Get Advice February 2015 | Kevin Butcher
Kevin Butcher

Licensed in MN (Agent)
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Kevin Butcher


February 2015


Five mortgage advantages for first-time homebuyers

There’s no getting around it—it’s a great time to be a first-time homebuyer. Below, we outline five advantages that every first-time buyer should know as they apply for a home mortgage loan.

1. Down payment assistance

For many buyers, saving for a down payment can be one of the largest hurdles in achieving home ownership. Fortunately, there are a number of down payment assistance programs available for first-time buyers. Both government-backed grants and assistance loans are available across Minnesota and western Wisconsin.

Since 2011, Edina Realty has been proud to display the properties that are eligible for down payment assistance across When looking at homes across the site, watch for this Down Payment Resource icon on property pages that qualify for assistance. If you meet the eligibility requirements, you could qualify for a down payment loan or grant.

2. FHA loan options

Federal Housing Administration (FHA) offers government-backed loans that can benefit first-time buyers and potential buyers by offering loans that only require as low as 3.5 percent down.

FHA does offer loans with loan limits that vary by market area. For example, buyers who have secured an FHA single-family home loan in Hennepin County, Minnesota, can borrow up to $322,000 while borrowers in Burnett County, Wisconsin, can secure a loan for up to $271,050.

Find the FHA lending limit for your area.

3. Lowered mortgage insurance premiums on FHA loans

If you secure an FHA loan, you’ll pay mortgage insurance at closing and throughout the life of the loan. FHA mortgage insurance provides lenders with protection against losses incurred if a homeowner defaults on their mortgage loan. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default. Loans must meet certain requirements established by FHA to qualify for insurance.

The good news is that FHA recently announced that they’ve lowered the annual mortgage insurance premiums from 1.35 percent to .85 percent. Experts predict that this will save the average FHA borrower around $80 per month. For example, borrowers with a loan amount of $200,000 will save approximately $900 annually with the new reduced annual MIP.

4. Three percent down payment options on conventional loans

FHA isn’t alone in opening up borrowing options for credit-worthy buyers who can afford a mortgage but lack the savings to pay a substantial down payment. Mortgage giants Freddie Mac and Fannie Mae have also announced that they will be offering mortgages that only require as little as 3 percent down payment.

To minimize risk and ensure responsible homeownership, Freddie and Fannie will require that homebuyers with low down payments have a credit score of 620 or higher. If you are interested in these programs you may need to undergo homeownership counseling and offer a full financial and income history to your lender.

We can work together with a lender to navigate this process, as program requirements may vary.

5. Low mortgage interest rates

Mortgage rates have been incredibly low for the past few years, and 96 percent of consumers believe they have bottomed out and will begin rising in the future.

What do those “in the know” think? According to experts across the industry—including Edina Realty president Barb Jandric—loan rates are expected to stay relatively low in 2015 but may begin to rise later in the year.

How important are these low rates to first-time buyers? Extremely. If interest rates were to increase even one percent from today’s rates, a borrower’s buying power could be reduced by 10 or 11 percent.

Check current mortgage interest rates.

What happens next?

With the above advantages and our strong local economy boosting wages and confidence, we know that the spring market will be full of first-time buyers. If you’re ready to enter the market for the first time, reach out todayreach out today and we’ll get started together.


What factors are considered when applying for a mortgage?

The time has come—you’re going to buy a home! The mortgage application process can seem stressful, but it helps to know the credit and financial documents you’ll need and the lending requirements you should keep in mind.

Infographic of the various factors that are considered for mortgage applications including credit reports, debt to income ration and employment verification

Credit reports

We’ve all seen the credit report ads that offer a free score to respondents. These documents are no laughing matter—your credit score and full credit report are among the most important pieces to securing a home mortgage loan.

A credit score helps lenders evaluate your credit report— a record of your credit history that includes information about your existing credit such as credit cards and installment loans, your public records, which is information about any court judgments against you, and inquiries about you which includes companies or persons who recently requested a copy of your report.

It’s important that you understand your credit report. Together, we can contact a home mortgage consultant to discuss how your individual credit score will impact your loan rate.

