation. This is because most applicants usually have several mortgage options available to them. Since most consumers are not mortgage experts, this is clearly an area where a human loan officer could help steer their client in the right direction.

Your largest financial transaction of your life is too important to trust to just anyone, let alone a computer. You need the wisdom and input from a licensed, experienced, and professional Loan Officer.

They typically don’t offer first time home buyer programs, and don’t offer down payment assistance programs. This is especially troublesome, as younger first time home buyers are the ones more inclined to think apply on your phone is cool.

Do they have the best interest rates and lowest closing costs?  Generally not, and sometimes, especially on government loans, like FHA, we beat their rates by a long shot.

The Best Move When Getting Mortgage Pre-Approved?

When buying a home, your best move is to always work with a local lender the traditional way. The guy located in your geographic area, with a local reputation to protect. There is nothing anyone on the internet on the other side of the country can offer that you can’t get down the street.  More often than not, it is just the opposite… Especially when it comes to down payment assistance programs for first time buyers. These programs are always only available from the local lender.

We lend for homes in MN, WI, and SD and would love to assist you

Click to apply online


Current and Historic Mortgage Interest Rates

 

What are current and historic mortgage interest rates?

I get asked on a regular basis about where are mortgage interest rates at today, where were they last week or last year… and the best one, what do I think they will do tomorrow.

Of course I have no crystal ball for future rates, but there are many different indicators we look at that gives us a good idea where they may be going. As you can imagine, there are many things that can throw a monkey wrench into the estimates and predictions.

From all time highs, to historic lows – I thought it would be fun to take a look back at mortgage rates:

Historic mortgage interest rates

Mortgage interest rates 2017

Click here for current Mortgage Interest Rates

 


Is Credit Karma your real credit score?

Many people get their credit score from places like Credit Karma, and off their credit card statements. But are these your real credit scores?

The answer is YES and NO. Yes, they are a real credit score, but you may get a very different score when your credit is reviewed by lenders.

The confusing comes because there are many DIFFERENT scoring models out there, including multiple different ones from the same credit bureau. Each company and scoring model calculates your score a bit differently, but they all use information from your report.

The three main credit bureaus – Equifax, Experian and TransUnion – create your credit reports, with credit scoring models like VantageScore, Beacon Score, and various FICO scores. These are use to come up with a score that typically ranges from 300-850. Theses scores for you based on their own proprietary models.

VantageScore 3.0 is a credit scoring model generally used whenever you the consumer are able to look at your own credit score, while most lenders actually use different scoring models.

Basically the thing to understand is something known as Industry-Specific Credit Scoring models, which are tailored to each industry. If you buying a new car, or new home – it may make sense for that lender to consult a credit scoring model created with for what they care most about. So car lenders care about how you handle car loans, credit card companies care how you handle credit cards, and finally, mortgage lenders car most about how you handle mortgage loans. When you look at the Vantage score, I generally call that the generic score because it is not tied to any specific industry.

For example, FICO® has all of these different models: FICO® Score 9, FICO® Auto Score 9, FICO® Bankcard Score 9, FICO CLASSIC V5, FICO CLASSIC (04),  Fair ISAAC (VER. 2).

So your score WILL VARY based on where you get it, and what type of company pulls it. It is most common for us to see your mortgage score easily 20 points lower than your Vantage score.

Your credit scores are typically based on things like how often you make payments on time and how many accounts you have in good standing.

Your score will never factor in personal information like your race, gender, religion, marital status or national origin.


NO documentation MORTGAGE loans AVAILABLE? No. Alternative? Yes

Minneapolis, MN: Not everyone meets the traditional proof of income guidelines for your standard home mortgage loan. For years, the industry offered all sorts of alternative options, from no documentation stated income loans, where you just told us what you made, but didn’t prove anything, to true No Income, No Assets, no anything loans. Just a good credit score and a large down payment.

