When can you cancel mortgage insurance?

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

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

For standard conventional mortgage loans with monthly mortgage insurance:

  If you do notthing special but make your payments:

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

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

For FHA Loans

For FHA loans with LESS than 10% down

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

For an FHA loan with 10% down or more

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

For VA Loans

  • No mortgage insurance

For USDA Loans

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

Other Mortgage Insurance Options

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

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

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

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

How PMI has Changed

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

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

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

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

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

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

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

Call Joe Metzler, iMortgageJoe.com


Use your tax refund for down payment

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

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

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

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

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


VA Loans

Approved VA loan lender in MN, WI, SD

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

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

VA Loan Solutions Right For You!

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

Benefits of VA Loan

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

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

VA loans offer a few other bells and whistles:

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

Realtor’s are wrong about VA Loans

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

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

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

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

Second VA Loan (or 3rd, 4th 5th…)

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

VA Loan Application

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

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

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

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

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


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

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

BASICS OF MORTGAGE LOANS

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

UNDERWRITING GUIDELINES

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

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

MORTGAGE INTEREST RATES

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

low mortgage interest rates

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

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

LENDER MARGINS

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

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

LOAN CLOSING COSTS

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

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

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

HIDING COSTS

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

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

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

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

Here is how it actually works.

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

Assume this two different quote example:

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

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

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

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

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

MORTGAGE SHOPPING TIPS TO AVOID BEING FOOLED

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

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

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

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

SCAM QUOTE EXAMPLES

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

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

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

DON’T GET BURNED BY THE SMALL PRINT!

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







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

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

This one sentence is all most people need to know.

STOP worrying about it.

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

Credit score factors

So What Is A Credit Inquiry?

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

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

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

Do Inquiries Hurt My Credit Score

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

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

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

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

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

Inquiry Effect Different People Differently

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

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

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

Credit Inquiries – The Bottom Line

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

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

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

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







Do Pre-Approval Letters Really Mean Anything?

Do Pre-Approval Letters Really Mean Anything?

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

The correct answer is yes, no and maybe.

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

iMortgageJoe.com Certified Pre-Approval Letter

Pre-Approval is very different from basic Pre-Qualification

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

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

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

Standard Loan Pre-Approval

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

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

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

Full Underwriter Pre-Approval

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

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

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

Underwriter Pre-Approval Carries More Weight

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

Certified Pre-Approval, Underwriter Pre-Approval

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

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

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







Gift for down payment money – What you need to know

Gifting down payment money? What you need to know.

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

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

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

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

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

THE ACTUAL MORTGAGE GIFT LETTER

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

FHA DOWN PAYMENT GIFT

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

PROOF OF GIFT

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

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

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

CONVENTIONAL DOWN PAYMENT GIFT

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

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

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

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

PROOF OF GIFT

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

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

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

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

RELUCTANT PARENTS

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

TAXES on Down Payment Gifts?

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

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

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

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

 







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

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

Interest Rate and Closing Costs Education

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

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

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

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

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

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

Different Interest Rate Quote Techniques

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

STANDARD RATE QUOTE:

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

NO LOAN ORIGINATION FEE QUOTE

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

LOW RATE WITH DISCOUNT POINTS QUOTE

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

NO CLOSING COST QUOTE

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

HOW TO SHOP INTEREST RATE OFFERS?

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

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

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

More information on How to Shop Interest Rates

BEWARE OF LOW QUOTING TRICKS

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

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

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

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

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

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

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

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

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

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Mortgage broker in MN, WI, SD

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







Buying a duplex, or multi-family home

Buying a duplex or multi-family home.

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

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

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

Multi family home

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

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

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

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

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

Equal Housing Lender. NMLS 225504







Credit scores and mortgage loan approval

Minneapolis / St Paul, MN:  When buying a home, your credit matters. Credit scores and mortgage loan approval go hand in hand, and are one of the most important factors in the loan approval decision.  With places like Credit Karma, and getting your credit score with your credit card statement, most people have a pretty good idea of where they scores average.  But how does that score correlate to mortgage loan approvals, and what credit score do you need for loan approval?

