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

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

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

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

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

 The Traditional Mortgage Loan Process

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

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

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

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

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

PRE-APPROVAL IS NOT A LOAN GUARANTEE

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

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

The Quicken Rocket Mortgage ® 

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

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

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

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

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

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

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

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

 The Big Disadvantage of Instant Online Approvals

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

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

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

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

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

The Best Move When Getting Mortgage Pre-Approved?

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

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

Click to apply online


NO documentation MORTGAGE loans AVAILABLE? No. Alternative? Yes

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

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

No documentation loans

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

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

What No Income Documentation Loans Are Available Today?

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

Common options include:

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

Bank Statement Loans

The Down Side

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

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

Expect closing costs to run higher than traditional loans.

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

The Bottom Line

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

Apply for a Bank Statement Loan

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

Click to apply online

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


Tips for MN First Time Home Buyers

Minnesota First-Time Home Buyer Tips

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

STEP 1:

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

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

Read my whole separate article on Shopping For a Lender

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

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

Step 2:

Find a Realtor.

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

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

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

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

 

Make a Home Wants and Needs Wish List.

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

Looking At Homes.

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

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

Ready to get started?

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

 


The closing costs are 3% myth debunked

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

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

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

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

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

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

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

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

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

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

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

 


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

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

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

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

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

Other low down payment options include:

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

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

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

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

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

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


Relaxed student loan guidelines makes qualifying easier

Student Loans and Mortgage Approval. What are the guidelines?

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

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

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

Student Loans. How do lenders calculate?

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

FHA Loans:

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

Fannie Mae Loans:

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

Freddie Mac Loans:

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

USDA Rural Housing Loans:

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

VA Home Loans:

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

More people with student loans now qualify

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


3% down mortgages for first time home buyers.

Just 3% DOWN PAYMENT MORTGAGES for First Time Home Buyers.

Low down payment mortgages for first time home buyers

Minneapolis, MN: Lack of down payment money is the biggest hurdle for most first time home buyers.  We eliminate that hurdle here at Mortgages Unlimited for low and moderate income buyers in MN, WI, and SD with the HomeReady Mortgage from Fannie Mae (R).

Conventional Loan – Low Down Payment Benefits:

  • More people qualify.
  • Just 3% down payment
  • Ideal for first-time homebuyers, millennials, and low- to moderate income borrowers.
  • Flexible sources of funds for a down payment, including gifts and grants.
  • Income limits as high as 170% of area medium income – no limits in underserved areas.
  • Mortgage Insurance drops off automatically at 80%, unlike FHA loans, which stays forever.
  • Avoid minor repair issues potentially associated with FHA loans
  • Standard conventional 30-yr fixed

Not every mortgage loan is right for every person or situation.  We’ll review your application to determine if this, or some other program works best for you. There is never any obligation to review your mortgage loan options.

Learn more at: http://firsttimehomebuyer-mn.com/homeready-conventional-loan.html

 


Mortgage Interest Rates are AWESOME

mortgage interest ratesIn terms of standard conventional 30-yr fixed mortgage rates, the BEST we’ve ever seen was for just a few days in 2012, when the best clients could get 3.125% – 3.25%.

Mortgage interest rates dipped back to 3.25% for a brief time back in July 2016, but since then have been hovering in the 3.375% to 3.50% range.

So what does all this mean for home owners?

It means if YOU ACT NOW, congratulations, because other than one week this past July, and one week back in 2012, you are getting the most awesome interest rates of all time right now TODAY!

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I provide Home Mortgage Loans in MN, WI, and SD and I can be reached at (651) 552-3681.

Of course rates effective at this time of this post and subject to change.  Not everyone qualifies, etc. Not an offer to enter into an interest rate lock agreement


5 low down payment home loans

5 Low Down Payment Home Loans

Minneapolis, Minnesota:  Face it, for most people, the biggest obstacle to buying a home is a lack of down payment.  Here are 5 low down payment home loan options to help you get into your own home.

Zero Down Payment

  1. VA Loans: Available for U.S. Military personal, both current and former is a no down payment loan with no mortgage insurance. By far the most amazing home loan available.  Get VA Loan information
  2. USDA Rural Development Loans: Available for those wishing to buy in rural areas. This program is no down payment required. Income limits apply. Get USDA loan information.