These programs served a small niche market, and had been successful for many years.  In the real estate boom years from 2000 to 2007, these long held niche programs became highly abused – resulting in law changes that all but essentially made them illegal to offer.

No documentation loans

Current rules require lenders to prove and document sufficient income to safely afford your loan payment. All your traditional loans deem that to be pay stubs, W2’s, and tax returns.

These rules leave many people out in the cold – especially the self-employed.

What No Income Documentation Loans Are Available Today?

Well, none… But there is one big non-traditional offering in the market, this being bank statement loans. With these programs, in lieu of traditional pay stubs, and tax returns, lenders use the deposits on your bank statements as qualifying income.

Common options include:

  • qualifying on just 12 months or bank statements, but you get better interest rates if you can prove 24-months of statements.
  • Using 100% of your personal bank statement deposits as income, or 50% of business bank statement deposits

Bank Statement Loans

The Down Side

First, there is no standard set of rules for these programs, so the there is plenty of variation between lenders. A good example is that some lenders only offer 24-month programs, or won’t do it at all with lower credit scores.

Expect at least a 10% down payment requirement, but most will require 20% to 25% down payment.

Expect closing costs to run higher than traditional loans.

Finally, as you might imagine, these programs don’t offer the best current mortgage rates. Typically we see these programs run with at least a 2% higher interest rate than traditional mortgage loans.

The Bottom Line

You should always try to be approved for traditional financing. But if your situation doesn’t allow for that, while no a full no documentation loan, at least there is an option to income qualify for a home loan with your bank statements.

Apply for a Bank Statement Loan

We here at Mortgages Unlimited offer a variety of bank statement loan options for properties located in MN, WI, and SD. Call us at (651) 552-3681 to discuss your situation – or better yet, complete the simple ONLINE LOAN APPLICATION right here on this web site.

Click to apply online

The small print: Not an offer to enter into an interest rate lock agreement per MN law. Not everyone will qualify. Equal housing lender. NMLS 274132.


Tips for MN First Time Home Buyers

Minnesota First-Time Home Buyer Tips

Minneapolis, MN: Being a first time home buyer, and buying your first home is an exciting time. There is no reason to be worried, and here are a few tips to help guide the way.

STEP 1:

Find a lender – Get Pre Approved for a Mortgage Loan.

Unless you are paying cash, you are going to need a loan. Finding and choosing the best loan and lender to handle the loan for you should not be taken lightly. Randomly taking to whoever answers the phone at  1-800 Big Bank, or thinking you can get a mortgage in 10 minutes via your cell phone are generally huge mistakes.

Read my whole separate article on Shopping For a Lender

Once you find your Loan Officer, they will review various programs with you, go over your maximum purchase price, payment comfort level, and any other requirements.  Expect to send in a minimum of your Photo ID, last 30-days of paystubs, last two-months bank statements, last two-years W2’s, and at least your last filed Federal tax return.

With a mortgage pre-approval in hand, you can meet with the Real Estate Agent, and know exactly how much house you can afford to buy, so you are not wasting time looking at homes outside of your price range.

Step 2:

Find a Realtor.

As with picking a Loan Officer, picking a Real Estate Agent also should not be taken lightly. As a Loan Officer, my tips for selecting an agent are:

  1. Avoid big real estate ‘teams’ – you never work with the big guy.
  2. Most major real estate company charge extra fees – Pick small independents
  3. Experience matters, A LOT.

Once you’ve selected your agent, they assist you in finding your dream house, negotiating a great offer, walking you through the paperwork, and helping with things like inspections.

TIP:  Did you know that the buyers do not pay anything out-of-pocket for the working with an agent to buy a home. The cost of your agent is paid for by the seller.

 

Make a Home Wants and Needs Wish List.

Make a list of what you absolutely must have in your new home. Number of bedrooms, school district, etc., and let your Real Estate Agent know.  Then also decide on things you can be flexible on. Unless you are building a custom home, no house will be a perfect fit.

