Mortgage guidelines for divorcing couples

Not only are you forced to endure the emotional pain and suffering through separation and marriage dissolution, but the finances need to be dealt with as well. Divorce and mortgage go together like fire and tungsten (the metal with the highest melting point, used for incandescent light bulbs, but is malleable and can be cut). Navigating the guidelines, while either preserving your current home or acquiring a new one, are not for a novice lender or online mortgage call center. You need a specialist, one who knows the applicable guidelines and can help break them down, shed light and help you work through them to finally cut the tie (see what we did there?).

Married, Unmarried or SeparatedGavel

First, it is important to know the milestones and how they apply. When you are applying for a mortgage, your marriage status has to fit into one of three choices: married, unmarried or separated. The separated status indicates that you have a legal separation filed. This status requires that you have served and filed a petition in the District Court in the county where you or your spouse lives. From

QUESTION: Since it costs as much, takes as long, and involves the same major issues, why would anyone want a legal separation?

ANSWER: Some couples choose legal separation because of religious beliefs or moral values against divorce. In a few cases, there may be insurance or other financial reasons for a legal separation.

A legal separation includes details about alimony/child support, custody, who is ordered to pay what (mortgage or other debt), separation of assets and liabilities, and just about anything else you can imagine to put in there (who gets the dog, business interests, other real estate, etc). Because of the cost and process, it is rare to have a legal separation filed and more likely that a divorce filing is entered instead. We should note right now that we are not attorneys and are not licensed to, nor want to give legal advice. Consult with a reputable family law attorney on what the best approach is for your scenario. A great resource to help you decide what is the best course of action:

Attorney at Hellmuth and Johnson

As for married or unmarried it depends upon what is recognized by the state. If your marriage was cultural and not legal, your application status is “unmarried” regardless. If you were legally married, your application status remains “married” until the divorce decree is finalized in court. Once the decree is finalized, the specific details contained within it have ramifications for access to mortgage credit.

The single best piece of advice we can give you is to have us review your draft divorce decree BEFORE it is finalized

What we see most often is a completed and filed decree that has requirements in it that cannot be met. Some examples include a requirement for one party to complete a refinance of an existing mortgage, yet they don’t qualify to do so, or to sell a property within a short period of time and having no where else to live, or to secure housing for dependents and an inability to acquire it. The specifics regarding finances take careful planning. Before we forget to mention it – take care of your credit profile as well. We see all kinds of train wrecks – from excessive spending to “punishment non-payments”, meaning one party stops paying the bills to punish the other. Try to not do these things as joint credit will stay on your credit report even after the divorce is complete.

The Mortgage

A mortgage is a lien on real property, secured by a promissory note. That promissory note contains a “promise to repay” and whoever signs it is a borrower. Divorce does not release liability on that note, but a court order (divorce decree) can assign the responsibility to one party. The court order does not remove the liability from credit bureaus or credit reporting, so if it doesn’t get paid the late payments will negatively affect any borrower(s)’ credit. So, what if a court order assigns the responsibility to the other party – how does a divorce work to buy another home? Getting a mortgage during divorce adds a few things to navigate, but we can help you find your way.

A court order (divorce decree) that the other party pays the mortgage means it is no longer counted in your debt ratio for qualifying on a new mortgage. Essentially, when underwriting your loan application we disregard the mortgage payment if the final decree orders the other party to pay it. However, your qualifying credit score will reflect the payment history on that mortgage note. Most loan programs utilize an automated underwriting system that will read mortgage histories from the credit report and make an automated decision about your approval. A mortgage payment that is two months past due in the last year will almost certainly negatively affect the approval of a new application.

Best course of action? Get a draft of your decree to us before it is finalized and we can review it in combination with your application and do a “hypothetical” preapproval. That will be contingent on the finalization of that decree.

Title To the Property


Ending a marriage has challenges related to property and mortgage

If we were you, we would not quit claim deed off title until the mortgage is satisfied or the decree is filed and it was required in the decree. The court order could also specify who gets what equity, timetable on sale of the property, etc. In Minnesota, as long as a property owner is married and it is principal residence, both spouses need to sign to convey (sell, transfer title) property. Once the decree is completed and one party has signed a quit claim deed, the property can be conveyed by one party. So, if you want to maintain control over transferring the title to the property, don’t quit claim away your interest until after the judgment and decree is entered or an attorney advises you differently. Sometimes a quit claim deed with a lien interest is appropriate. Again, discuss with your attorney prior to filing a deed to real property. Also to note, signing a quit claim deed prior to the decree being completed doesn’t remove a spouse’s interest in a homesteaded property. MN Statute 507.02

Refinancing a Mortgage In Divorce

If you are the party retaining the property and will take on sole ownership and responsibility, the decree will likely require you to refinance the loan. Many challenges are presented by this requirement. One is the interest rate on the existing loan may be much lower than the current market rate. The only way to keep this interest rate is if the loan is assumable (if the loan can be assumed by you from the both of you, typically only FHA, VA and USDA loans) or to keep the loan in place. Another challenge is you likely qualified jointly for the existing mortgage if both parties are on the note and now you will need to qualify solely. A third challenge is all of your joint debts will now be counted in your debt ratio being analyzed for the new loan. In addition, the payment history of all those debts will also be factored in.

Getting a mortgage during divorce adds an extra complexity, but we are here to help and have extensive knowledge to guide you. We recommend that you resolve as much of the other debt prior to taking on the refinance application, if needed, to help you qualify or qualify for better terms. We will do an initial review for you and advise of what action is needed. You can get started with the refinance request here and indicate “remove coborrower” in the request:

Refinancing Made Easy

Our final word: don’t wait until your divorce is finalized to seek information on refinances and mortgages. Doing so early can make all of this easier, less costly, and maybe even save you time in court.


