Contacting a lender

The first step in the home buying process isn’t looking for homes that are for sale. Getting pre-approved by a lender is the first step in the process. Offers on homes for sale need to include some kind of a letter indicating that the potential buyer might qualify for financing.

Like most real estate agents I can not afford to spend a lot of time helping people find a home if they can not buy one. I only get paid after a successful closing of a home sale.

Getting pre-approved also helps buyers determine which price range they want to be in. Sometimes people come to me and tell me they can spend X amount a month on house payments. I am usually able to do the backwards math that I need to do to figure out what price range we need to look in. I have not seen any houses with a listing price of X amount a month.

There is more than just a house payment that needs to be factored in. There are property taxes and homeowner’s insurance and additional costs like heating, cooling, electric, garbage pick-up, and water.


Before meeting with a lender I always suggest coming up with a monthly payment amount that seems comfortable and reasonable. In most cases people are pre-approved for more than they want to spend.

Making payments on anything can be a stressor. Lower monthly expenses can feel liberating and free up more money for opportunities and experiences.


How fast can a cash sale/purchase close?

coin_wI am currently working on a cash purchase with a home buyer. She made the offer about a week ago and wants to close today. Usually closings occur at least 30 days after we have an accepted offer because that is how long it takes to get the home loan fully approved.

When a buyer pays cash there is no approval process but we still have a bunch of hoops to jump through. For instance because the home being sold is on St. Paul the seller needs to provide a truth in housing inspection. As for last night it wasn’t done and may delay the closing.

The property is also a condo which means the buyer has ten days to review condo documents and rescind the offer if he/she doesn’t like the rules, financials or most anything about the condo association. The buyer will need to waive that right because there were not 10 days between the time the documents were received and the closing.

The closing is all scheduled and there is a list of closing costs for the buyer. Yes there are closing costs even when the offer. Like title insurance and prorated taxes, association dues and filing fees and taxes.

Personally I am not a fan of less than two weeks between the offer and the closing because it just isn’t enough time especially when buying a condo to really understand the property and the purchase unless the property is being purchased by a business or an investor.

What about interest rates?

When I look at interest rates I like to look at the big picture. I do remember when interest rates were in the double digits and the last time my family had a mortgage the rate was 7%. Our highest interest rate for a mortgage was 8.38. Rates have gone up almost half a percent from a low of 3.59% last February.

Mortgage rates
Mortgage rates – Freddie Mac


Low unemployment

I know there is underemployment in the Twin Cities but unemployment is fairly low. My recruiter friends tell me there are jobs in I.T. that are going unfilled  See [Minnesota HeadHunter]

The government and the many local hospitals, and the University of Minnesota are huge local employers. We also are the home of some corporate headquarters for some really huge companies.

The best way to find a job in Minnesota is by talking to your contacts. There is a Minnesota Jobs site that looks like it would be useful. I look for work everyday but that isn’t at all like looking for a job.

Minnesota unemployment rates
comparative unemployment rates

I always like to look at numbers from California when I compare unemployment rates because the weather in California is nicer than it is in Minnesota. Where we live isn’t just about the weather or maybe we would all be living in paradise.


Living expenses in the metro
BLS Midwest summary

As a rule homebuyers will need an income of at least $47,000 to buy the average priced home in St. Paul. That number is always fluctuating. The numbers in the Bureau of labor statistics table show what kind of wages a Twin Cities worker can expect.

3% down is a thing

threepercentVarious lenders have been contacting me and emailing me to let me know that starting December 15th which of course was a few days ago the 3% down payment conventional loan is a thing . . as in it is available for first time home buyers.  I am not sure what my opinion on the loans but I know they will help some folks who may not have enough cash buy homes.

Before the change conventional loans required at least 5% down.  FHA loans require at least 3.5% down, up from 3% down a couple of years ago. Home buyers will need some cash to buy a home even with down payment assistance. In addition to the down payment there are closing costs. Sometimes the sellers will pay closing costs but generally will charge more for the home to cover them.

Interest rates are oh so low the average on a 30 year  conventional loan is less than 4%, and down 3/4 or a percentage point from December 2013.

Is your lender good for three months?

280.16x9So you have a pre-approval letter from your loan officer and it is good for three months. As you look for that perfect home to make an offer on you need to keep in touch with your lender because he or she may not last as long as the letter. people who write pre-approval letters to get fired or to leave the mortgage company, credit union or bank and sometimes most of the time if they leave your file gets lost.

If your file vanishes the good news is that it can be rebuilt from scratch. The bad news is that you will need to provide all that documentation all over again and the worse news is closing on the home you want to buy may be delayed for weeks.

It can get pretty messy and most people hate having to go through the process twice. It is rare that anyone admits that your file doesn’t exist they just ask you for the same information you already gave them and often they need it now.

It isn’t at all unusual for a pre-approval letter to last longer than the person who signed it but once they are gone you might not even exist as a customer.