Minnesota mortgage and home loan info for first time buyers, MN down payment assistance and more
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I just finished an interview with Trisha Volpe of KARE 11 for a story they are running tonight at 6:00 (8/06/10). The basic focus is that it can be difficult for even well qualified buyers to get approved in today’s market because of the appraised values and deeper scruntiny.
Hopefully I won’t come off like an idiot 
This article first appeared on the web site for the radio show Sweet Home Minnesota.
A Strategic Default is when someone can afford to make their mortgage payment but still chooses to walk away from the home because of their negative equity position. Usually they call their Get-a-way a “business decision” just like a bank would make and move on without too much moral hand-wringing. The concept of Strategic Defaults has continued to gain more media coverage, which is making it more social acceptable as an option for home owners to consider.
We have talked on the show about how this is one of the great risks to the housing market in 2010. If people begin to have a widespread acceptance that not only is it okay to walk away from the mortgage payment even if you can afford, but it is in fact “good business” this would have a drastic impact on the market. This is especially true if, as some reports say, up to 25% of all mortgages are upside down in America.
Mortgage giant Fannie Mae finally stepped out of the darkness on this issue. They have stated two really important things in regard to Strategic Defaults:
1. If your home goes into foreclosure and they determine that it was for reasons within your control (in other words there weren’t health issues or a job loss) you will not be eligible for a new mortgage from Fannie Mae for 7 years. Since Fannie Mae has traditionally been the biggest supplier of mortgage money, that means quite a lot.
2. If you choose to “walk away” from your home that you could still afford, and ff you live in a state that allows them to come after you for the loss, they will now come after you. Before, this was not an area Fannie Mae was putting much effort into, mainly because of a lack of staffing. Now that they grasp the potential danger to the market place they are rushing in, guns pulled and ready to blaze away to knock down this idea before it gets any more traction.
This becomes all the more important to Fannie Mae as they begin another “new” push to get lenders to work harder on making short sales come together to sell these underwater homes rather than just have people walk away from them. For once, one side of the policy team seems to be paying attention to what the other side is trying to do. Now we just have to wait and see if the genie is already out of the bottle with the idea. Fannie Mae must hope that people are afraid of getting the 7 year ”hammer” is enough to keep the getaway car in park.
On Wednesday, June 30th the Senate passed a bill to extend the closing date deadline until September 30th for buyers eligible under the tax credit program. This bill matched up with a version passed through the House the previous day.
No New Buyers Qualify
This extension didn’t make it possible for any new buyers to get into the program, which carries a tax credit of $8,000 for first time buyers and $6,500 for qualified repeat buyers. The original program required a buyer to have a completed contract negotiated by the end of the April and to have that transaction closed by the end of June. All this new bill did was push that extension date back until the end of September 2010. The three main groups of buyers that would benefit from this were any buyers still waiting to hear if their offer on a short sale home had been accepted or for buyers purchasing new construction homes that were not able to be completed prior to the end of June and the third group were those buyers whose mortgage company couldn’t get their loan approved in time to close before the end of the month.
How Important Was this Extension?
Opinions vary widely on this. When a deal goes to close it goes through a title company. Based on how busy the title companies were the final few days of the June, this wasn’t that big of a deal. Many title companies reported having openings to fit in any last minute rushes. Part of that was because buyers, Realtors and mortgage companies worked well with the title companies to get many of these deals closed earlier in the month to avoid nightmarish hold ups. But, the other reality is the impact of this tax credit expiration was not as big as when it was originally going to expire in November 2009.
This is a great video to show the impact of refinancing your home loan right now. Rates are under 5% for a 30 year mortgage in Minnesota, if your Mortgage Interest Rate is over 5.5% you should call me to see if refinancing is a good option for you! If you are a first time home buyer in Minnesota or you are moving up to a larger home now is also a great time to act with very low rates have a huge impact on your monthly payment.
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If you are first time home buyer in Minnesota I have something you need to see. I have obtained an updated list of all the special first time buyer programs available in the Twin Cities. There are fifteen of them, including several from Minnesota Housing, whose products I have used and endorsed for many years. MN Housing is now a partner on my radio show, Sweet Home Minnesota as well. You can listen to Mike Haley from Minnesota Housing talk about all the special home loans they have to offer when he is live on the air with us–usually 1-2 times a month.
I also have an updated list of all the down payment assistance programs available in the State of Minnesota. There are over fifty of them. The assistance comes in many forms: grants, zero interest rate loans, loans with low rates and even down payment assistance loans that disappear after several years.
The first time home buyer tax credit may have gone away, but there are still great reasons to buy your first home in Minnesota. In the past two weeks I have used these very programs to help people buy homes in Richfield, Shakopee, Minneapolis, Bloomington, Savage, Apple Valley and Eagan. These are great loans if you qualify for them.
