WHO CAN GIVE A GIFT?
WHO CAN’T GIVE THE GIFT
DOCUMENTING THE GIFT
THE GIFT FOR DOWN PAYMENT BOTTOM LINE
Congratulations. You’ve enter the housing market, gotten mortgage pre-approved, and made a successful offer on your dream house. But what happens if the house appraises for less than the purchase price?
In the ever changing Real Estate world, today we have a problem with a shortage of homes for sale. This means it is likely that a seller will get multiple offers well above the asking price. Sounds great for the seller, but this also means there may result with the appraisal, commonly known as “coming in low.”
There are many reasons why an appraisal may be low. In rapidly changing markets, home prices continue to increase which is something makes it difficult for appraisers. Maybe the agent made a mistake. Maybe the buyer pressured the agent to list it higher than it should have been. Maybe the appraiser made a mistake. Maybe multiple offers drove the price too high. Maybe the buyer needing to roll in closing costs pushed the sales price over the market value. Who knows. It happens, and it happens a lot more often than buyers and sellers may realize.
There are many other reasons too. If you get the news that the appraisal came in lower than the sales price, don’t panic. Almost all of the deals still close!
Understand the whole idea of the independent appraisal is that an unbiased, highly trained third party is there to protect the buyer and the lender. The buyer doesn’t want to pay more than fair value, and the lender is obviously concerned about their collateral.
The first thing is to review the appraisal to see if it has obvious errors. I’m not talking opinion of value differences, I am talking actual errors. For example the house is 3000 square feet, and the appraiser has it at 2400 square feet. Assuming an error, bringing it to the appraisers attention usually results in a quick fix.
TIP: If there is a measurement error, 99% of the time, the listing had the size too big. Few agents actually measure, while 100% of appraisers measure.
Have the agent gather what they believe are better comparable properties than the appraiser use. Don’t just give addresses. Give a detailed explanations of why they believe the appraiser should consider these homes instead.
TIP: Rare is it that the appraiser didn’t already consider the comparable you just submitted.
If there are obvious errors, or obvious poor comparible choices, there is the possibility of obtaining a new appraisal with a different appraiser. There are rules and guidelines to this process. It is not an easy route, plus the buyer would need to pay for the 2nd appraisal.
Typically there are four routes when the appraisal is less than the sales price.
Hopefully my math worked out to 100%, but as you can see, most real estate transactions that have an appraisal come in low still get to the closing table.
Get Pre-Approved Before You Start Looking for a home
Minneapolis, MN: People often make the mistake of starting a home search without knowing what they actually qualify for. Falling in love with a $400,000 home and finding out you qualify for $200,000 can be heartbreaking. Thinking a loan approval will be easy, only to find out you have issues, or don’t qualify for a program you think you do, is another concern.
Virtually no Realtor will show homes to clients who have not been pre-approved, and virtually no seller will accept any offer without a pre-approval letter for this very reason. Being pre-approved gives both you and the seller comfort that final approval for your loan should be fine.
Pre-approval gives you, your agent, and the sellers confidence in knowing can get a loan, and that you are shopping in the correct price range for your income and payment comfort level.
We recommend getting lender pre-approved about 100 days before you would like to move. For example 100 days before the end of your apartment lease. This give you plenty of time to correct any minor issues that may cause loan approval issues, and plenty of time to find a home without just settling because of time concerns.
Finally, understand there are two levels of pre-approval. The more common one is what is known as Loan Officer pre-approval. This is where only your Loan Officer has reviewed your application information, documents, and credit. Generally this is acceptable in the vast majority of cases, but can be problematic when new or inexperienced Loan Officers make mistakes in their assessment.
Mortgages Unlimited goes a step beyond, and also offers full Underwriter Pre-approvals, known as our Certified Pre-Approval. This means your application has been completely reviewed by an actual Underwriter, who has given their blessing on your credit, incomes, etc. This only leaves us to have to finalize your application on the exact home when you find it (purchase agreement, appraisal, and title review).