What Credit Scores Mean In Mortgage Approval

Understandably, the better your credit score, the more likely you’ll get approved for a loan, and the more options you’ll have. Also understand that credit score alone does not get you approved like it does in car loans. Mortgage loans still look at many other things, including debt-to-income rations, job stability, size of down payment, past bankruptcies and foreclosures, etc.

Credit score factors

Standard Conventional Loan Scores

  • 740 score and higher = Access to all program options, and the best rates in the market
  • 720 – 739 score = Access to all program options, and maybe a slight increased rate (.125%)
  • 700 – 719 score = Access to most program options, and maybe a slight increased rate (.25%)
  • 680 – 699 score = Some higher risk program options disappear, and a slight increased rate (.375%)
  • 640 – 680 score = All higher risk options go away, and a bigger increase to interest rate (.50%)
  • 620 – 639 score = Very few lenders offer loans in this range
  • 619 or less = Denied

FHA and VA Loan Scores

  • 640 and above = Generally approved, and the best rates available
  • 620 – 639 = Lots of lenders don’t offer below a 620 score, and interest rate slightly higher
  • 580 – 619 = Huge amount of lenders no longer offer FHA or VA loans at this score level, and rates .50% higher
  • 500 – 579 = Very limited number of lenders offer these loans. Very hard to get approved. Minimum down payment jumps to 10% for FHA loans.  Rate easily .50% higher or more.

Other factors also come into play, for example, most down payment assistance programs are not available with credit scores below 640.

Clearly credit is important in the mortgage loan approval process. Always best do work on improving credit before applying for a home loan.

Ready to apply?  For home mortgage loans in MN, WI, and SD, just click here to get started.







Why APR is not the best tool for comparing loans

Minneapolis, MN: I see it all the time. Arm chair financial guru’s always claim that using APR annual percentage rate is the best way to shop for a mortgage loan. While in theory, that is correct, in practice, it could end up giving you the wrong home loan.

The Federal Government requires APR to be disclosed right along side the loans interest rate as a means to help borrowers make an informed loan decision. Everyone understands the interest rate. Lower rates equal better deals and lower payments, but few people understand APR.APR Annual percentage rate

The APR takes the base interest rate, then factors in all of the following, and more; lender fees, discount points, days of interest, points to buy down the rate, and mortgage insurance (if applicable). If two lender quote you the exact same interest rate, the lender with the lower APR is supposed to be a better deal because of less costs and fees. So in theory, the lender quoting you the lower APR is always the better deal, right?

Wrong. The truth is that APR is a very poor way to comparison shop for a mortgage, because it can cause borrowers to make costly bad decisions.

APR was created to provide a way for borrowers to account for closing costs associated with the getting a mortgage loan. This sounds good in theory because it can be very confusing for home buyers to compare loans.

APR calculations are based on bad assumptions.

The first issue is APR assumes zero inflation, and that the value or buying power of a dollar today will be exactly equal to the value of a dollar 10-years,  20-years, or even 30-years from now.

Next, the APR calculation assumes that the mortgage loan will never be pre-paid or paid off early. That means no refinancing or selling the home. This is highly unlikely since the average life of a home mortgage loan is less than seven years.

Just think about your own loans: Is it rare to see the same loan in place for the full term of the loan. You only get the actual APR listed if you carry a loan fully to term.

Mortgage interest is front end loaded, meaning you pay more interest than principal in the beginning years of a loan, while towards the end of the loan, you pay more in principal than interest. So assume you got a APR quote of 4.21%. Your actual APR would only be 4.21% is you carried that loan for the full 30-years, and never pre-paid a dime.  If you sold the home after a much shorter time, your actual effective “APR” could be 15%, or even higher.

The APR calculation also does not consider the time value of the money. So if you spent a few thousand dollars buying down the interest rate with discount points, APR calculation does not give any value to the money if it wasn’t spent on closing costs.

APR does not take tax consequences into consideration. This can be significant, since higher closing costs on the mortgage loan may not be deductible, while the higher interest rate typically is deductible.

Finally, APR can also still be easily manipulated by bad lenders, making it totally worthless for real life comparisons. 

Real World APR Considerations.

I spoke earlier of two lenders giving you the same rate, and comparing APR. But what if two lenders give you different interest rates? Now comparing loans with the APR calculation is totally confusing. The lower rate will always have a lower APR, but what did it take to get the lower rate?