Looking At Homes.

Typically your agent will set you up on automated email listing of new homes that fit your criteria.  Especially in the under $300,000 price point, you should look at those emails daily, and if you see something you like, you need to be prepared to drop everything, and go immediately look at the house.  Waiting for the weekend or a day off, and you may have been just beaten out by someone else.

As you look at homes, you may find your wants/needs list can change.  Be sure to pass that along to your agent.

Ready to get started?

It’s easy. Simply complete the Online application.  You’ll be applying directly with me, Joe Metzler, an experienced, multiple award winning Loan officer with over 20-years in the the business. We lend in MN, WI, and SD. Learn more about me HERE.

 


The closing costs are 3% myth debunked

I just heard it again, a Real Estate Agent saying average closing costs to obtain a home mortgage loan in Minnesota are about 3%.

This simply is way too broad a statement about actual closing costs.

As an actual Minnesota mortgage lender for the past 26-Years, the perception that mortgage loan closing cost are about 3% in MN has never been really accurate. This gets spread around primarily because a conventional loan only allows for seller paid closing costs of 3% ( FHA Loan is 6%: VA Loan is 4%, convention is 6% with a large down payment ).

About 1/2 of closing costs are a set cost regardless of purchase price. The other 1/2 of closing costs are based on the purchase price. Take an appraisal for example, a $500 dollars appraisal cost is about 1% of a $50,000 Loan, but only .1% of a $500,000 Loan. Another example is the title company closing fee, which is now around $400. Again, regardless of purchase price., but can make a big difference in the overall cost percentage.

So lower priced homes tend to have costs of 4% to 5% of the price, while upper end homes tend to come in closer to 2% of the price.  Therefore getting 3% seller paid costs falls short of the real costs for many buyers.  These examples assume full closing costs and pre-paid items (taxes and insurance).

To make up the difference, lender can, and commonly offer you other options, like a no loan origination cost lan, or even total no closing costs loans. We also can do something called ‘lender credits’ to reduce out of pocket closing costs. While these options sound great, they are all achieved by increasing the interest rate. Therefore you pay costs over time, versus up-front today.

That is the same when asking for seller paid closing costs. You are paying over time, versus out of pocket today.

Finally, there is absolutely nothing wrong with any of these options. They just need to be understood and analyzed to see what is best for you.  A good Loan Officer will explain and go over all these items once we see a full application, and understand your financial position, amount of cash you have to pay for down payment and more.

Property understanding all these items, then working together with a great agent to property structure your offer will make sure you get a great overall deal on your dream house.

Be sure to ask your Loan Officer plenty of questions, and be sure you carefully pick the Loan Officer who will be handling your largest financial transaction of the average persons life.

If you are buying a home in Minnesota, Wisconsin, or South Dakota… I can be your Loan Officer.  Contact me at (651) 552-3681 or JoeMetzler.com.

 


Buy a MN or WI Home with $1,000 Down and Down Payment Assistance

Buy a MN or WI home with as little as $1,000 down? Yes, it is possible.

Minneapolis, MN:  One of the biggest true hurdles to home ownership is a lack of down payment money. Sadly, many people don’t even apply for a home loan, because they think you need a much bigger down payment than you actually may.

You may qualify for down payment assistance. Apply to find out.
You may qualify for down payment assistance. Apply to find out.

But, if you have at least $1,000 of your own money, OK or better credit (640 score or higher), you may be able to buy your own home using our first time home buyer programs with down payment assistance.

Other low down payment options include:

  1. 3% down payment conventional loans (HomeReady and Home Possible)
  2. 3.50% down payment FHA loans
  3. No down payment VA loans
  4. No down payment USDA Rural development loans.

If you are in MN, WI, SD, or FL – Simply complete the secure online application at www.FirstTimeHomeBuyer-MN.com in about 10 minutes time. A fully licensed and experienced Loan Officer will review your loan application, then go over the various program to see what programs you qualify for, how much house you can buy, what the payments might look like, and finally, how much cash you may, or may not need to put it all together.