To become pre-approved for a home loan on properties in Minnesota, Wisconsin, or South Dakota, please fill out our secure online application, or call (651) 552-3681 to apply over the phone, or to schedule an in-office appointment.
Minneapolis, MN: Not every potential home owner fits the cookie cutter guidelines for most traditional loans, like standard 30-yr fixed rate loans backed by Fannie Mae or Freddie Mac, or standard government backed loans like FHA Loans, VA Loan, or USDA loans.
The mortgage industry had plenty of alternative options back in the day, including bank statement loans, stated income, no proof of income loans, asset based program, and more, right up until the housing crash in 2007.
Government mandated changes after the housing crash left many home buyers needing these alternative loan programs with no loan options whatsoever. Slowly, the non-conforming loan industry is making a comeback, albeit looking much different than years ago.
Stated income loans existing, but are super restrictive. No doc, or no proof whatsoever of income loans do not exist. The most popular alternative documentation loan option that HAS returned is using your bank statements as qualifying income.
These bank statement loans come in many varieties, but generally consist of the following basic requirements:
There is no one set of rules, like you find with standards loans that all lenders use for things like FHA, VA, Fannie Mae, Freddie Mac, etc. Because of this, you will find all sorts of variations between lenders offering bank statement loan programs.
But the good news is that at least there are some options again for those home owners who don’t fit the traditional loan model.
Minneapolis, MN: We all know one of the biggest obstacles to buying a home is the lack of down payment. Many first time home buyers have the credit, and income to handle their own home, but just can get over that down payment hurdle.
FHA Home Loans have always been a popular first-time home buyer choice, because the program only requires a 3.50% down payment.
Both Fannie Mae (HomeReady) and Freddie Mac (HomePossible) have just 3% down conventional programs. These existing programs have both income guidelines based on the properties location. You must also be a first time home buyer, which is defined as someone who has NOT owned a property in the past three-years.
Both HomeReady and HomePossible require the buyer to take first time home buyer education classes, and for doing so, you get a slightly better interest rate, and slightly cheaper monthly mortgage insurance rates. If you meet the qualifications for these programs, they are both pretty awesome deals.
But if your income is too high, or if you’ve owned a home in the last three years, you still have a low 3% down payment program offered by Fannie Mae, that has been around for a few years.
Freddie Mac has just announced their version of the 3% down payment program for everyone, which they are calling HomeOne. The program starts July 29, 2018.
Very similar to Fannie Mae’s program, the new Freddie Mac program does NOT have any income or geographic restrictions, and it is not restricted to first time home buyers. The program is only available for single family (one unit) properties.
As with all home loan programs, the new HomeOne mortgage down payment requirement is just one of many aspects used to determine loan approval, including credit scores, debt ratios, property, and overall ability to safely afford the home payment.
We lend on these programs in Minnesota, Wisconsin, and South Dakota. Just complete the quick and secure online application to determine if HomeReady, HomePossible, and now HomeOne is right for you!.
When buying a new home, not only do you have to find that perfect home, you also need to find that perfect mortgage loan. Many people use the internet to learn about loan options, terms, rates, and cost options. It can easily become overwhelming. It helps to have some basic understanding of loans, so when your Loan Officers discusses options, you can help us choose the right loan for you and your family.
Fixed-rate mortgages (FRM): Straight forward, as you pay the exact same monthly payment for the entire loan term. Taxes and insurance changes might change your monthly payment, but the loan itself doesn’t change. Common fixed rate loan amortization terms are 30, 25, 20, 15, and 10-year terms, with 30-years being the most common.
Adjustable-rate mortgages (ARMs): With adjustable rate mortgages, you start out with a fixed period, after which the loans interest rate may adjust up or down depending on what is going on in the interest rate market. Typical fixed rate period are 3, 5, 7, or 10-years. When the fixed rate period ends, you enter into the adjusable rate period, which will carry you through the remaining term of the loan. There are caps to the yearly adjustments, and lifetime adjustments to the rate, so be sure to discuss with your Loan Officer these caps. Finally, there is an index, and a margin. The index is what the ‘index’ the future adjustments are made based on, while the margin is what is always added to the index to come up with your new rate
Adjustable loans have gotten a bad reputation, but they really shouldn’t. They are a great tool for the right person. Popular reasons to take an adjustable loan are:
Standard conventional loan: The plain Jane of the mortgage world. Nothing fancy, tried and true. Down payments starting at 5% down.