Most lenders require a credit score of 640 or higher to secure a loan, though exceptions are occasionally made for scores higher than 580. If your credit score is under 580, it’s possible that there are programs to help you. Check with your home mortgage consultant for exceptions.

No matter what your credit score, your home mortgage consultant will walk you through the process of understanding how your individual credit score will affect your loan rate.

Debt-to-income ratio

Next, the lender will look at the amount of debt you have (including credit card and installment debt such as student loans and car loans) and compare that with your monthly income. This big picture calculation is called your debt-to-income ratio, and it ensures that your mortgage and housing expenses won’t take up too much of your overall income. There are two important debt-to-income ratios that lenders take into consideration when you apply for a loan.

  • The front-end ratio: Sometimes called the housing ratio, this shows the percentage of your monthly income that would go toward Principal, Interest, Taxes, and Insurance (PITI). Generally, front-end ratios should be between 28-33 percent of a borrower’s income.
  • The back-end ratio: This shows the percentage of your monthly income that goes toward all of your monthly debts, including credit card bills, student loans, child support and car loans, plus your monthly PITI. Typically, back-end ratios should be between 36-42 percent of a borrower’s income.

Employment verification

As the borrower, you must be able to show that you have a stable employment history. You will need to provide your lender with proof of employment, which could include pay stubs, W-2s and tax returns.

If you are self-employed, we can request a home mortgage consultant with experience assessing self-employed tax returns and financial statements. Often, net income for self-employed workers can be harder to determine outright so you’ll want someone who is familiar with these documents.

Down payment

You’ve likely been saving for your home’s down payment, and you should be able to document this savings for your lender when you apply for the loan. The requirements for a down payment vary depending on the type of loan and the lender and your home mortgage consultant will walk you through the expectations prior to your application.

Gift funds

If you haven’t saved enough, you can utilize a monetary gift from a family member to help with your down payment. Your lender will require the donor to sign a gift letter stating your relationship with the donor, the full amount of the gift, and that the funds are a gift and not a loan. You will also need to document the source of the funds.

Home appraisal

In addition to your ability to pay a mortgage loan over time, lenders must verify the value of the home in question. Why is this appraisal important? An appraisal is an unbiased way to determine a home’s value. Lenders will only approve a loan if the home is appraised for the full sales price or higher.

Getting started

Now that you understand the financial factors that will be taken into consideration when you apply for a home mortgage loan in Minnesota or western Wisconsin, it’s time to get started!

Want an estimate of your buying power? This affordability calculator takes into account your debt-to-income ratio, income, down payment and more to determine how much you could typically afford from a lender’s point of view.

For an official preapproval, which can hold weight as you search for homes online and in person, reach outreach out and we will schedule an appointment with a home mortgage consultant.

Homebuyer using phone to search for homes on the website

What every seller needs to know about this year's spring market

It’s been a relatively mild winter compared to last year, but the surest sign of spring is the boost we’re seeing in our local housing market. As the spring market arrives, sellers across Minnesota and western Wisconsin are hoping for increased prices and an influx of buyers. Here, we break out what every seller—including luxury, lakeshore and starter homeowners—should know about listing this spring.

The average local home

In our 13-county metro area, prices have been on the rise for a whopping three years! While year-over-year price increases have slowed to more modest gains, we still saw a 6 percent increase in the median sales price of local homes in January 2015. Currently, the median sales price of a home in our market is $225,000. That’s an increase of 36 percent in just three years. At the market bottom in February 2012, homes were selling for a median price of $165,000.

Listings are also on the rise, and it would take four months to sell all the homes on the market at the current pace of sales. This means we are in a moderate sellers’ market. We anticipate that inventory will continue to grow as homeowners with more equity and buying power decide to sell.

Sellers are still at an advantage, but this spring could bring many sellers into the mix who have been waiting to sell their home at a higher price.

Lakeshore home sellers

Lakeshore prices also continue to rise, albeit a bit slower this year. The median price of a lakeshore property in our 13-county metro area in January 2015 was $340,000—a 3 percent increase year over year. Farther out, prices are slightly lower. In Burnett County, Wisconsin, which boasts a massive boating and lake community, prices have increased 3 percent over last year, for a median price of $185,000. Meanwhile in Cass County, Minnesota, the median sales price of a lake home is $240,000, an increase of 5 percent over January 2014.