If you are in other states, simply find a LOCAL mortgage broker, and apply with them.

You have nothing to lose in applying, and everything to gain in owning your own home!

—————————————–

Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Mortgages Unlimited. He was named the 2014 Minnesota Loan Officer of the Year, and Top 300 Loan Officers in the Nation for 2010, 2015, 2016.

To finance with a home with Joe and Mortgages Unlimited, your local preferred lender for Minnesota, Wisconsin, and South Dakota, simply call (651) 552-3681 or APPLY ONLINE. NMLS 274132. Equal Housing Lender. Not everyone will qualify. See web site for more details. Not an offer to enter into an interest rate lock agreement.


Better credit score tips

CREDIT SCORE TIPS

Are you making this credit score mistake?

Many people believe that running up credit card balances, then making on time payments or paying it in full each month will build higher credit scores.  This is a MYTH!

You don’t need to carry a balance or use your card in order to build credit.

This pervasive myth usually gets said around a dinner table or past among friends, and of course is all over the internet – but is a terrible piece of advice — especially if you have bad credit to begin with.

Credit score factors

Carrying a balance says you have credit, need the credit, and are unable to pay off the balance. This is considered poor utilization of credit, and results in bad credit and lower credit scores.

Carrying very little balance, or better yet, no balance, says you have credit available, hardly ever use it, and can pay if off quickly – Which are all GOOD traits and result in good credit and better scores.

You should never carry a balance if at all possible, pay down as much as possible each month if you must carry a balance – and never ever have a late payment under any circumstances to have rock’in credit scores.

When the time comes to buy a home, you want the highest credit scores possible to get access to the most programs and the best interest rates.

Contact our Mortgage Experts at (651) 552-3681 of apply online at www.MortgagesUnlimited.biz


Relaxed student loan guidelines makes qualifying easier

Student Loans and Mortgage Approval. What are the guidelines?

Minneapolis, MN: Student loan debt is at an all time high, and has been noted as a contributing factor to why may people have been unable to purchase a home, especially first time home buyers.

Recent changes to Fannie Mae and Freddie Mac guidelines have made it easier for some, but not all with student loan debt to still qualify for home mortgage loans.

Fannie Mae and Freddie Mac do not do home loans. Rather they buy loans from lenders after that fact. Both Fannie and Freddie have set underwriting guidelines that if lenders follow, makes the selling of loans to Fannie Mae and Freddie Mac much easier.  While the number moves, at any given time, Fannie Mae and Freddie Mac control +/- about 60% of all home loans.

Student Loans. How do lenders calculate?

Student loans can be in active repayment, some sort of reduced repayment (which is typically an income based repayment), or completely deferred.  While a student loan may be deferred for the next year or two, your mortgage loan is typically a 30-year loan. It only makes sense that lenders take current or future student loan payments into consideration when calculating debt ratios and affordability.
To avoid confusion, I’ll just talk about current guidelines for how lenders currently deal with your student loan debt for debt-to-income ratio purposes.
These guidelines are current as of this article (Dec 1, 2017 (updated)).

FHA Loans:

FHA loans must use the greater of 1% of the outstanding balance, or the payment listed on the credit report, unless you can document the payment is a fully amortizing payment. No income based repayment, graduated payments, or interest only payments allowed.

Fannie Mae Loans:

For deferred loans, must use 1% of the outstanding balance. For loans currently in repayment, use the payment listed on the credit report. If payment is listed as $0.00, but $0.00 is an active income based repayment, we must verify with the student loan company that $0.00 is the income based repayment.

Freddie Mac Loans:

For loans in repayment, use the amount listed on the credit report, or at least .50% (1/2%) of the outstanding balance, whichever is greater.
For deferred loans, must use the amount listed on the credit report, or 1% of the outstanding balance as reported on the credit report.