VA Home Loan for active or former U.S. Military personal has no down payment requirement up to the local conforming loan limit. Above the local limit, a small down payment is required. VA loans also do not have monthly mortgage insurance, making them one of the best loan options available.
The USDA Rural Housing loan is also no down payment, but is available to anyone. Their are income and location guidelines (house must be rural for example).
First Time Home Buyer Loans: These options typically allow for smaller down payments, like just 3% down, and generally also offer reduced mortgage insurance. A first time home buyer is defined as someone who has not owned a home in the past 3-years. Typically you must attend a first time home buyer education class to get these loans.
FHA Loans are a long-time favorite, as they typically allow for lower credit scores, and have only a 3.50% down payment requirement.
Down Payment Assistance Loans fit a popular situation, where the home buyer has OK enough credit, and can afford a house payment, but they just never seem to be able to save enough for a standard down payment. You usually need to put a little of your own money for a down payment (typically $1,000), and you get an assistance loan to cover the rest of the standard down payment. Home buyer education classes, and household income limits apply.
As one can imagine, there are many variations to these basic programs, and this article only focuses on purchase loans. refinance loans can be different.
My best advice is to not try to figure it out yourself, rather simply complete an application with a local experienced Loan officer, who can review the file to look at all options, to zero in on what loan is best for you.
We lend in Minnesota, Wisconsin, and South Dakota -and we’d love to help you. NMLS 274132
In many cases, you have the option to pay more money upfront in exchange for a lower rate. Some refer to this as “paying points,” buts that’s a bit of an archaic term. Self-annointed gurus used to say “never pay points!” But that’s not necessarily good advice. Discount (or “discount points”) offers a perfectly legitimate and objective choice to pay more money upfront in exchange for a lower interest rate. Whether or not the trade-off makes sense to you is fairly subjective.
In the more intelligent conversations, discount is discussed in terms of “breaking even” or “break even months.” In other words, if I pay extra cash today, how long will it take for me to break even due to lower monthly payments. Closer to 10 years? That doesn’t make sense for most people. 5 year or less, however, and it can start to make better sense.
All this to say that the discount points required to move down to 1/8% are fairly low for most lenders at the moment. For instance, paying an extra .5% of the loan amount could get you another eighth of a point lower interest rate, and it would take just over 4 years to break even on that extra expense. Of course, if you plan to sell or refinance in 3-5 years, this makes no sense. If this is the last house and mortgage you want for the foreseeable future, it’s something to consider.
A similar conversation can be had for paying less in closing costs up-front today. You can choose to pay lower closing costs today, but understand this is simply achieved by the lender raising the interest rate you would get. Small reduction in costs equal small rate increases, while large reduction in closing costs equal large interest rate increases.
So again, what is the math, and does it make sense? A common lower closing cost quote is a “No Loan Origination” quote. On most fixed-rate loans, you can eliminate loan origination costs, which is 1% of the loan amount by roughly increasing the interest rate 1/4%.
On a $200,000 loan, eliminating loan origination would save you $2,000 today, but a 1/4% higher interest rate will cost you $29 more per month on that $200,000 loan. Simple math gives you a 69 month break even period. If you are in the loan less than 69 months, you win. Each month after 69, you pay an additional $29.
But wait, even this is too simple. Do you have the money today? Do you want to keep some of that money in your pocket today to use for something else? So again, Whether or not the trade-off makes sense to you is fairly subjective.
Lower closing costs in exchange for higher interest rates is also a perfectly legitimate tool for home owners.