As our local economy has grown and consumer confidence has returned, so has the desire for a second home on the lake. Sellers across our local market are seeing offers that make up 96 percent of their original list price. In May of 2011, lakeshore sellers were accepting, on average, offers that were just 92 percent of their original asking price. The lesson here is that lakeshore buyers aren’t just hunting for a good deal. They are committed to paying a fair price and they understand that the bargain pricing of years past is over.

Luxury home sellers

In Minnesota and western Wisconsin, luxury homes are those valued at $500,000 or higher. In our current market place, the median sales price of luxury homes is $640,000—a staggering 24 percent increase over January 2014.

As with lakeshore home sales, many of today’s house hunters have increased buying power and are ready to buy their high-end dream home at last. While it’s not uncommon for luxury homes to stay on the market for longer periods of time, we’ve seen the median days on market plummet from 164 days in March of 2012 to just 64 days in January 2015.

The lesson that can be learned from all this? If you’re a luxury homeowner considering selling, now is the time. Most high-end sellers are earning the highest price in more than six years and homes are flying off the market in an average of two months.

Starter home sellers

If you’re a homeowner who has stayed in a single-family “starter home”—which we’ll price here at under $200,000—then it may be time for you to move on. New listings for this price were down 15 percent last month and it is a segment of the market in very high demand among today’s first-time buyers.

At the current pace of sales, it would take just 2.9 months to sell all of the starter homes in our local market. That means that the segment of homes under $200,000 is a definitive sellers’ market. As young spring buyers begin their house hunt, they will grow competitive over these scarce properties. While these homes are on the market for a median of 52 days right now, we think this number will drop as more young buyers purchase their first homes this spring.

Still on the fence?

We’ve broken out a few home segments here, but the reality is that your home requires the evaluation of an expert before you’ll know if it’s the right time to sell. For a free, no-obligation analysis of your home’s value, reach out todayreach out today. Together, we’ll determine where you stand in today’s unique, changing market.

All local market statistics provided by Northstar MLS.

Group of 4 retirees enjoying snacks in open-concept kitchen

Homeownership after foreclosure: How boomerang buyers are bouncing back

As we return to a balanced market, a new segment of homeowner is emerging: the boomerang buyer. A boomerang buyer is someone reentering the market after a foreclosure or short sale.

According to this report, more than seven million buyers matching this description will purchase a home again in the next eight years—and 100,000 of them will come from our local market area. Here’s what you should know if you’re a boomerang buyer purchasing in the next year.

How long before I can stage a comeback?

Federal Housing Administration (FHA) requires a three-year waiting period for boomerang buyers who have had a foreclosure. This waiting period begins once the foreclosure is complete, not when a homeowner defaults or moves out of their property. A foreclosure remains on a credit report for seven years before it is removed.

Those who have foreclosed or sold via short sale can use the waiting period to clean up any credit issues and bank judgments, and pay off credit card debt. As with all loans applications, good credit and a history of paying bills on time (aside from your past housing default) will be an advantage as you reapply for a mortgage. If your foreclosure is seen as an isolated incident instead of part of a pattern of behavior, lenders may look on you more favorably.

What else should I know?

Lenders process each loan application individually, and one of the factors they’ll consider in your application is your ability to repay the mortgage. The debt-to-income ratio measures how much of your gross household income will be required to pay your property’s principal, interest, taxes and insurance.

Generally, lenders hope for this ratio to be between 28-33 percent of your gross income.

According to RealtyTrac, local boomerang buyers would need to spend just 24 percent of their gross income on a monthly house payment of a median-priced home in our area.

Our market’s high affordability and our booming local economy bodes well for boomerang buyers who hope to once again purchase a home they can call their own.

What steps should I take first?

If you’re hoping to buy a home after foreclosure or a short sale, the first step is to get preapproved for a loan. Not only will this help you stand out among other buyers, it will give you an idea of your buying power so you can begin searching for homes in your budget.

You’ll also need a trusted real estate agent to walk you through the unique process of buying after a foreclosure or short sale. Reach outReach out to get started on your way back to homeownership


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