Please check out the blog post written  on Minnesota Home Ownership Center’s blog to read the rest of the story.

Owning a home can be one of the best things you can do to invest in your future. Not only financially, but emotionally as well. I agree that is isn’t a decision to be taken lightly, but with the proper education and expectations, making a house a “home” is a positively wonderful experience.

STATEMENT BY DEPUTY ASSISTANT SECRETARY VICKI BOTT

 Tuesday, August 10, 2010

 ”Last week, FHA Commissioner David H. Stevens announced plans for implementing FHA’s new mortgage insurance premium structure. As we work to publish a Mortgagee Letter, it is our intention to announce that based on industry feedback and our desire to have this change implemented successfully in the marketplace, FHA will make the premium fee changes on all new case numbers effective October 4, 2010

“Over this past week, the industry responded with support of the new fee structure,  but voiced strong concern about having system changes ready in time to meet the original September 7, 2010 deadline. Since these system changes impact regulatory disclosures, lenders expressed they must have the additional time to implement and test systems. FHA took this feedback seriously and has accommodated the need for additional time.”

To read about the original announcement on H.R. 5981, click here.

 PENCIL PUSHING: Do the math for yourself:  6% is a pretty normal rate in a normal economy.  Just how good are rates now?  On a $200,000 loan, the difference in 4.25% and 6% is $213 per month!  The 6% rate produces a payment of $1,193 vs. a $980 payment at 4.25%, a difference of 17.85%!

 If  you are wanting to move and has budgeted $1,500 a month for principal and interest on your new home (assuming a 20% down payment), they can buy a home today in the amount of $382,500.  Compare this to when mortage rates are at 6%:  they can afford a home in the amount of $314,375!  

 So, where mortage rates are today, they can buy $68,125 more home – a difference of 21%!

 Keep in mind, this does not take into account inventory levels and the possibility of getting a great home at a much better price today than one might have a couple of years ago.  Pretty cool!!!!!!!!!!!

FHA LOANS ARE ASSUMABLE.  Think about this – five to seven years from now, when you are a home “seller,” nearly every expert in the world envisions higher, more “normal” interest rates over 6%.  An often-overlooked feature of FHA loans is the fact that a new buyer can take over the seller’s loan at the seller’s interest rate (assuming they qualify based on their income, assets and credit). 

 What that means:  If you sell an FHA-mortgaged home in coming years, with a 4.5% FHA mortgage (for example), the “competition” will be handi-capped with higher rates.  That factor alone could make your home 5-15% more valuable (especially for those buyers who are buying payment, rather than price).  Also pretty cool!!!!!!!!

 DID YOU KNOW?   Have you heard so-called “gurus” suggest that it only makes sense to refinance if you can save “x” or “y” amount of dollars? 

 Don’t let all the babble discourage you from checking things out for your own situation.   Obviously, there’s some sense in making sure that for the cost of a refinance, there are some realistic savings.   Closing costs are as varied as the rates (you can have high costs or low costs, depending on the rate chosen).   There’s also no “one-size-fits-all” mortgage, and because every borrower’s objectives are different, the bottom line is that we should run the numbers in every case to see what they tell us.

 Consider this example of many:

 -          $200,000 current loan, 30-year fixed, 5.5% – Worth it to refi?  The “gurus” say “not unless you can save 1% in rate without points.”

 -          What if you could drop to 4.5%, but had to pay some increment of point to get there – let’s assume it was $4k total costs.  By raising your loan to $204,000, here’s what the situation might look like:

 -          Savings = $101.94/mo.  What if the borrower invested that savings:

 At a 4.5% return, they will have:                   At a 6% return, they will have:

$6,782 in 5 years                                            $7,047 in 5 years

$15,271 in 10 years                                        $16,552 in 10 years

$25,897 in 15 years                                        $29,373 in 15 years

$39,210 in 20 years                                        $46,666 in 20 years

$76,698 in 30 years                                        $101,456 in 30 years

 WOW!

 -          If this represented your situation, and you listened to the “gurus” telling you not to bother refinance, you could lose up to $101,456!! 