Let us assume a $150,000 loan. Lender A is offering a great low rate of 4.250 percent and $3000 more in points Lender B, who is offering a higher rate of 4.625 percent, but with no points. Which one is better?

The payment difference between the two interest rates is just $34 per month. So is it worth paying $3,000 in points to Lender A in order to save $34 per month? Maybe. Maybe not.

In this example, it will take a little over 7-years to break even on the additional up-front closing costs. If you are going to be in the home less than 7-years, this is a POOR loan choice. You paid more up-front than you ever saved, but you got a lower APR.  If you are going to be in the home 20-years, paying the higher cost for the lower interest rate is a great choice.  You save more in interest than it cost up front.

Many mortgage companies these days quote no origination fee loans. These lower closing costs sound great, but but they don’t really have lower closing costs, and they sure as heck are not working for free. To give you those lower closing costs, they simply INCREASE the interest rate they offer.

There is also the opposite, this is called discount points, where you pay more money up-=front today in exchange for a lower interest rates.

But wait, to make the decision even more complicated (if that’s possible), borrowers rarely take the value of to day’s dollars and cash flow into account. If you are going to be in the home 20+ year, but you don’t really have the additional $3,000 costs, now what?

How about the other direction again. Maybe you know you’ll likely be in the home 20 plus years, but you don’t really have the extra $3000, or don’t want to spend the extra money today to get the lower rate.

Worse yet is on a refinance loan, where they tease you with super low rates, but you end up financing the discount points into the loan itself… Yikes.

APR annual percentage rate

The bottom line is that you should forget APR annual percentage rate by itself to pick a loan. Instead, do simple math in conjunction with an analysis of the cost benefit of lower rate/higher costs, or higher rate/lower costs as it pertains to your individual situation and cash flow.

Any skilled professional Loan Officer can assist you with all of these calculations. We lend in MN, WI, and SD.







The Digital Mortgage Truth

The Digital Mortgage truth is much different than the hype.

Minneapolis, MN: It is 2018. The number of people who physically step into a bank or mortgage lender to do a home loan application is dwindling everyday. The vast majority of complete an online loan application on a desktop computer or iPad, or even apply via a Smartphone.

Digital Mortgage

Technology allows lenders to do more parts of the process electronically that ever before, including electronically signing application documents, secure uploading your documents, and even apps that shows the current status of your application 24/7.

Very cool technology, with this process now commonly referred to as a ‘Digital Mortgage’.

I see many places claiming using a digital mortgage will save you a ton of money. Mainly because somehow this streamlines the process, blah blah blah.

Taking the loan application online is only one small part of the mortgage loan process.

You still need to supply W2’s, pay stubs, bank statements, tax returns, etc. We still need processors, underwriters, and a large number of  back office staff.

While yes, we can now get some  of these documents electronically, I haven’t done a single loan yet without needing the client to supply at least s half of these standard supporting documents themselves.

You still need, and still want to have a conversation with a licensed professional Loan Officer to discuss your wants, needs and goals. To analyze your situation, to determine the correct loan for you, to answer any questions, and walk you through the process.

Yes, you can complete a loan application in 10 minutes on your phone, but that is a long long long way from being fully approved and actually successfully closing a mortgage loan.

There is no fast rocket way to circumvent the bulk of the mortgage process. So don’t be fooled or make a lender choice simply because of a gimmicky claim of a digital mortgage process. That just isn’t reality – yet. It is the largest financial transaction of your life. Don’t entrust it to your cell phone.

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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.

Mortgage lender in MN, WI, SD







Dangers of Dual Agency on real estate transactions

The dangers of dual agency real estate transactions, and using the same real estate agent to buy your home that is also selling the home is a little more troubling than most home buyers are aware.

It’s common to walk into an Open House, look around, and start talking to the real estate agent listing the home.  If you don’t already have your own agent, but love the home, you may be tempted to just use the agent selling the house.  While completely legal, and while it may seem OK on the surface, it is wrought with possible issues.

