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.

 


What does it take to qualify for a home loan?

St Paul, MN: The days of the easy money, and just about everyone getting a home loan are long gone. Today, mortgage lenders are required to prove and document your ability to safely afford the house payment, and show that you are responsible with OK or better credit.

So you’ll usually need these things in order to get a home mortgage loan:

  • Enough money for the Down Payment (3% is realistically your minimum)
  • Two years of good steady employment
  • OK or better credit score (640 or higher is your target)
  • Monthly income that’s about 3 times higher than your expected monthly mortgage payment
  • Keep your debt low (especially credit card balances)
  • Any major negative item be OLD (bankruptcies, foreclosure)
Apply Online
No Obligation to apply, and see what YOU qualify for.

Don’t meet that basic criteria today? Consider these additional options.

  • Down payment assistance is potentially available (Be realistic, you can’t buy a home with no money. You will still need a few thousand dollars MINIMUM). But check out our First Time Home Buyer programs.
  • No Down payment is possible if you are active or retired U.S. Military (VA Loan) or want to buy a home in a rural area (USDA Loan), you still need a few thousand dollars MINIMUM)
  • Apply anyway. Don’t assume you can’t get a mortgage. There may be a loans option. Even if it is a not today, they can let you know where your deficiencies are so you can work towards qualifying in the future.
  • Use a Mortgage Broker. A mortgage broker represents lots of different lenders, not just the offerings of one bank. They simply have more options than banks and credit unions.
  • Get a co-signor. See if a family member or very close friend with a higher income and better credit than yours will cosign a loan for you.
  • Lack of Down Payment.  Many program allow you to get a gift for down payment from your family. You can also borrow money for down payment from your 401k
  • No proof of income?  True no proof of income loans don’t exist anymore, but you can possibly get a non-conforming loan by using your bank statement loan programs where we use your bank deposits as qualifying income. These loans come with higher interest rates, so you should always try for a traditional loan first.

Plan for the future. 

Even if you can’t buy a home right now, one fact I know, is if you do nothing, nothing will change. If you understand the guidelines and work at it, there is no reason why anyone can not be a home owner in the not too distant future. Check out my personal web site at iMortgageJoe.com


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.

 


VA Home Loans and Loan Limits

VA Home Loans

VA Loans in MN and WI
The VA Home Loan is a big thank you for your service

Minneapolis, MN: VA Loans are some of the most amazing home loans in the market. It really is a true benefit for the service you’ve provided to this country.  The major benefits of a VA loan come in two forms:

  • Zero down payment
  • No Mortgage Insurance

Zero down payment is pretty easy to understand.  Saving for a down payment is one of the biggest hurdles stopping many from buying a home.  No mortgage insurance is also huge.  Generally speaking,  mortgage loans where you do not put at least 20% down payment will need mortgage insurance to offset the lenders risk.  It can be expensive.

Take for example a $200,000 home.  On an FHA loan, you would need a minimum down payment of $7,000 (3.5%), and along with paying back the actual loan, property taxes, and home owners insurance, you would also have $213.81 in monthly mortgage insurance.  With VA home loans, that would be zero and zero! How cool is that?

VA Loan Limits

VA does not set a cap on how much you can borrow to finance your home. However, there are limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend you. The loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a down payment. These loan limits vary by county, since the value of a house depends in part on its location.

MN WI VA LenderThe basic entitlement available to each eligible Veteran is $36,000. Lenders will generally loan up to 4 times a Veteran’s available entitlement without a down payment, provided the Veteran is income and credit qualified and the property appraises for the asking price.

Lenders need a copy of your VA Certificate of Eligibility (COE) to verify your entitlement. Most experienced VA Loan Officers can obtain that for you.

Here in Minnesota, Wisconsin, and South Dakota, you can get zero down payment on loans up to $453,100.  You can get bigger VA loans too, known as a VA Jumbo Loan. This is any VA loan OVER $453,100, but you’ll need a down payment.  Contact one of our VA Loan Expert Loan Officers to determine the exact amount of down payment required for a VA Jumbo Loan.