USDA Rural Housing Loans:

For USDA loans, if the loan is deferred, income based payment, graduated payment, or interest only payment, must use the greater of 1% of the outstanding balance, or the amount listed on the credit report.

VA Home Loans:

For VA loans, if payment is deferred at least 12 months past the loan closing date, no payment need be listed.
If payment will begin within 12 months of closing, use the payment calculated based on:
  a) 5% of the outstanding balance divided by 12
  b) The payment listed on the credit report if the payment is higher than calculated under (a).
  or
If payment on credit report is less than (a), a letter, dated within the last 60-days directly from the student loan company that reflects the actual loan terms and payment information is required to use the smaller payment.

More people with student loans now qualify

These updated guidelines primarily help those currently in repayment, but with income based, graduated payment, and interest only payment student loans obtain conventional loans.
 Regardless of your student loan status, I always suggest that people never assume you can’t buy a home.  Always talk with a professional licensed Mortgage Loan Officer to get the facts regarding any financing options.  I offer all this loan option and more for properties in Minnesota, Wisconsin, and South Dakota and can be reached at (651) 552-3681, or www.MortgagesUnlimited.biz


Equifax, Credit Freeze, and Getting a Mortgage Loan

With the latest hack of personal information from one of the big three credit bureaus, the topic of freezing your credit report to prevent identity theft is back in the news.

Having a credit freeze on while getting a mortgage loan can cause huge headaches.

A credit report freeze, does exactly as the name implies.  It freezes your credit report so that no one can access or view the file until you unfreeze, or temporarily lift the freeze on your credit report. A credit report freeze prevents many types of fraud, especially the opening of new accounts in your name, but DOES NOT prevent the most common fraud, which is stolen credit card numbers.

Personally, I think credit freezes are awesome. The credit bureau’s make them more difficult than realistically needed to both freeze and unfreeze your account, taking up to three days to lift a freeze, and charging money for the service. That is why is hasn’t caught on with the basic public.

Why do they make it hard to freeze / unfreeze?

Simple. Follow the money.

Discover Card has for some time, and other credit cards are catching on with apps for smartphones, where their clients can instantly turn on and off their credit card, effectively preventing anyone from charging on the card.  The credit bureaus could do the same for your entire credit report, but choose not to.

The main reason is money.  For example, all those pre-approved offers you get in the mail? The creditor paid for those reports. If everyone has a frozen credit score, this limits the credit bureaus income and ability to sell those pre-approved reports.

Mortgage Loans and Credit Freezes.

When applying for new credit, and in this case, specifically a mortgage loan, your lender will see nothing, and get no scores if your account is frozen. Of course you will need to lift the freeze, as your mortgage lender will need to review your full credit report.

Where the problem come in for mortgage lending, is your lender actually needs to potentially have access to your credit report during the entire loan process, not just the first day when your Loan Officer pulls your initial credit report.

In order to be able to provide them a mortgage loan they must unfreeze their credit, ideally until closing. If they do not want to leave the freeze off that long, they will need to unfreeze it any time we need anything related to credit; first pull, re-scores, supplement reports, re-issue reports, and finally a credit report lenders look at just prior to closing to see if you’ve applied for any new credit.

The last report, known as an LQI report, is especially problematic. Your mortgage lender will pull this report generally within about the last five days prior to closing. If your report is frozen, we have to stop and call you to get it lifted.  It may take up to three days to unfreeze your report, potentially delaying your closing.

Therefore, mortgage lenders will ask all clients, if they have a freeze on their credit prior, to unfreeze their credit report until the day of the home loan closing.


How to deal with collections on your credit report

Minneapolis, MN: No one likes having dings on their credit report, but let’s face it, sometimes it is impossible to avoid. When credit dings happen, it is important to work on getting back into the credit good graces, as it effect so many things in your life, from ability to get a mortgage loan, the interest rate you pay on mortgage, credit cards,  car loans, and even you paying more for your car insurance.Collection accounts

Next to basic late payments, small collection accounts are some of the most common negative item we see on credit reports. We see a lot for medical items, and old utility bills.  We see a lot over disputes with a company that never got resolved.