Also, I have recently been named co-chair of the Affordable Housing Committee for the Minnesota Mortgage Association. As part of this role, I will help lead a group of industry experts in trying to decide what are the best next steps to help people, especially first time buyers, purchase a home given all the changes in the market. If you have any ideas for this, please use the form below to email them to me. Any insight on the challenges you see facing first time buyers and people with low to moderate income would be hepful to us.
If you would like to receive either of the Special Mortgage Programs or Down Payment Assistance lists, please use the email form below to given me your information. This offer is FREE and comes with a no hassle promise. I’ll check in with you after I send you the list of down payment help in Minnesota | MN, but that’s it. No pressure to do anything more than that.
Please specify in your email if you are looking for just the special home loan programs list or the down payment help guide or both.
The million dollar question for thousands of home buyers in Minnesota is “How long after a short sale do I have to wait before I can buy a home again?” There has been a lot of confusion about the answer to this question.
Fannie Mae announced their updated guidelines related to this on April 14, 2010. Rather than making one longer waiting period for everyone they took a more intelligent approach. Basically, the more money you have to put down to buy the new home, the sooner you can do it.
This should cause people to take a good, hard look about whether they should just dump their home on the market.
The following guidelines apply to someone who had a short sale, a pre-foreclosure sale or a deed-in-lieu of foreclosure.
These time frames assume that you have re-established credit. This would usually require that you have at least 3 lines of credit (loans, credit cards, etc.) on your credit report with at least a 1 year history.
There can be exceptions due to extenuating circumstances such as job loss or medical problems. If a home buyer fit into one of these, they would be allowed to buy a home again after 2 years with a 10% down payment.
These guidelines begin to apply in Minnesota and throughout the rest of the country starting July 1, 2010.
These rules apply only to Conventional loans. The loans funded with money from Fannie Mae, and I assume Freddie Mac will come out with matching rules. FHA and VA loans remain separate.
The people who certainly aren’t helped by this are those that struggled to get into a home in the first place. Their ability to come up with 10-20% after a couple of years is not great. In some ways it’s like the bank bailout–those with money get to live to see another day and those further down the financial food chain just get stuck.
Some might feel that it is bad from socio-economic standpoint that there is some class discrimination. But the hard truth is the rules got way too loose which created this mess, so requiring people to put more skin in the game the second time around is sound. When they look back at this a decade from now, it will probably work out that someone who sold on a short sale walked away from more debt than the cash they will need to come up with for a down payment a few years later. As long as there can be exceptions for extenuating circumstances the rule is fair.
Have a question? Use the form below to email me.
The City Living program is a joint partnership between the cities of Minneapolis and St. Paul to make it easier for home buyers, especially first time buyers, to purchase a home in either city. The program has a great interest rate and can provide down payment assistance too.
The down payment assistance for the City Living program is 2% of the loan amount. Since most people are using an FHA loan to buy right now, and the FHA loan has a down payment requirement of 3.5%, this assistance really helps. Buyers receiving the down payment help would then only need to come up with 1.5% from their own money. On a $150,000 house this means you could buy a home for about $2,300 out of your pocket assuming you negotiate for the seller to pay your closing costs.
I met with some clients tonight and when we were done structuring their deal they bought their first home for less than $3,000 out of pocket. They were thrilled. They admitted that coming in to the meeting they had no idea how they could buy a home. So, to leave our appointment ready to go was a great feeling for them (and me).
The amazing thing to me is that right now they are paying $1,100 a month in rent. Their total payment on their new $145,000 home will be less than that!
Where Can You Come Up with Down Payment Money?
Many buyers have been good about saving money over the past year or two. If you have a plan you can save up $3,000 pretty quickly.
Most people have at least a couple of thousand dollars in their 401k accounts. If you have $5,000 in your 401k you can normally take a loan out for half the value so you could get $2,500 freed up for a down payment.
When the amount of money you need is so small, it’s often possible to get a gift from a family member to help you buy your first home.
Programs like City Living play a key role in helping first time buyers find their dream of owning a home in Minneapolis and Saint Paul. If you are looking to buy your first home in either city, get in touch with me to see if you qualify. There are restrictions, such as income limits, but they are much higher than most people think–over $90,000 for many people.
As of March 1, 2010 Minnesota Housing (MHFA) raised their income limits for first time buyers using their Minnesota Mortgage Program. First time buyers are now able to earn up to 100% of the Twin Cities area median income. This means a household of 1-4 earning $83,900 or less is now eligible for the Minnesota Mortgage Program. In the past, Twin Cities first time buyers were limited to 80% of the median income, which meant a cap of $67,200 until the change.
This change means thousands more first time home buyers may be eligible for the Minnesota Mortgage Program through Minnesota Housing.