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Low Down Payment

  1. Conventional 3% down. This low down payment loan for first time home buyers just recently came back into the market from Fannie Mae and Freddie Mac. Good credit or better required, and must take first time home buyer education classes. Get 3% down HomeReady loan information
  2. FHA Loans: This program only requires 3.50% down payment, and is probably the most popular loan. Very flexible underwriting guidelines compared to other programs for everything from weak credit, to higher debt-to-income ratios, and shorter waiting periods than other loans for past bankruptcy and foreclosure.  Get more FHA LOAN information
  3. Down payment assistance programs: Combine one of the standard loans with a down payment assistance program to ease your out-of-pocket expenses to get into a home. Most of these programs are loans that need to be paid back, require you to be a first time home buyer, and to take home buyer education classes. Program vary greatly by city, county, state, or community programs. Talk to a Loan Officer in your area for local program information.  Learn more about down payment assistance programs in MN.

 


Get pre-approved, not just pre-qualified

Everyone knows it is smart to get lender Pre-Approved before starting to look for a home, yet many people are actively looking at homes thinking they are Pre-Approved, when in reality, they are only Pre-Qualified.

Pre-Approved or Pre-Qualified? So what is the difference?

welcome2_FTHB_1As a Loan Officer for over 20-years, I can tell you story after story of people who thought they were Pre-Approved, signed a purchase agreement, gave notice on their apartment, only to be told a week before closing that they were denied.  The vast majority of these people, calling me to see if I can magically help them had two big items in common:

  1. They applied at a bank or credit union
  2. They NEVER supplied the lender with all (or even any) basic supporting documents up front.

Simply put, if you didn’t supply current pay stubs, bank statements, W2’s, and Tax returns, YOU ARE NOT PRE-APPROVED – No matter what they tell you!

Looking to buy a home in Minnesota, Wisconsin, or South Dakota? Don’t have your dream fall apart at the last minute, get properly Pre-Approved for a home loan today.

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Finding the Best Mortgage Loan Officer

Minneapolis, MN:  Buying a home for most people is the largest financial transaction of your life. Finding the Best Mortgage Loan Officer  that is licensed, educated, experienced, professional and ethical is probably the most important decision you’ll make next to actually picking out that perfect dream home.

Most people these days pick their mortgage company one of three ways:

  1. Calling the bank where they have their checking account
  2. Going with whomever the Realtor suggests
  3. Online search (but usually only for the person quoting the lowest rate)

None of these in and of themselves are right or wrong, but here are some tips to know and understand:

First, understand that the mortgage company or bank that you choose in most cases has little to do with the success of your transaction. Essentially all mortgage lenders have and offer the same basic programs with the same underwriting guidelines. FHA loans for example are FHA loans no matter who you call, so in most cases, there is nothing special that one lender has over another.

Yet for others, there can be some differences, especially if you are on the edges in terms of loan approval. For example, a big bank with the stagecoach in their logo will not offer FHA loans over a 45% debt ratio, while some mortgage brokers (like us) will go to 50% debt-in-income ratio. This is a good example of why a mortgage broker may be a better choice, as they offer the products of multiple lenders, as opposed to just their own.

Using this one example, you may have lost out on your dream home simply because you chose the wrong lender.

Licensed Loan Officer Versus Simply Registered:

All mortgage Loan Officers must have a tracking / registration number known as an NMLS number. But having this number does NOT mean the Loan officer is licensed, or experienced.

Loan Officers at banks, credit unions, or mortgage lenders owned by a bank or credit unions can be, but are NOT required to be licensed in any way. Loan Officers at non-bank mortgage companies or brokers ARE REQUIRED to have an individual mortgage license.NMLS Consumer Access

You can check if your Loan officer is simply registered, or fully licensed by searching them on this public web site:  www.NMLSconsumerAccess.org.

At the bottom of the page, under licenses and registrations, there will either be one or more states listed, which means the person is licensed. If it indicates something similar to “Federal National Mortgage Originator”, this is a fancy name that means they are NOT licensed.

Being licensed versus simply registered does not automatically indicate if a Loan Officer is a good choice or not, but if one was doing the largest financial transaction of their life, I’d probably lien towards someone who has had to take schooling, pass state and federal testing, and is required to complete continuing education each year to be licensed, versus someone who didn’t have to do any of those things to simply be registered. Heck, even your hairdresser needs a license!