THE BOTTOM LINE
Don’t fall for advertising gimmicks. Rates way lower than everyone else, you are buying discount points, but may not know it. Anyone offering ‘no lender fees’, rebates, or any other sort of reduced closing costs are simply increasing the interest rate to pay for it.
The bottom line is simply this. A good conversation with a licensed, experienced, professional Loan Officer over your long-term, short-term, payment and equity objectives, is the only way to determine what is best interest rate for you and your situation.
You are about to do the largest financial transaction of your life, a home mortgage loan. What do you know about the person handling it, the Loan Officer? For most people, the answer is basically nothing, and that should scare you. Many people assume the person answering the phone is a licensed Loan officers, but this simply isn’t true the vast majority of the time.
While all companies offering mortgage loans must have a license, until the passage of the SAFE ACT in 2008 in response to the housing industry collapse, few Loan Officers had a personal license. This wasn’t generally a huge problem until the real estate boom began in earnest around 2000, when it seems like everyone was a home builder, a Real Estate Agent, or a Loan Officer with zero schooling, training or experience. As we all know, lots of these people ended up creating a a huge mess in their wake.
With the passage of the SAFE ACT, Congress took steps to tighten licensing and training requirements for Loan Officers. All can agree, this was a great step in the right direction. Unfortunately, Congress blew it by only requiring a small portion of Loan Officers needing to meet the strict new law requirements.
Under current rules, Loan Officers at banks, credit unions, or mortgage companies owned by these entities are NOT REQUIRED to have a personal license. Rather, they simply have to register in the Nationwide Mortgage Licensing and Registry System.
Loan Officers at non-depository lenders, like brokers and non-bank mortgage companies are REQUIRED to have a personal license.
Doing a little research on your Loan Officer is rather simple, with these two steps:
On the Nationwide Mortgage Licensing System and Registry web site, you are able to enter the Loan Officers name. The system will tell you how long they’ve been a Loan Officer, what company they are OK’d to work for, any disciplinary action, and if they are personally licensed, or simply registered.
Here is a screenshot of my personal NMLS record, which shows I am a Licensed Loan Officer in Minnesota, Wisconsin, and South Dakota.
Here is the bottom part screenshot of a Loan Officer who is simply registered. You’ll notice it says Federal National Loan Officer instead of listing states they are licensed in.
Next, Do an Internet name search in your favorite search engine.
Do you get any hits? What are they? What do you see? Nothing? One link to a company web site? Multiple hits on multiple sites?
Does the Loan Officer appear to be highly respected and quoted with lots of links? A great blog with great informational posts? Probably a good sign of a professional. Can’t find anything, or maybe just a listing on the company web site? Probably not a comforting sign.
Finally, trust your gut feeling.
While being simply Registered doesn’t make someone bad, and being Licensed doesn’t make someone good, it does help you understand more about who you are working with.
If you see they are simply registered, and have been a Loan Officer for six months, that probably wouldn’t be who I would pick to handle my largest financial transaction. Especially as I think back over 20-years ago when I started as a Loan Officer. I didn’t know anything, and it took years to gain the needed experience.
If they’ve been a Loan Officer for 10-years, but have been at 10 different companies, you should ask why? Keep getting fired?
On the other hand, regardless if they are registered or licensed, do they seem knowledgeable. Do they seem to have your best interest in mind? Do they return e-mails and phone calls in a timely manner?
Who would you rather have working on your largest financial transaction. A Loan Officer with a licensed they must maintain or risk losing it, with years of experience, or someone who is simply registered or new?
While true Loan Officers at banks, credit unions, and mortgage companies owned by banks and credit unions are NOT required to have a personal license, and many will tell you if you ask about their background how they are not required to have a license. Understand there is nothing preventing them from obtaining one. My opinion is if they really are professionals, prove their dedication to the industry by obtaining a personal license and giving the client a level of comfort.
If you are buying a home or refinancing a home in Minnesota, Wisconsin, or South Dakota, and you’d like me to handle your home loan, call me at (651) 552-3681 or just click on this link to Apply Online.
Can you get rehab loans to buy and fix a home?