 -          Do yourself a favor – put that $101,456 back in your pocket by calling me today!  Although I’m not promising that you will qualify for a mortgage to save exactly this much per month, I will help you save as much money as is possible in your situation.  With over 23 years of experience, I am committed, qualified and equipped to help you evaluate your options and make smart choices. 

 Contact me for more information – and call me even if you think that you might not be able to qualify for a mortgage in this credit environment – you may be pleasantly surprised. 

Ever wondered exactly what is behind an underwriting decision?  Or why some borrowers sail through underwriting, while others struggle? What does it take to get a mortgage?   Even in our world where the automated underwriting system dominates, approvals and denials all have lots to do with the 5 C’s of Credit.   Knowing the 5 C’s of credit will help you understand exactly what a lender is looking for.  I was taught to remember the 5 C’s with the fingers on my left hand.  Here’s a run-down and highlights of each “C”:

1.       Capacity – (The thumb – take your thumb and circle it around.  Of all the fingers on the hand, it has the “capacity” to move around the most.)  

 A borrower must demonstrate the financial “capacity” to handle their debt.  Looking at the borrower’s past income and employment history is a key indicator of the ability to handle future debt.  The following items are taken into consideration when analyzing a borrower’s “capacity”:

Stability – Has employment remained stable for two or more years?  Same or related field?  Has income fluctuated, or has it been consistent?

Income type – What is the nature of the borrower’s income – wages, commission, bonuses, self-employment income, or other?  What is the frequency?  Is it paid on a regular recurring basis, or is it seasonal?  Does any bonus or commission have history?  If from a source other than traditional employment, has there been a history and will it continue at least three years?

Income amount – Is it adequate to cover the proposed new debt?  Any patterns of decreasing or declining income?

Debt – Are the borrower’s debt ratios at an acceptable level?  Is the borrower too leveraged?  Does a payment shock exist?

2.       Capital – (The pointer finger – hold it up like “I’m number one” – think about when you see the winner of the US Open or another sporting event .  When you’re #1 and you have just won something, there’s likely a large payout of cold, hard cash, right?  Capital is all about cash, liquidity, etc.)

The “capital” that the borrower has on hand for down payment, closing costs, and/or reserves will impact the product choice.  In reviewing “capital,” the underwriter would consider the following:

Ownership – Does the borrower have full or limited access to the disclosed capital/liquid assets?  If not, what portion is available for the loan transaction?  Will any amount be gifted (some products have restrictions on gifted funds)?  Will the seller pay any costs (limits exist)?

Access/Liquidity – Are the funds liquid now, or will they be soon?  Is the borrower fully or partially vested?  Are there penalties for withdrawal?  Will the disbursement process be complete prior to the approval/rate lock expiration?

Questions – There are lots of questions to uncover when reviewing “capital,” including:  “Is it enough to meet the requirements for down payment, closing costs, or reserves?” “Whose is it?” “How much is it?” “When can they access it?” and “How much is left over?”

“Capital” and acceptable liquidity includes cash/brokerage accounts/retirement accounts/cash value of life insurance, etc.  These are generally documented with one to two months of statements (all pages).  Any large deposits are required to be sourced and documented.  Non-cash accounts require of liquidation prior to closing.

3.       Character – (The middle finger – imagine it being held up alone – can you see why this finger is tied to “character”?)

 I was taught early in my career that good credit is not a compensating factor – meaning, that if one wanted a loan, it was expected they should at least have a good credit score.  The borrower’s credit report should meet or exceed the credit guidelines for the product/program they have chosen.  Other evaluations of a credit report include:

The FICO score – Middle of three; lower of two.  Is it within an acceptable range for the loan program?

The mortgage payment history and other accounts – Is the number of late payments at or below the lender’s standard?  Is the borrower too leveraged? 

The number and characteristic of each open trade line – Are there enough traditional credit trade lines (non-traditional credit is not allowed these days)?  What is the depth of the report?

