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What’s a mortgage?

A mortgage is a loan that is used to finance the purchase of your home. It consists of 5 parts: collateral, principal, interest, taxes, and insurance. As a lender, we offer a wide range of loan products, so make sure to ask which product can work best for you.

It’s always important to keep an eye on interest rates. Mortgage rates matter. Just one-eighth of a point in interest percentage could end up costing you thousands of dollars over time. As mortgages rates rise, purchasing power falls. In fact, just a 1% rise in rates cuts 10.75% from your purchasing power.

What about my credit score?

When you’re serious about buying a home—and looking to qualify for a mortgage—credit matters. Lenders take a long look at your credit scores, and those numbers determine the options available to you. If your credit score is below 680, or you have credit blemishes or little equity, it can drive up the cost of a mortgage. Boosting your credit score before you apply for a loan can help you get a better rate, and we’ll cover ways to pull that off. We look for good credit scores and the absence of bad credit marks.

Payment history is the greatest factor in your FICO credit score, accounting for 35%. The other factors are amounts owed (30%), length of credit (15%), new credit (10%), and types of credit (10%). Maintaining good credit isn’t always easy, but there are steps you can take to keep a healthy score. I am happy to work with clients to guide them on a sound path to better credit. If needed, we can recommend credit repair services that specialize in helping you repair your not so good credit.

What can I afford?

I had a first-time buyer who wanted to purchase a home in Brooklyn Park in a specific price range. He had a lot of questions as we talked on the phone. The most common question from clients is “what can I really afford?” I enjoy teaching Learn about programs that can help. I said the first step is that we need to meet face to face since this is one of the biggest decisions in your life. Once we established needs and wants we set up a step by step plan to achieve homeownership. He closed on his house in March 2018.

How much do I need for a down payment?

For many home buyers, the thought of coming up with a large sum of money for a down payment is daunting. Fortunately, we offer a wide range of down payment choices that include options for 5, 10, 15, or 20 percent down. And for many first-time buyers, a government-backed FHA loan can be obtained for as little as 3.5 percent down. If you are a military member or veteran, there are even more options available to you.

What is the mortgage process?

When I work with clients who are looking to get pre-approved here are the steps to follow:

1. Meet with a loan officer with a reputable mortgage company who can discuss the different loan programs that are best suited for you.

2. Provide proof of your income and assets. Have your loan officer run a credit check so you know what price home you would be pre-approved for.

3. Get an estimate for several loan options at various home prices so you know what your maximum monthly payment would be.

4. Once your loan officer lets you know what those numbers are then you are ready to start looking at houses with a realtor. It’s very important to have an agent represent you since the seller will have their own agent representing them. You do not have to pay your realtor any commission for the transaction. It is all built into the sales price of the home you are buying.

5. Once you have found a property, made an offer, and it’s been accepted the full financing approval process begins. It’s important to remember that once you have a purchase agreement accepted by a seller you must continue to pay your bills on time and not take out any new debt. If you do it could jeopardize the closing on your new home.

>> It is also very important to have these documents available when you meet with your loan officer for the first time:

  • 2 years federal tax returns- all pages
  • 2 years w-2s
  • Last 3 paystubs
  • 2 months bank statements- all pages
  • Driver’s license

Options for first time home buyers

First-time home buyers typically have less money in savings which is why low and no down payment home loans are so popular. You may have heard the term “first-time homebuyer money.” What is that all about?
First-time homebuyer money is also known as down payment assistance program. Under these programs, you can do FHA, VA, or Conventional type loans. The beauty of the program is that it helps low-income first-time homebuyers purchase single-family homes. It uses federal money given to states to use for people buying homes. For Minnesota, it is administered through the Minnesota Housing Finance Agency (MHFA).

Under the program, you can receive up to $12,000 for down payment assistance. However, there are some income limits with the program. If the down payment assistance is $8,000 or less than it may be deferred until you resell the house. If the assistance is more than $8,000 than you will have a monthly payment to pay it off in 10 years. It will be considered a 2nd mortgage.