There is no doubt that the current real estate market offers a lot of great bargains on short-sale, foreclosed, and homes in need of some tender loving care. However, many of these homes are in less than perfect condition. Many just have simple cosmetic issues, like ruined carpet, or in need of painting. Others need a new roof, or the previous owner vandalized the house, leaving them with missing cabinets, or missing appliances.
Standard mortgage loans don’t let you financing these homes, but our specialty renovation loan programs do.
These programs allow buyers to purchase a home and roll the cost of repairs or property improvements into the mortgage loan with as little as 3.50% down payment. The new loan is based on the value of the property after the repairs or improvements are completed.
We offer all three major renovations loans. Both the FHA 203k streamline rehab loan, the Full FHA 203k loan, and the HomeStyle Renovation conventional loan.
The programs are also available to refinance and fix up your existing home too.
See how this specialty loan program can help YOU find a home that may be outdated or need some minor improvements to make it the perfect home and get that home in a great neighborhood.
Contact us today at (651) 552-3681 to see if you can qualify for a REHAB PURCHASE AND FIX loan program, and move into the home of your dreams.
Learn more at https://JoeMetzler.com/203k
NOTE: This is NOT available for investors looking to fix and flip homes. That is a different program.
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.
Minneapolis / St Paul, MN: Buying your first home can be a fun exciting time. It can also be stressful, especially as there is a lot of misinformation spread from well intended friends, family, and even Real Estate Agents.
When it comes to first time home buyers, they are usually told about special programs for first time buyers, and classes you need to take. The first thing to understand, is most mortgage programs DO NOT REQUIRE a home buyer education class, UNLESS you are getting down payment assistance.
Most people don’t want to take a class unless necessary. Therefore we generally suggest you complete a full Loan Application for review to determine if you need a class. There are never any obligations to review your situation.
The second major thing to know is that IF you DO need to take a class, you need to take the correct class. Almost ALL classes put on by a Real Estate Agent, Bank, Credit Union, or Mortgage Company are really only marketing gimmicks designed to get you introduced to those people, so you hopefully use them as your Real Estate Agent or Loan Officer. These classes DO NOT COUNT and should be avoided.
Here in Minnesota, like most other states, to obtain down payment assistance as a first time home buyer, you ARE REQUIRED to attend a Minnesota state approved 8 hour home buyer education class. This class is mandatory for programs like the Minnesota Housing Finance Agency (MHFA) Start Up loans, Dakota County First Time Home Buyer, City Living, and many other programs where you get assistance. The class is also required to get reduced monthly mortgage insurance with the HomeReady conventional 3% down payment program
This class can be taken online, or in person at multiple locations across the state. There are different costs for each class ranging from as low as $25 to $75 per household. Only 1 borrower is required to attend.
The official required class is a NO PRESSURE, NO OBLIGATION class. No software, books, or anything else to buy. They will teach you about making good decisions in your future home buying experiences, and provide great information about the qualifying process, improving your credit score, and much more. There is no better way to learn about being a First Time Home Buyer in Minnesota than to attend AN APPROVED home buyer education class.
Upon completion of the class, you will received the required completion certificate that you need to give to your Loan Officer.
Minneapolis St Paul, MN: When taking out the largest loan most people will ever have in their life, a home loan, your Mortgage Loan Officer is going to ask a lot of questions, and request a lot of supporting documents, like pay stubs, W2’s, tax returns, and your recent bank statements.
Providing all this documentation really should be pretty easy for most people, yet it also causes a lot of frustration. Most people don’t get pay checks handed to them anymore, just as many people don’t get banks statements mailed to the home either. So here starts some of the annoyance issues right away for some people, while others quickly and easily access the documents online.
Your lender wants actual pay stubs, and actual bank statements, like what would be mailed to the home. Many people send simple screen shots, which simply doesn’t work. Most online accounts let you print real statements and real pay stubs, you just need to look around to find them.
Generally, most mortgage loan programs only require your two most recent bank statements. We also need ALL the statements pages too. If the statement says “Page 1 of 3”, and the last page is just advertising, we still need it.