The first thing to know is that real estate agents commonly refer to this situation as a ‘hogger’. This simply means they get to keep all of the commission the seller is paying for themselves when they represent both the seller and the buyer. Typically when there is a separate buying and selling agent they split the commissions. On a pretty standard 6% listing fee, the listing agent would keep 3.3% of the commission, and pay 2.7% to the buyers agent. If they can double their pay, an agent might be over  incentivized to close a deal no matter what.

Many buyer think that a dual agent will reduce their commissions, saving them money. While they can do this, it rarely even happens.

But the bigger concern element is that the duty of the agent in this situation is to the seller. They have no duty to the buyer. An example would be that the agent knows the seller is willing to take $10,000 less on the house, but the agent has no duty whatsoever to tell share this confidential information with you just because you are using the same agent.

Also, without your own agent, you have no one advising you if the listing price is even reasonable. If you have your own agent, your agent will generally review similar properties to tell you if this one is priced low, about right, or high. The listing agent will likely defend the listing price as it, meaning you could easily over pay for the home.

TIP: Although you may feel like you have to make the decision whether to accept a dual agent on short notice, don’t be tempted. It’s possible to find a buyer’s agent to step into the transaction and assist you in a matter of hours. Best to always have your own buying agent. Someone fighting for YOU!

If I’ve pre-approved you for your mortgage loan, I’ve worked with hundreds of good real estate agents in the Minneapolis / St Paul area, and can easily get a great one to call you right away.

PROHIBITED BY LAW

A much lesser known, but to me more troubling issue is that when you hire a real estate agent to list your home, and the same company represents the buyer, your agent is prohibited by law to negotiate on your behalf?

WTF?

Yes, its true. It is because of a Minnesota law called ‘Dual Agency’, and companies with hundreds or even thousands of real estate agents end up having many ‘in-house’ transactions. This forces sellers to sacrifice their exclusive representation because even though you have two different agents, they work for the same company.

Before entering into any of these types of dual agency agreements, however, you want to understand the legal implications and how it might affect your ability to get the best possible deal in buying or selling a home. You’ll see dual agency notifications in the piles of paperwork you sign when making an offer, but virtually no one buying a home understands what it means.







Use lender credits to pay closing costs

Minneapolis, MN:  The biggest challenge for most home buyers, especially first time home buyers, is coming up with the required down payment.  While most people understand down payment, they are shocked to learn their are mortgage closing costs. Wose yet, is discovering how much closing costs can add up to.

Mortgage loan closing costs cover many items, including appraisal, credit report, state deed taxes, title company costs, title insurance, lender costs, and more.  Plus you also have something known as pre-paid expenses which need to be paid too, including buying your first years home owners insurance policy, and one time pro-rated property taxes, which are based on when property taxes are due, and what month you close on your new home.

While closing costs and pre-paid items are actually separate, it is very common for people to combine both of them together, and simply say ‘closing costs’.

CLOSING COSTS ARE NOT 3%

I hear it day after day after day, that closing costs are around 3% of the purchase price. This generalized statement couldn’t be more wrong!

Closing costs vary based on many factors, including the homes purchase price, state, property taxes, loan program, and the buyers choice of how to pay for them.

This misinformation comes from the fact that conventional loans only allow for a home buyer to roll into the loan closing costs up to 3% of the purchase price.

Many loan closing costs are based on the loan amount, and the rest are the same regardless of the homes price.  For example, standard loan origination costs are 1%.  So 1% of a $100,000 loan is just $1,000, while a $400,000 loan of course equals $4,000.

Items like the appraisal may be the same for both the $100,000 home or the $400,000 home. While the cost is the same for either house, the $400 appraisal fee is 1% of a $40,000 home, but only 0.10% of the $400,000 home.

Another good example are Title Company charges. Standard Title Company closing fee is usually a flat fee, but the required title insurance varies based on purchase price.

HOW TO PAY FOR CLOSING COSTS

Mathmatically, the best way to pay for your loans closing costs will always be to pay cash out-of-pocket. Realistically, especially for first time home buyers, this makes the amount needed out of reach.

Mortgage loan programs always require you bring your down payment, but closing costs can be rolled into the loan a few different way.