Using this example, you may have lost out on your dream home because of the the unlicensed, and inexperienced Loan Officer you chose.

Understanding Closing Costs and Interest Rates

Not only do most lenders only offer the same underlying loan products as everyone elsemortgage closing costs (Fannie Mae, Freddie Mac, FHA Loans, VA Loans, USDA Loans), but they all have the same underlying closing costs,  get the money to lend you from the same source, and interest rates are based on the same bond market everyday.

This is why you’ll notice all standard rate quotes are almost identical. This is why you’ll notice all closing costs quotes are almost identical.

All lenders have the same actual closing costs; appraisal, credit report, state deed taxes, county recording fees, title company charges, underwriting, origination fees, etc.  However, how lenders charge them to you can vary, and this is tied directly to your interest rate.

For example,  assume your shopping, and one lender says your closing costs are $5,000, and the next says $3,500. The lower price sounds good, and that would be true if the rates were the same. But they almost never will be.

More overhead equals higher rates

Advertising and buildings are expensive. The previously mentioned “Quick” lender for example advertises all day everyday on all TV channels, and radio stations all across the country.  You can’t go anywhere on the internet without seeing one of their advertisements.

How much does all that cost?  Must be millions. You are foolih to think that higher cost isn’t passed along to you in terms of the interest rate they charge you.

Sames with the big lenders with branches everywhere, and paying hundreds of millions for stadium naming rights.

Lender Credits

Lender credits towards your closing cost is a tool lender use to lower your out-of-pocket closing costs up-front by slightly increasing your interest rate. Mortgage interest ratesBy doing this, the lender requires less initially because they make it up by collecting more in interest over time.

Some lenders start right out of the gate by saying they don’t charge origination, or maybe they will pretend to pay for things like your appraisal. Someone is paying those items, and it is always you.

Now there is nothing wrong with taking a slightly higher rate to lower costs today. We do it all the time. But just understand that you are still paying for those costs, just in a different way.

Look at this 30-yr fixed screen shot from today for a $200,000 loan. At 3.875%, lender would charge $750 in discount points to “buy” this lower rate, but at 4,125%, lenders would reduce your closing costs with a lender credit of $2,250. The monthly payment difference between the two rates is $29.00.

Internet Lenders

There is nothing an internet lender can offer you that the local mortgage lender down the street can’t offer. They do not have lower rates, they do not have lower closing costs. But there are many things the internet lender can’t offer.

One big item is local knowledge, and dedication to the community. Some kid working in a cube in Detroit, MI could care less about my back yard or Minneapolis, St Paul, MN.

I constantly get phone calls from people who started a mortgage application with a big internet lender, who is “Quick In” mortgage.  They complain about high pressure sales, lack of product knowledge, mandatory up-front fees, failed closings, and more.

I also get a lot of calls from people who filled out an inquiry form at places that “Lend from a Tree”. Funny and cute commercials about applying in your underwear, but this place isn’t even the lender.  Rather, they take your name, then sell it to as many real lenders as possible for around $40 a lead. You are then inundated with calls from all these lenders trying to one up the other with false and misleading promises to get you to use them.

Big out-state internet lenders also NEVER have the ability to offer any state of local first time home buyer, or down payment assistance programs.

Using this example, you may have lost out on your dream home because you picked an out-state internet lender who doesn’t offer all the loan products available in your area.

Realtor Referrals

In theory, a Real Estate Agent referral to a Loan officer should be something of value, but not always. This is essentially because there are two underlying types of referrals.

A referral because the Real Estate Agent has worked with the Loan Officer for a long time, and knows them to be a licensed, knowledgeable, experienced mortgage professional looking out for your best interests. This is a good referral.

A referral because the Loan Officer works for the same company, or otherwise is heavily influenced by the owners of the Real Estate Company to refer to a specific lender or internal Loan Officer simply because it makes someone else money regardless of the qualify of the Loan Officer.

While not automatically bad, the second type of referral is highly suspicious. Tips to this type of referral are that the Loan Officer works for the same company, they share office space, or if you have already told your Real Estate Agent you have a lender you are happy with, and they become pushy or start talking negatively about your choice to get you to go to their choice.