When the mortgage company looks at your bank statements, the most obvious thing they are looking for is do you have the money in the bank to cover your down payment and closing costs, also known as ‘cash-to-close.” Do you have it all today? What is your average balances?
If your last two months bank statements show $500 balances, but you need $10,000 for down payment, where is it coming from?
Any large, obviously non-payroll deposit needs to be documented. What is it, where did it come from? Is is a loan that needs to be paid back? Is it a gift? Is it your tax refund?
Large deposits is one of the biggest headaches for both the lender and the applicant, and depending on the answer, can be no big deal, require a little bit of paperwork to prove where it came from, or can actually be a deal killer.
A common problem is many people have large sums of cash at home, then deposit in the bank. As weird as it sound, that cash deposit is NOT an acceptable source of money for your down payment, and needs to be in the bank account at least 60-days before it can be considered usable money for your down payment.
Most lenders consider a large deposit any non-payroll deposit that is more than 50% of a applicant(s) monthly income for conventional loans, and more that 1% of the purchase price of the home for an FHA loan.
Yes, we care if you are bouncing checks. It shows how you manage money.
Let’s say your current rent is $1,000 a month, and you consistently bounce checks. Your potential new house payment is $1,400 a month. You can’t manage your account with rent at $1,000 a month, how are you going to be able to handle a $400 increase in your housing costs?
On the loan application, you are supposed to disclose all recurring debt. The reality is mortgage lenders generally just merge in the debt showing on your credit report. But a sharp eyed Underwriter may catch something on the bank statement and ask a question.
We don’t care about ATM withdrawals at the casino, and we don’t care about your purchase at the liquor store or Victoria’s Secret. We pretty much don’t care anything about your purchases.
Busy bank statements is my personal term for people who transfer around money from their various multiple accounts on a regular basis. This can lead to a lot of headaches in documentation. I just had a client, where on her bank statement, there was a large deposit. When I asked her where it came from, she said her savings account. Great, now send me the savings account statement. Once I saw the savings account, there was a large deposit there too. She said that deposit was from a 401k loan. OK, prove that too.
While she was able to prove and document everything, she also became very annoyed. I understand, but those are the rules. So if you know you will be buying a home in the next few months, it may be easier to put all the money in one account now to avoid any potential issues with Underwriting.
Minneapolis, MN: Once a year, maximum mortgage loan limits are potentially reset for popular loan programs, including standard conforming loans (Fannie Mae, Freddie Mac), FHA loans, VA loans, etc.
Minnesota, Wisconsin, and South Dakota (the states that I lend in) all have the same maximum conforming loan limit for 2018 of $453,100 for a single family home (higher for multi-unit properties). You can but a more expensive home, but to qualify for these programs, your LOAN AMOUNT must be under this number.
Loans over this amount are known as jumbo mortgage loan. There is no Fannie Mae or Freddie Mac for jumbo loans, so there are significantly different rules and guidelines for jumbo financing.
VA loans in Minnesota are zero down payment loans up to the same conforming limit of $453,100. You can but a home with a VA loan over $453,100 – but now you’ll need to have a down payment. Read this information on VA jumbo loan down payments, or I can help you determine your down payment requirements on VA jumbo loans, just contact me at (651) 552-3681.
FHA Loans and USDA loans have different loan amount limits depending on what county you intend to buy the property. Click here to check current FHA loan limits, and click here to check current USDA loan limits.
A single family home in the Minneapolis / St Paul metro area counties is $356,500 for 2018, but in Stearns county for example, it is only $294,515. Another example would be Dane County Wisconsin, at $299,000. As with conventional loans, all counties have higher limits for duplex, tri-plex, and 4-unit homes.
USDA rural housing loans do not have a house price limit. Rather, they have an income limit. Click here to review the USDA income limits.