While some of theses collection accounts may be small, and even long forgotten, they can be real credit score killers.

The main things you need to know about collection accounts

First, is that simply paying them off doesn’t mean they go away. It still happened, and it is still on your credit report.  You can always try to leverage paying the creditor contingent on having the creditor completely remove the item from your report, and sometimes this works. I suggest everyone at least try it. But there is nothing mandating a company remove the negative item once paid.

Paying them off also doesn’t magically improve your credit score like people think. You should usually see at least a small improvement to your credit score, especially if the account being paid is a more recent collection account.

If the collection sits on your credit report for a really long time, and you now pay it off, you may temporarily LOWER your credit score because you may have turned the DLA, or Date of Last Activity to a current date.  The basic premise being that the older a negative item is, the less it hurts your score. By paying it off, the account for example went from 5-year old unpaid account (which still hurts), to a one month old paid collection, which may hurt more because it is now recent activity.

Most credit repair experts will tell you to pay off collections starting at the newest account, and working back to the oldest, and that sometimes, it is best to just leave an old account alone.

Over time, it is ALWAYS better to pay a collection account. An unpaid collection account hurts credit more and longer than a paid collection account.

Credit score factors

Finally, while some unpaid bill becoming collection may be inevitable, most collections are avoidable. Dealing with the situation up-front is best so it never becomes a collection account. I understand the frustration of a medical bill that should have been paid by insurance, and fighting with the hospital or clinic. But ignoring it doesn’t make it go away, and it will probably come back to haunt you years later.


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

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

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

WHAT ARE MORTGAGE CLOSING COSTS?

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

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

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

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

HOW TO PAY CLOSING COSTS

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

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

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

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

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

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

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

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

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

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

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

CLOSING COSTS – THE BOTTOM LINE

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

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

 


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

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

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

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

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

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

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

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

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

Lack of Starter Homes?

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

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

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

Poor Credit

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

More than just student loan debt

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

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

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

Of course every person and every situation is different.

Don’t Assume

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

 


MN, WI, and SD Homeowners Urged To Switch To A 15-Year Fixed Mortgage

MN, WI, and SD Homeowners Urged To Switch To A 15-Year Fixed Mortgage

If you still owe on your MN, WI, or SD home, you really need to consider switching to a 15-year fixed. Here at Mortgages Unlimited, many of our Loan Officers, including myself **, have made the switch to 15-year mortgages because we’re obsessed with getting the right mortgage and we know all the advantages 15-year mortgages provide.

Using a sample $200,000 home loan, homeowners with a 15-year mortgage can save over $113,000* over the life of their loan. We also help homeowners lock in historically low rates that will never rise. At Mortgages Unlimited,  it’s all about helping homeowners find a mortgage they can be confident in, and what better mortgage to offer than the one our own Loan Officers, including myself have.

Get A Mortgage Review Today And See How Much You Can Save With A 15-Year Fixed

15-Year Mortgages Help Homeowners Pay Off Their Homes In As Little As Half The Time And Save Up To $113,000 OR MORE In Interest Payments *

The reason for this is pretty simple. To pay off your house, you have to pay off the principal. In a 30-year mortgage your first 10 years of payments go mostly towards paying interest on the loan – meaning for 10 years you aren’t making a lot of headway towards paying down the principal. In a 15-year mortgage you attack the principal you owe on your home and depending on what your current 30-year mortgage rate is you could actually do so for about the same monthly payment. Think about that, homeowners who switch to 15-year mortgages:

1) chop up to 15 years off their mortgages,
2) save up to $113,000* OR MORE in interest payments, and
3) may be able to do so while keeping their monthly mortgage payments pretty much the same, depending on your current loan and interest rate

How To Switch To A 15-Year Fixed?