Public records/Bankruptcy/Foreclosure/Short sales/Modifications – Are there any?  Were they disclosed?  What is the status?  How will they affect the underwriting decision?

Inquiries – How many have there been in the past 6 months?  Did they result in new debt?

4.       Collateral – (The ring finger – get it?)

A loan is secured using the subject property as collateral.  Since the property is the lender’s protection against default, it must be structurally sound and functional.  When evaluating the collateral, an underwriter considers:

Features and Functionality – Are the features and style of the home consistent with what is available in the area?  Is the home functional, or has it been rendered obsolete by outdated features and capability?

Condition – Is the home structurally sound and visually appealing?  Is the home inhabitable or is it a dangerous contraption?  Is the home complete and appraised “as is,” or will renovations be required?

Property type/Use – Is it residential, commercial, mixed-use, a condominium, or a PUD?  Is it owner occupied, or is it a rental unit?   Is it vacant or occupied?

Subject Neighborhood – Are comparables readily available or far away?  Are there adequate comparables?  Is the property noted as being in a declining market?  Is there an over-supply of properties?  Is the marketing time over six months?   Any of these could trigger an appraisal review.

5.       Conditions – (The pinky finger – since this “C” represents “external” conditions, remember it by the pinky finger, or the most  “external” finger.)

An underwriter looks at the many documents in the loan file to determine if there are any disclosed or undisclosed factors that might adversely affect the borrower or subject property.  A few considerations include:

• Employment at a place that has had a public announcement of shutting down.
• A recently awarded divorce settlement where the borrower has to payout significant proceeds or will have a high alimony/support payment.
• A lawsuit
• An adverse change in the industry that the borrower is employed in
• An adverse change in the area where the subject property is located

MAKING DECISIONS BASED UPON THE 5 C’S – Pretty simple: If there’s an area(s) that is weak, and if it can be compensated by one or more of the other areas that are strong…you likely have yourself a loan.  However, if all areas are marginal, with no compensating factors…you may not.

We have started to forewarn borrowers of this.  One of my coaching colleagues put the following together.  It’s quite true (and relevant) … and we will be reinforcing this with EVERY new  home buyer:

THE TEN COMMANDMENTS

When Applying for a Mortgage

1. Thou shalt not change jobs, become self-employed or quit thy job.

2. Thou shalt not buy a car, truck or van (or thou may be living in it)!!

3. Thou shalt not use credit cards excessively or let current accounts fall behind.

4. Thou shalt not spend money thou have set aside for closing.

5. Thou shalt not omit debts or liabilities from thy loan application.

6. Thou shalt not buy furniture.

7. Thou shalt not originate any inquiries into thou credit.

8. Thou shalt not make large deposits without checking with thou loan officer.

9. Thou shalt not change bank accounts.

10. Thou shalt not co-sign a loan for anyone.

I have been in the mortgage industry for a long time, worked hard to help home-buyers in Dakota and Scott Counties and have overcome many challenges in the industry.  We will get through this and other changes also … As we need to remember: people still need homes (that fact has not changed).  It is up to us to help our customers anticipate problems up front and not at the end of the transaction.  THAT is the difference between an experienced loan officer and a team such as mine VERSUS those who are “practicing” on your loan. This has become the “New Normal” in mortgage lending. If you can assist us by vigilantly obeying these commandments and disclosing EVERYTHING to my team during and after the loan application all the way through to closing… You will certainly have a much more pleasant transaction.

Would you like to learn more about how to qualify for a mortgage? Contact Carrie Guarrero Today!

Carrie Guarrero is producing Regional Manager and Vice President of Cornerstone Mortgage Company in Burnsville, Minnesota. If you are looking for Burnsville real estate, contact Carrie first!

What’s a Life Plan, you ask? Don’t worry, I had to ask the first time I heard that phrase ,too! A Life Plan is a working document that you put together to help you keep your priorities in check, it is a way of living with the end in mind. Coach James Allison said, “You wouldn’t start a baseball game without knowing how you want the game to end would you? There is a clear goal, to win the game. Why would you go through life day to day without having a specific end in mind?” The Life Plan is made up of a series of Life Accounts, or areas of your life that are important to you. Basic examples are family, health, and career. You determine your accounts and make measurable goals and tasks to help improve your life in those areas. When the whole document comes together you use the Life Plan as a road map of how you want to live your life.