Minneapolis, MN: When buying a home and getting a mortgage loan, the vast majority of people simply include the homes property taxes and insurance in the payment. But if you put at least 20% down payment on a conventional loan, you can opt to pay your own taxes and insurance. While only a small number of people choose to pay their own taxes and insurance, those who choose this option are usually shocked to learn there is something known as an escrow waiver fee.
I’m not a fan of the escrow waiver fee, but it is not something I charge, it is not something our company charges, it is something that Fannie Mae and Freddie Mac charge, so all lenders have to collect it and pass it on to the home owner.
The escrow waiver fee is something known as a loan level pricing adjustment (LLP). It is charged because of the added risk of you paying your own taxes and insurance. I know, I know, you’ll be fine, and will pay when due. But you’d also be surprised at the number of people who do NOT pay their taxes and insurance on time. This creates additional risk on the loan. Anytime there is additional risk, expect to pay more.
Your escrow waiver fee is going to be a one time charge of 0.25% of your loan amount. So on a $200,000 loan, you would pay an additional $500 on top of all your standard loan closing costs.
An alternative option is the lender will increase your loans interest rate to cover the cost. Generally this means a 1/8th (.125%) higher interest rate, which ends up usually costing you more than the one time 1/4% fee.
I do see some lenders claiming they don’t charge the escrow waiver fee. This is smoke and mirrors, as the fee is a Fannie Mae / Freddie Mac charge that we must pass on. Therefore any lender claiming they don’t charge it is simply bumping up the loans interest rate without telling you. This is sometimes rather effective, because most people are vary unhappy to learn about the fee, so they fall prey to anyone claiming not to charge it.
In my humble opinion, no. The cost just isn’t worth it for most people.
The number one reason I hear for homeowners not wanting to escrow for taxes and insurance is because they feel the lenders always screw up the escrow accounts! Do they on occasion? You bet. But more often than not, it is the consumers failure to understand versus a lender mistake. (Don’t kill the messenger)
I’ve gotten them. I know how it feels, and it stinks to get the letter in the mail from the lender telling you your escrow account is short, that your monthly payments are going up, and to write them a big check today for the shortage.
Its easy to understand why people get upset. But it is actually usually their own fault, not the fault of the lender.
Lenders are required to review escrow accounts once per year.
If you get your insurance renewal, with your home owners insurance is going up. Take note of that increase. You should immediately calculate the new number, and start paying the additional difference monthly to your escrow account. Who does that? Nobody.
The same with property taxes. If your taxes are going up, your mortgage payment will eventually go up too. If you didn’t start adding the additional taxes divided by 12 to your monthly mortgage payment, expect to be shocked when you get your annual escrow review notice.
Funny how no one complains when their taxes or insurance goes down, and they get an escrow account overage check in the mail?
Unfortunately, your escrow account does not make interest, so making money on your money (interest) while still in your account versus the lenders account is a prime reason I hear for why people want to pay their own impounds.
I hear many people talk how much they can save, or potential interest they will make by keeping their escrow money in an interest bearing account until the last minute.
This is very logical on the surface, but is it really worth it for most people?
First understand that the lenders doesn’t have all that money of yours at one time. It is collected over time. If your total taxes and insurance is $5000 a year. the lender doesn’t hold $5000 all year. It slowly builds up.
Here in Minnesota, we pay property taxes twice a year. So the lender collects one month, then two, then three, etc. After 6 months, the property taxes are paid, and the escrow account balance drops back down, only to slowly move back up until taxes are paid again in six months.
So unless you are a super financial wizard with awesome interest bearing accounts, or have huge impounds for taxes and insurance, it is very unlikely most of us would ever re-coop the cost of the initial escrow waiver fee.
Especially if your money is just in basic checking, savings, or money market accounts. Most checking and savings accounts pay virtually nothing, and even the best money market accounts as of the day I write this are only paying about 1.50% APY.
Generally speaking, if you start your conventional loan paying escrows, you can ask the lender to let you pay them yourself once your loan falls below 80% of the original balance, AND 5-years have passed, then you can ask to stop paying escrows without any additional cost.
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 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.
This 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.
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 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…
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.
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.
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
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:
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.