It is easy. Start by completing an online application, or call our mortgage experts at (651) 552-3681. We’ve streamlined the refinance process and our team of fully licensed Loan Officers can tell you how much you can save by switching to a 15-year fixed. It only takes about five minutes to use the easy online form to get connected to mortgage experts, and our radically simple mortgage experience can help you see very quickly if you’re in the right mortgage or not. It can’t hurt to look. Rates for 15-year fixed mortgages could be on the rise soon so now is the time to check your eligibility.

Probably because the 15-year payment will be a bit higher than your 30-year payment. While true, most people can easily afford it, and take advantage of the huge savings. We also think it’s probably because homeowners don’t realize the crazy amount they pay in interest payments to have a 30-year mortgage. If homeowners knew they’d have to pay up to an extra $113,000* in interest payments to have a 30-year mortgage instead of a 15-year, we’re guessing most homeowners would make the switch. What we do know for sure is that Mortgages Unlimited delivers a simpler mortgage experience, and that we can quickly help homeowners calculate how much they could save by switching to a 15-year fixed.

Apply Online
No Obligation to apply, and see what YOU qualify for.

Start your savings today!

* Savings based on sample $200,000 loan between current 30-yr rates at 4.00% versus 15-yr rates at 3.25%.

Your savings may be much greater or smaller depending on your loan size. Not an offer to enter into an interest rate lock agreement per MN Statute. Not everyone will qualify. Rates subject to qualifications, and can change daily. A full application is required to lock a rate. Equal Housing Lender. NMLS 274132.  ** Joe Metzler


Top 150 Workplaces 2017 – Mortgages Unlimited, Inc

MINNEAPOLIS, June 26, 2017. — Mortgages Unlimited, Inc, a mortgage company based in Maple Grove, MN, has been named one of the Top 150 Workplaces in Minnesota by the Star Tribune.

A complete list of those selected is available at StarTribune.com/topworkplaces2017 and was also published in the Star Tribune Top Workplaces special section on Sunday, June 25.

Mortgages Unlimited was ranked 14th on the small company list, out of a total of seventy companies, and also made the list in 2016, ranking 5th on the small company list.

Top 150 Workplace 2017 - Star Tribune - Mortgages Unlimited

As a private, locally owned mortgage company serving Minnesota, Wisconsin, and South Dakota, Mortgages Unlimited is amongst the region’s most trusted Mortgage Companies receiving multiple company and customer satisfaction awards over the years, along with having multiple award winning Loan Officers.

Mortgages Unlimited is also among the region’s most experienced mortgage lenders closing over $5 billion in residential mortgages transactions for our over 50,000+ satisfied customers since our inception in 1991.

Top Workplaces recognizes the most progressive companies in Minnesota based on employee opinions measuring engagement, organizational health and satisfaction. The analysis included responses from over 69,000 employees at Minnesota public, private and nonprofit organizations.

Mortgages Unlimited

Mortgages Unlimited has offices in Maple Grove, St Paul, Eagan, Woodbury, Stillwater, Elk River, Bloomington, Otsego, and Rice Lake, WI.  During 2017, Mortgages Unlimited will also offer home loans in Arizona, and Florida to serve the 2nd home market of our midwest clients.

To apply for a home loan with Mortgages Unlimited, call (651) 552-3681, or visit us online at www.MortgagesUnlimited.biz

 


Why do I need mortgage insurance??

Why do I need mortgage insurance?

When buying a home, and getting a home loan, being approved or not all comes down to risk. If the mortgage company thinks you are a good risk, you get the loan. If you are too risky, you get denied. Pretty simple concept.

A good example of this concept is down payment size.  If you put at least 20% down, you are considered a good risk. Put less than 20% down, you are high risk. Needless to say, not everyone can put 20% or more down payment.

To minimize the lenders risk on small down payment loans, but yet allow for these same small and more affordable down payments, a tool called mortgage insurance, commonly referred to as PMI, or private mortgage insurance is available.