With the help of Coaches from Building Champions, MN Home Loan Partners of Cornerstone Mortgage is happy to now extend a fantastic offer to the readers of Know Your Home Loan. You will have the amazing opportunity to take advantage of Life Planning tools too. You can (at no cost) log on to the Building Champions website and download tools, watch videos explaining how to get started and take part in live conference calls about Life Planning.

Don’t stress, I was hesitant too…. In fact Carrie Guarrero from MN Home Loan Partners had to harass me for two years before I finally sat down and completed my Life Plan. Thank goodness she never let up! I can truly tell you that it is a priceless experience. I encourage you to check out the Building Champions site and take the time to work on a Life Plan. If you are one of those people who literally just said, “I am too busy to put together a Life Plan,” then you are one of the people who will benefit from it the most!

Yes, we are a mortgage company in Burnsville, and no, Life Planning may not be a typical suggestion from a mortgage lender. I think that is the beauty of it! We want to offer you the tools to make your life more fulfilling as well as help you get financing for that new home in Dakota County. No strings, no commitments, no cost…. We think it is that important!

Give yourself an amazing gift and check out the Life Planning Tools at Building Champions.

Good luck on taking that essential first step!

So, let’s talk about what’s here to stay:

For First Time Homebuyers

MN Housing Finance Agency Programs with lower than market 30 year fixed rates and up to $10,000 in closing cost and/or down payment assistance, plus special financing options for fixing up minor items that may need updating or repair with a unique 203K program designed with the first time homebuyer in mind.

Dakota County Bond Program still has funding available with lower than market 30 year fixed rates and up to $10,000 in closing costs and/or down payment assistance for those purchasing in Dakota County.

Minneapolis & Saint Paul City Living Programs with lower than market 30 year fixed rates and up to 2% of the first mortgage amount in closing costs and/or down payment assistance for those buying inside the city limits of Minneapolis or Saint Paul.

IN ADDITION – there are a number of programs throughout Minnesota that offer additional down payment assistance that can be coupled with the above programs. Last week, we had a client who received a total of $35,000 in assistance by combining Minnesota Housing with the City of Woodbury First Home Program. That meant the difference between qualifying for a $125,000 and $160,000 home!

These are just a few of the options available – click here to find out if you qualify today!

That’s all great, but what if you’re not a first time homebuyer?

There is still a number of loan programs that allow for minimum down payment, historically low interest rates and let’s face it, the best priced homes that this marketplace has seen in over a decade!

If you’re a vet – VA financing still allows for ZERO down home loan for qualifying Veterans. If you are recently returning from an overseas tour of duty, you may still qualify for the tax credit for a full additional year AND, even though you may not be a first time homebuyer, some of the City and County programs like the Dakota County Bond Program may still allow you to use their program!

Of course, there is the good old fashioned FHA financing option, which is NOT just for First Time Homebuyers! FHA mortgage financing requires only 3.5% down and 6% in allowable seller paid closing costs. While the 6% is slated to be reduced to 3%, it’s not yet and there is still time to take advantage of this benefit. That’s $4500 in savings on a $150,000 loan!

Call or apply now to find the best mortgage option to fit your individual needs. Work with an expert. There is not substitute for experience in the current mortgage lending environment!

Would you like to learn more about how to qualify for a mortgage? Contact Carrie Guarrero Today!

Carrie Guarrero is producing Regional Manager and Vice President of Cornerstone Mortgage Company in Burnsville, Minnesota. If you are looking for Burnsville real estate, contact Carrie first!

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• What Happens When The Goodies Are Gone?
• Dakota County CDA Announces New Rate
• Dakota County to release NEW money for First Time Homebuyers!
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• Need Money to Buy Your First Home?
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