The Bottom Line

As you can see, your Loan Officer choice is important. Ask questions, get answers. Just because someone refers, they advertise a lot, or appear to be quoting a super low rate or closing cost doesn’t mean they are the best for you, or that you shouldn’t shop or get a second opinion.

Take the time to pick a great lender, just as you take the time to pick the perfect house.

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Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Mortgages Unlimited. He was named the 2014 Minnesota Loan Officer of the Year, and #98 of the Top 100 Loan Officers in the Nation for 2015 by Origination News. He provides Home Mortgage Loans in MN, WI, and SD. He can be reached at (651) 552-3681


Home ownership IS cheaper than Renting

Owning is cheaper than renting

Minneapolis, MN:  The debate continues.  Is owning a home more affordable than renting.  New data is in showing that for most people, yes, owning appears to be cheaper than renting.

A survey by the big online company that starts with a Z and rhymes with Willow (I’m not a fan, so I don’t like to use their name) found on average, Americans spend about 15% of their income on a home mortgage loan, while renters that live in the nation’s largest cities spend around  30% of their income on just their rent.

Conventional wisdom says housing debt of 30% of your income or less is deemed affordable.

The report also looked at other issues effecting homeownership, and found that, just like in the past, coming up with down payment is a challenge for many, and that 13% of home buyers in 2014 got their down payment as a gift from relatives.

Many people are not aware that most home buyers DO NOT need a 20% down payment.  Conventional loan programs allow for as little as 3% down payment, and the popular FHA home loan only requires 3.5% down payment. If you are US Military, a VA loan is a no down payment loan. If you are looking to buy in rural areas of the country, the USDA Rural Development loan is also a no down payment loan.

Only if you live in a “high cost” are of the county where even the most modest home costs over $417,000 will you maybe need a larger down payment.

Many areas and potential home buyers also qualify for First Time Home Buyer programs, like the Minnesota Housing Finance Agency Start Up program, here in Minnesota where I am, that will typically loan the new homeowner a big chunk of their down payment money. The program here only requires the buyer to have $1,000 of their own money to buy a home.

Sadly, many renters THINK they can’t afford a home, when statistics tend to prove otherwise. Between small down payment requirements, gifts from relatives, down payment assistance programs, and even taking money from your 401k program for down payment, most people CAN make home ownership work.

Another challenge is debt.  Many talk about student loan debt killing home buying for millennials.  As a Loan Officer, I simply don’t see it.  What I DO see is first time home buyers needing to get back to reality in their home purchase. The term starter home needs to return to the lexicon of home buyers.

Your first home needs to fit into the reality of your income and debts. Therefore, your first home may not be your dream home.

Credit is the final challenge.  If you pay your bills on time, you should be just fine.  If you don’t, you need to get that corrected first. Realistically, you need to have a middle credit score of 620 or higher. If you have poor credit, you will need to work on improving your credit first. There are NO bad credit loans available.

 

ARE YOU READY TO BECOME A HOMEOWNER

All mortgage loan applicants need to meet some basic requirements:

– OK or better credit history.
– Stable employment
– Buy a home you can safely afford (known as debt ratios)
– Have some money in the bank

If you are realy, contact a local mortgage broker in your area.  Give them a complete mortgage application, and let them zero in on what programs you qualify for, how much house you can afford, what the payments will look like, and how much money you will need to pull it all together.

If it all looks good, you’ll be put in contact with a local expert Real Estate Agent, who will help you select that perfect home.


Mortgage loans. Why all the paperwork?

Mortgage loans – Why all the paperwork?

Loan PaperworkAs a Loan Officer serving Minnesota, Wisconsin, and South Dakota, I am constantly asked why is there so much paperwork required to get a mortgage loan today. It seems that the lender wants to know everything about you these days, and you would be correct. Your mortgage lender does want to know a lot about you.  If you were to give a complete stranger a huge loan, for a 30-year commitment, what would YOU want to know about them?

To make it feel worse than it really is, from about 1999 until 2007 during the housing boom, there were many programs available that allowed for limited documentation, or even no proof of income. Many people took advantage of those programs. Unfortunately, a large number of those people were allowed to bite off more loan than they would have been allowed if they proved income, contributing to the real estate collapse starting in 2007.

Loan Documentation Requirements Today

No one wants foreclosures and bad loans. It isn’t good for the home buyer, the neighborhood, or the economy.  For that reason, mortgage companies need to verify and double check everything on the application, and to make sure you are a good risk.