Typically the interest rate for the Minnesota Mortgage Program has been about 0.50% lower than standard mortgage rates. On a $200,000 purchase this would save a first time home buyer about $60 a month in payment. First time buyers could also use this lower rate to purchase about $9,000 more home using this program compared to the payment they would have using a standard mortgage.
If you are a first time buyer in the Twin Cities you want to check with me to see if you meet all of the eligibility requirements. Don’t pay too high of an interest rate because you are working with the wrong lender. Be sure to chose a mortgage professional that specializes in working with first time buyers in the Twin Cities.
The 2010 City Living program for first time home buyers in Minneapolis and St. Paul was rolled out today. There are two options on this program, just like there used to be for anyone familiar with the program. For either option the buyer can get a FHA or VA loan–no Conventional mortgages.
Option 1 is a 30 year fixed rate loan at 4.75%.
Option 2 is a 4.99% 30 year fixed rate loan that also provides down payment assistance of 2% for the home buyer.
The 2% assistance comes in the form of a second mortgage, but if you live in the home for 7 years, the loan is forgiven–it would no longer need to be paid back. (You must be living in the home this entire time–can’t convert it to a rental home).
This program is only available for first time buyers (or those qualifying under the Veterans Exceptions). A first time buyer for those of you who don’t know the rule, is someone who has not owned a home they have lived in during the previous 3 years. If two or more people are buying together, all of them must be first time home buyers.
There is a minimum credit score of 620, there may be an option for people who have no credit score.
Programs like these always have income limits, so the people who need help the most can get. The limits are the following:
in Non-Targeted Areas:
in Targeted Areas:
The property can be a 1-4 unit, existing single family home, townhome or FHA approved condos.
The maximum sales price is $376,870.
This is a great program for first time home buyers who want to buy a home in the city limits of Minneapolis or St. Paul (not West St. Paul or South St. Paul). A standard FHA loan requires 3.5% down payment, so this program can take care of more than half of that, which can really help first time home buyers in the Twin Cities of Minneapolis or St. Paul.
To apply for this loan you can visit my secure web site www.MNHomeLoan.com and click on the Apply Online tab.
This past week one of the three titans of mortgages, Freddie Mac, announced they agree with my assessment that mortgage rates will be going up in 2010. Now I am only waiting for Fannie Mae and FHA to announce that they think I am right too. (If you didn’t notice my name in any of these announcements, I am sure it was merely a slight oversight or typographical error). Here’s a link to the Washington Post article about Freddie Mac’s announcement.
I have mentioned numerous times that I expect rates to be 0.5-1.0% higher by the middle of 2010. There are two main reasons rates will be higher.
First, the Government will have pumped about $1.25 Trillion dollars into buying up mortgages when it’s current program expires in March of 2010. They have already extended the program once (they did not increase the amount being purchased at that time) and have made it very clear they have no plans to extend it again. (I am using the term “Government” in this case to refer to the efforts of both the Federal Reserve and the Treasury Department).
The amount of money pushed in by the Government has been credited with reducing rates about 0.5% currently. Indeed, within days of originally announcing the program rates dropped this amount and have only drifted lower since. So, when that money is no longer in the market, it is only logical to assume rates will return to their normal place–higher.
Second, financial markets will continue to return to a more normal state. When that happens, investors will be looking to place their money where they feel it will get the best return instead of where they are least likely to lose money–which drove many of their decisions in the past fifteen months.
As the Government continues to sell Treasury debts to finance our deficit they will likely have to start paying out higher rates of return to attract the investors and their money. Treasury debts are the primary competition for mortgage backed securities. So, mortgages will also have to pay out higher rates to attract investors. The only way they can do this is to charge higher interest rates to the new mortgage borrowers.
What does this mean if you are considering buying a home in the Twin Cities or refinancing a home you already own? If you are looking to buy, you need to realize that every time rates increase by 0.5% your buying power goes down $10,000. By that I mean that if you kept the same monthly payment but used the higher interest rate the loan would be for about $10,000 less. So, if rates increase by a full 1%, then you would lose $20,000.
Losing $10-20k in buying power obviously makes a big difference in the types of homes you can consider buying and still stay in your price range. You would be forced to either buy a smaller home (less bedrooms or bathrooms) or switch cities or neighborhoods you are considering purchasing a home in throughout the Twin Cities.
If you are refinancing, that 0.50% can easily be the difference between whether or not you should refi your loan. Currently I am refinancing clients that have a FHA loan to 5.25% rate and being able to pay all of their closing costs for them. This allows them to drop their monthly payment without needing to pay any extra money to close the new loan and they do not need to increase the size of their mortgage in order to finance closing costs in.
If you hope to do something with a mortgage in the next four months, you should get started today. Shoot me an email and we’ll get you started. You can reach me at agrebis@bellmortgage.com