Another bonus of the program is that the mortgage insurance for conventional loans is less than if you were to go with a regular conventional loan. The MHFA program is great for those who have good jobs, good credit but just need some help with down payment and closing costs. MHFA just says you need to have $1,000 of your own money into the transaction.

It’s good to remember that each home buyer is unique and needs a loan option that fits his or her needs. So be sure to review your options thoroughly with a lending professional. I am happy to help!


Doug Hunt is a lending officer with Mortgages Unlimited in Maple Grove. He and his wife Carol live in Golden Valley and have two adult children. Doug can be reached at (612) 940-0780 or by email at dhunt@muihomeloans.com.

 


How credit inquiries may (or may not) affect your credit score

If you’ve applied for credit recently – maybe for a store card  – you may have come across the term “inquiry.” Even if you’re not familiar with credit inquiries, it’s critical to understand what they are, how different ones work, and what they mean. Fortunately, we have answers to your credit-inquiry questions here.

What’s a credit inquiry?

A credit inquiry is a credit check. It’s a request to view your credit by lenders — retailers, financial institutions and others who are legally allowed to see your credit report.

Types of inquiries: hard and soft.

A hard inquiry happens when a potential lender looks at your credit report and uses that information to decide whether to offer you credit and what the terms of the offer might be. Think of hard inquiries as the types of credit checks that happen when you apply for credit, whether it be a credit card, mortgage, car loan or other type of financing. Hard inquiries must be made with your permission and in connection with specific transactions.

A soft inquiry, on the other hand, is more of a routine credit check that doesn’t need to be done with your permission. Importantly, soft inquiries won’t show up on the credit reports potential lenders request to evaluate your creditworthiness. Soft inquiries can happen for a variety of reasons. One example is when potential lenders check your credit report to determine whether to make you eligible for any pre-approved offers. Another happens when one of your existing creditors checks your credit to make sure you’re still creditworthy. A soft inquiry is also triggered every time you check your credit.

One other thing to note: if you would like to see credit reports listing all your inquiries, soft and hard, check your free annual credit reports at AnnualCreditReport.com.

Why inquiries matter.

The first thing you should know is the kinds of credit reports potential lenders see will only list hard inquiries, not soft ones. In that sense, hard inquiries are the ones that “count.” That’s because credit scoring models usually factor in the number of hard inquiries you have when they’re calculating your credit score. Generally, credit scoring models tend to associate a high number of hard inquiries, especially if they’re made within a relatively short period of time, with a high credit risk. It’s important to watch the number of hard inquiries you make because too many of them may affect your ability to get credit at the lowest-available rates.

Do inquiries remain on your credit report forever?

In short, no. They are automatically removed 2 years from the date they first show up on your credit report. As with other aspects of credit, the more time that passes, the less effect hard inquiries may have.

Loan shopping and inquiries.

Let’s say you’re shopping for a mortgage or car loan and want to find one with a good rate and other terms that work best for you. After all, especially with big purchases, you want to make sure you get the best financing you can. But every time you apply for credit, a hard inquiry happens. Does that mean you shouldn’t shop around for a loan?

Fortunately, no. Credit scoring models tend to account for this kind of activity. Generally, credit scoring will count several inquiries made over a relatively short period of time, like 45 days, as one single inquiry. That way, you won’t necessarily get penalized for causing several hard inquiries while shopping for one loan.

Bottom line.

Inquiries are a key, and often misunderstood, part of credit. But they aren’t everything. While you want to pay attention to how frequently you apply for credit, credit health encompasses much more than just hard inquiries. Keep an eye on your hard inquiries, but don’t lose sleep over them, especially if you’re paying your bills on time, not using too much of your available credit, and otherwise practicing healthy credit habits. In other words, keeping your hard inquiries in check should be just part of a healthy-credit habits!


This article is courtesy of TransUnion. TransUnion is a consumer credit reporting agency. TransUnion collects and aggregates information on over one billion individual consumers in over thirty countries including 200 million files profiling nearly every credit-active consumer in the United States.