The insurance policy you are required to obtain and pay for as part of your monthly mortgage payment essentially provides protection to the lender in case you default on the loan, and covers the lender for the amount between 20% down and what you actually put down.

The cost of the mortgage insurance depends on multiple factors, but primarily down payment size, credit scores, and loan type.

The smaller your down payment, the higher the mortgage insurance costs. The lower your credit score, the higher the costs.  For example, A client with 10% down and an 800 credit score on a 30-yr fixed loan might pay about $30 a month per $100,000 loan amount for mortgage insurance. The same 10% down, but a client with just a 640 credit score might pay as much as $105 per month per $100,000 loan.

Contact your loan officer for exact monthly costs for your individual situation and down payment size, as this article covers basic and most common situations, but does not encompass every possible situation.

Typicaly standard PMI will automatically fall off your loan once you reach 78% of the original loan amount with no interaction from the homeowner. It is simply automatic.

You can request to have mortgage insurance removed from your loan once you believe you are at 80% of the original loan. The 80% mark can be based on a combination of paying down the loan, and today’s appraised value.  For example, you put 5% down when you bought the house, you’ve paid down through payments another 5%, and the home has appreciated 14% since you bought it.  That would put you ate 76% loan-to-value. So contact your lender on their proceedure to have mortgage insurance dropped.

Must Deal With Mortgage Insurance

If you are putting down less than 20%, you MUST deal with mortgage insurance somehow. Other than monthly mortgage insurance, lenders can also offer more creative options. The most popular is known as ‘lender paid mortgage insurance’, where the lender increases your interest rate, and uses the extra money to buy mortgage insurance. You still have it, but it doesn’t show as a monthly cost.

The next is known as ‘single premium’ insurance. Under this option, you pay a one time lump sum amount up-front at closing equal to 3-years of monthly mortgage insurance.

The last option, is getting two loans. An 80% first mortgage, and a second mortgage to cover the difference from what you have for down payment. This is a viable option primarily for high credit, low risk clients, and for jumbo loans over $424,100.

While these options may sound enticing, for most people, balancing up-front costs, long-term versus short-term costs, and overall benefits based on individual situations can become a mind numbing challenge.  Suffice to say the vast majority of people go with standard monthly mortgage insurance for a reason.

FHA Loan Mortgage Insurance

FHA loans also have mortgage insurance, but this insurance is significantly different from conventional loan mortgage insurance.

Most people using FHA loans put the minimum down payment of 3.50%, and take a 30-yr fixed loan. Most FHA mortgage insurance is the same for everyone regardless of down payment size or credit score.  For small down payments, this is roughly $85 per month per $100,000 loan amount.Next, FHA mortgage insurance for small down payments is called ‘Life of Loan’ insurance, which means regardless of future loan-to-value, appreciation, or what you’ve paid down, FHA mortgage insurance never goes away. The only way to remove it is to refinace the loan.

Another item with FHA loans, is that regardless of down payment size, ALL FHA loans will have insurance. So contact your loan officer for exact monthly costs for your individual FHA insurance, especially if you are putting more than 10% down or picking a 15-year loan.

PMI is Not Homeowners Insurance

Mortgage insurance often times gets confused with home owners insurance.  PMI protects the lender from default, while home owners insurance protects the owner for items like fire, storm damage, theft, etc.

VA Loans Have NO Mortgage Insurance

If you are active or former U.S. military, you have a great benefit in a VA Home Loan. Most people know VA loans generally do NOT require a down payment, they also have NO monthly mortgage insurance.  This can be a huge monthly savings over other loans.

———–

Author Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Mortgages Unlimited. He was named the 2014 Minnesota Loan Officer of the Year, and Top 300 Loan Officers in the Nation for 2010, 2015, 2016.  He provides Home Mortgage Loans in MN, WI, and SD. He can be reached at (651) 552-3681. NMLS 274132.