  1. Seller paid closing costs
  2. Lender Credit
  3. Combination of both

I dislike the term ‘Seller paid closing costs’, as many people thing the seller is paying it, and therefore it is free. The reality is that while the purchase agreement says the seller is paying, the person actually paying is the buyer. You are just paying over time.

For example, assume the seller has listed the home for $200,000. You make a full priced offer at $200,000, but your offer also asks the seller to pay the maximum conventional loan allowed closing costs of 3% ($6,000).

If the seller says YES, many people think you got closing costs for free. But think about it.  The seller actually netted just $194,000 in their pocket. So you could have made an offer for $194,000 and paid your own closing costs. The seller got $194,000 either way, but you rolled your closing costs into the loan, opting to pay the costs over time, versus up-front today.

Lender credits is another tool. With lender credits, the lender will increase your loans interest rate in exchange for reducing your out-of-pocket closing costs today.  You can choose a small rate increase with a small lender credit, all the way to absolutely no closing costs whatsoever with a much larger rate increase.

You may also see lender credits employed in a different way too.  For example, many lenders will scream things like ‘no lender fee’, or maybe ‘free appraisal’ if you use them. All they are doing is increasing the interest rate a bit to offset normal costs – but not telling you.

The most common one we see is no loan origination options, which will generally increase a 30-year fixed rate loan by 0.25%.

ARE LENDER CREDITS GOOD OR BAD?

Increasing your loans interest rate never sounds good, but does thing make lender credits bad? Think of them as a financing tool, and your personal situation?  Do you have the cash to pay your own closing costs? Maybe you have the money, but would rather use it to improve the home.  Lenders credits might still be a good choice.

Do you not have the money? Then it may be a matter of using lender credits, or not buying the home at all. In this case, a small amount all the way to complete no closing costs via lender credits may be your sole option.

Click here to apply online

We lend in MN, WI, and SD.  Equal housing lender. NMLS 274132

Lender credits







Get a gift for down payment.

Minneapolis, MN:  Looking to purchase a home in the near future?  The lack of down payment is a big hurdle for many people. But did you know you can get a gift for down payment? Most loan programs allow for a gift for either some, or all of your homes down payment, including FHA loans and conventional loans.
Gift for down payment

WHO CAN GIVE A GIFT?

The gift typically comes from Mom and Dad, but officially the rules say the gift must be from a relative. This is defined as any individual who is related by blood or marriage, adoption, or legal sponsorship.
Even a fiancee or domestic partner is OK. An unrelated person who shares a committed relationship with the recipient of the gift, and who currently resides in the same household as the recipient, AND intends to occupy the home with the recipient is also OK.

WHO CAN’T GIVE THE GIFT

The gifting person man NOT be, or have any affiliation with the Real Estate Agent, the seller, the builder, or any other interested party to the transaction.

DOCUMENTING THE GIFT

Your mortgage company will always need to document and prove the gift to verify it came from an allowable donor, and to paper trail the money.
At a minimum, both the gift giver and recipient will need to sign a industry standard gift letter that the Loan Officer will provide. It states that the gift is truly a gift, and will never be paid back.
From there, additional proof depends on when the gift was given, how it will be transferred, and what loan program will be used. Common additional items are a copy of the gift givers bank statement where the money came from to prove they had the money to give, proof that any personal checks cleared the bank, and proof that the money is truly now deposited into the recipients bank account.
Cash is never allowed.

THE GIFT FOR DOWN PAYMENT BOTTOM LINE

Gift for down payment has always been, and likely will continue to be a super popular way to come up with your down payment money, especially for first time home buyers.
When getting pre-approved, tell your Loan Officer you are thinking of using gift money. They will answer your questions, and go over the specific guidelines for gift money on the loan program you are planning to use.
Thanks Mom and Dad!







Get Pre-Approved Before You Start Looking

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.

Certified Underwriter Pre-Approved from Mortgages Unlimited, Inc
Certified Underwriter Pre-Approved from Mortgages Unlimited, Inc

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).

Certified Pre-Approval  is significantly better than a basic pre-approval, and gives you a distinct upper hand when negotiating on your dream home – especially if you are in a multiple offer situation.

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.

Get pre-Approved for your home mortgage loan in Minnesota, Wisconsin, South Dakota
No Obligation to apply, and see what YOU qualify for.