There are three very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.

  1. The mortgage industry was a bit too trusting in the past. Lenders for example asked for a pay stub, but we took what you provided at face value, and there was no double check. This allowed fraud to become rampant. How hard would it be to scan a W2 that said you made $30,000 a year into a computer, then use Photoshop to change that the 3 to an 8, and now you make $80,000 a year income.
  2. Even without fraud, during the run-up in the housing market, many people qualified for mortgages that they realistically could never pay back. The government has mandated new guidelines that now demand that the mortgage lender  prove beyond any doubt that you are indeed capable of affording the mortgage. The rule is called ATR, or the “Ability to Repay” rule. So no more stated income, or limited income loans.
  3.  The lenders have never wanted to be in the real estate holding business. Since the collapse, lenders suffered huge losses that came close to destroying the economy, and were were forced to take on the responsibility of liquidating millions of foreclosures,  and negotiating millions of more homes in short-sales.

The Good News About Mortgage Loans

The friends and family who bought homes ten or twenty ago experienced a simpler mortgage application process. If you got a loan ten to 20-years ago, yes, it was easier. But at the same time, if you never experienced that in the past, your fame of reference is that it really isn’t all that difficult today.

Instead of complaining about the paperwork required, be thankful that that you can get a loan, and get it at these amazingly low mortgage interest rates.


Danger of automated mortgage pre-approval sites

It’s 2015.  I understand the daily advancements on computers, technology, and convenience. Popping up all over are sites that that claim the ability to “allows home shoppers to get pre-approved quickly and easily.” Instant pre-approval sounds cool.

But when it comes to home buying, potential home owners should be extremely wary of trusting any web site offering automated mortgage pre-approval tools.

The Traditional Mortgage Loan Process

The traditional process is you complete a loan application. ffA real live person reviews the information, talks to you about your situation, uses knowledge and expertise to explore all avenues and issues.  Then your file is run through one of the major AUS (automated underwriting system) of Fannie Mae, Freddie Mac, FHA, etc.

This AUS process only takes a few minutes, and the lender is provided with an answer to your loan application.  So if the computer says YES, you are good right?  NO, not even close.  This is just the first step.

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

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. 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.

But it is the little nuances that even trip up less experienced Loan Officers, who unknowingly issue worthless pre-approval letters.

I was recently contacted by a client who had one of these instant pre-approval letters.  They had bought a home, and there application was now being fully underwritten by the lender. Just days before closing, underwriting was denying the file. The buyers big question, is “How can that be?  I was Pre-Approved?”

The issue in this case, was the income number the buyer input into the system was 100% correct. But the buyer was a 1099 contractor, not aW2 employee, who had only been with this company about 6 months. In the mortgage world, short-term contractor income is not allowed as qualifying income.

Did you know this? This is just one example. Could you be running around with an invalid pre-approval letter based off of income not allowed? You you make an offer, give notice on your apartment, and then possibly be homeless?

Your largest financial transaction of your life is too important to trust to just anyone, let alone a computer, without wisdom and input from a licensed, experienced, and professional Loan Officer.

Zillows New Pre-Approval Tool

Zillow recently announced a semi automated tool where potential home buyers enter very basic information. If they like the results, you continue by entering your name, email, and phone number. Your information is then sent immediately to the lenders in Zillows Mortgage Marketplace, who will get your information, pull your credit, and send you a pre-approval letter.

I don’t know about you, but the last thing I want to do is have my information shared with 5, 10, 20 lenders, who all pull my credit, and have my personal information. I don’t want that floating around with a bunch of unknown people.  I also don’t want to be contacted by a bunch of meal time calling aggressive lenders who just paid money for my “hot lead.” And I haven’t even started about potential identity theft.

The Best Move When Getting Mortgage Pre-Approved?

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

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 Joe Metzler is a Senior Mortgage Loan Officer for Minneapolis Minnesota based Mortgages Unlimited. He was named the 2014 Minnesota Loan Officer of the Year by the MN Mortgage Association, and was ranked #98 of the Top 100 Loan Officers in the Nation in 2015 by Origination News. He provides Home Mortgage Loans in MN, WI, and SD. He can be reached at (651) 552-3681


The importance of Mortgage Lender Pre-Approval

The Importance Of Full Lender Pre-Approval 

Initial mortgage loan pre-qualification and full lender pre-approval are two of the most important steps you can take towards owning a new home. In most areas, Real Estate Agents either won’t even show you homes, or for sure, will not let you make an offer on a home without a full lender pre-approval.

Basic Pre-Qualification

house_from_wordPre-qualification is the first step to securing a home loan. Essentially, it is an initial “how do you look”, and “feels good” start.  Pre-qualification is quick and involves answering only a few questions about your income, existing debt and accumulated savings. It is also important that we discuss your long-term financial objectives. With so many loan options available, we want to select the one that meets your goals. With this information and your consent, lenders can access your credit report and begin to determine which loans you may qualify for, how much house you can afford, what the payments might look like, and how much money you will need to make it all come together.

Full Pre-Approval

Full pre-approval is the next step up up from basic pre-qualification. In this step, the lender verifies your basic supporting documentation, like pay stubs, W2s, tax returns, and bank statements. Upon review, the mortgage lender will provide a written Pre-Approval Letter. While never a loan guarantee, this is written documentation showing that a lender have taken an application, reviewed your documents, and believes once you find the exact dream house, you will make it all the way through the underwriting process.

If you’ve never given any documents to your lender, you are NOT pre-approved.

With a pre-approval in hand, you can shop almost as a cash buyer! This gives you strong negotiating power because the seller will take your offer more seriously. A lender’s pre-approval will often convince the sellers to accept a lower offer for the home because they know the financing is in place and the deal is safe.

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Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Mortgages Unlimited. He was named the 2014 Minnesota Loan Officer of the Year, and was ranked #98 of the Top 100 Loan Officers in the Nation by Origination News. He provides Home Mortgage Loans in MN, WI, and SD. He can be reached at (651) 552-3681



How Mortgage Rates Change

Minneapolis, MN:  Many people believe that if you call around to enough lenders, that you will find someone offering a great deal.  The reality is that it doesn’t really work that way.  We generally say that if you call around to enough lenders, you might find the biggest liar.

Are All Lender Essentially The Same?

First understand that for all your traditional loans; FHA, VA, Fannie Mae, and Freddie Mac loans, which encompass the vast majority of all mortgage loans done in this county, every mortgage lender follows the same rules, have the same underlying costs, and set rates based on the same thing.  If my rates go up, so do theirs.  If my rates go down, so do theirs.

worth_balanceEver notice that most of the time, when purchasing the same item at Target or Walmart, the price is virtually the same thing.  Maybe just a tiny difference?  The same thing goes with mortgage loans.

Are there minor differences in mortgage companies rate?  Yes, but generally, the difference between the best and the worst on any given day is about .25%, and really only has to do with overhead, not one being able to really offer something better.

If my cost is the same as their costs, but they have to pay for advertising on all TV channels, radio stations, and all over the Internet.  If they have to pay for stadium sponsorships, and the brink and mortar buildings on every corner, but I don’t… Who do you think can then offer better deals?  Yes, it is that simple.

So What Changes Mortgage Rates

Long term fixed rate loans, like Conventional fixed rate loans and Government back VA Loans and FHA Loan lenders all set their rates based on the pricing of Mortgage Backed Securities.  These mortgage bonds are traded in real time, all day in the bond market.

This means rates or loan fees (mortgage pricing) moves constantly throughout the day, being affected by a variety of economic or political events.  The bond market most days trades in a small zone. So the mortgage rate the lender sets in the morning, is usually good all day long.  But sometimes, the bond market has bigger changes though out the day, meaning a mortgage lender could potentially change rates during the day, sometimes even multiple times in one day.

This can be very frustrating for mortgage shoppers.  You call this morning to get a mortgage quote. Quote in have, you talk to your spouse about it, calling back in the afternoon, just to get a different quote.  Sometimes this change is in your favor.  Sometime it is not.

Therefore tracking these securities in real-time is critical. When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up. Click this link to track our live mortgage rates for MN, WI, and SD.

Working with a mortgage loan officer who knows and understands the mortgage back security market, someone who can help you understand when to lock your interest rate, or if you should float your interest rate it critical.

I am one of those Loan Officers, not just your typical Loan Application Clerk.  I lend in MN, WI, and SD.