When applying for a mortgage in MN, there are a number of approval processes that prospective borrowers should be aware of. It is essential that future borrowers understand the information/documentation required for each mortgage approval process in addition to the level of scrutiny that will be applied with each approval process. We will discuss three approval processes in this particular blog: Pre-qualification, Pre-approval and Underwriting Approval. While pre-qualification and pre-approval both give prospective borrowers an idea of what they can afford, they are two different processes with varying levels of scrutiny. Underwriting approval is an entirely separate, rather in-depth process that determines if a borrower qualifies for loan approval. With this brief outline in mind, we can take a more in-depth look into the specifics of each approval process.


Commonly viewed as the first step in the mortgage approval process, pre-qualification is designed to provide a general picture of a borrower’s financial situation. Pre-qualification involves a loan officer and can take place over the phone or online, often times coming free of charge. Borrowers may discuss specific preferences, special considerations and needs related to their mortgage at this point as well. As a prospective borrower, you can include as much or as little information as you want on this step, although more information will grant loan officers a better idea the particular loan that you will qualify for. This financial overview is usually not based on detailed analysis or documentation of a prospective borrower’s income, assets, debt, etc. Loan officers may conduct basic ratio analysis, however, these analysis are solely based on the information prospective borrowers choose to provide to their loan officer. After finishing the pre-qualification process, your loan officer will be tasked with issuing a pre-qualification letter. Notably, pre-qualification typically does not include a credit report review as part of the qualification process, although companies may periodically offer pre-qualification with credit reviews. Again, pre-qualification is not designed to check a prospective borrower’s credit report or determine their financial ability to pay a mortgage, it simply acts as a general overview of a borrower’s finances. Pre-qualification is often required before a seller even considers a mortgage application, serving as a foundation for the other two approval processes. Relative to the pre-approval process, pre-qualification lacks the scrutiny and in-depth financial analysis that pre-approval entails. Therefore, even if you are provided with a pre-qualified loan estimate, this estimate is subject to change due to the sheer lack of information underlying a pre-qualified estimate. With this in mind, pre-qualification should not be used to submit an offer on a new home as many details are overlooked during this process and realtors are not likely to value the offer very highly.  


The pre-approval process goes beyond the reach of pre-qualification and is based on financial documentation that the loan officer receives and reviews. At a minimum, the loan officer will review documentation regarding a borrower’s qualifying income, available assets for down payment and credit report to ensure that they meet the loan guidelines. Prospective borrowers will need to complete a mortgage application at this stage prior to receiving pre-approval. Other key actions undertaken by loan officers at this stage include credit history checks and down payment estimates. Ultimately, prospective borrowers will receive a specific loan amount estimation and they may also receive interest rate estimates towards the end of this process. Finally, loan officers will run prospective borrower applications through an Automated Underwriting System, providing a means of approving the mortgage. After this stage is complete, prospective borrowers will be given a pre-approval letter and conditional commitment for the loan amount. Request your preapproval today here: Get Preapproved. Theoretically, the home search can begin at this point as the borrower has knowledge of what they can obtain in financing. It is also worth noting that pre-approval letters are only valid for a certain amount of time, usually 90 days. SWBC Mortgage’s pre-approval letters are valid for 120 days, providing a wider search window for those seeking out their ideal home. While the pre-approval process is rather in-depth, there are certain pieces of financial information up for interpretation that could be viewed differently by the underwriters compared to the loan officer’s final decision. The importance of moving to the third level of approval is highlighted here as it provides another level of scrutiny and risk assessment. With this is mind, we can discuss the third and final approval process: Underwriting approval.

MN Mortgage Approval

Underwriting approval

Underwriting approval is the third and most thorough approval process available to prospective buyers. Loan officers will compile a prospective borrower’s financial documents which can then be given to an underwriter. The underwriter assesses risk and ensures that a borrower matches the criteria to receive a loan by reviewing the buyer’s financial documents and accuracy of such documents. Aside from conducting an additional credit report analysis, underwriters may review tax returns, W-2s, pay stubs, credit reports, income statements, employment verifications, asset statements, calculate debt-to-income ratios and other relevant financial information. See typical documents needed here: Documentation Requirements. SWBC Mortgage provides the added benefit of having underwriters review and verify loan amounts and terms, adding another layer of review to solidify the approval process. Ultimately, underwriters will deliver one of four final decisions after thoroughly reviewing the prospective borrower’s financial documents: Denial, Suspension, Approval with Conditions or Approval. If a prospective borrower is denied approval then the underwriter will include a specific reason as to why the denial occurred and when the prospect can re-apply for approval. This is a rarity, as often the loan officer will see that denial is likely and not submit the file to underwriting. In the case of suspension, a prospective borrower often needs to provide further financial documentation/information. The prospect can then reactivate their application after providing the necessary documentation/information. Approval with conditions indicates that a prospective borrower’s application has been approved but the borrower must meet certain conditions to finalize the approval. It may be that a prospective borrower has accounts they must pay-off or bank statements they must provide, for example. Completing these conditions will lead to the conditional approval of the borrower’s application. Finally, prospective borrowers may receive an approval indicating that their application has been entirely approved with no additional conditions. A Certified Home Buyer Commitment™ will be granted at this point and the approval process is complete. Generally, underwriting approvals may speed up the approval process due to the comprehensive nature of the underwriting process. Additionally, underwriting approvals provide a greater level of certainty to Realtors that the borrower will gain final approval on their mortgage. If time permits, an offer should always be submitted with an underwriting approval letter and not a pre-qualification or pre-approval letter.

Bringing it Together

As stated at the onset of this blog, prospective borrowers should be aware of the various approval processes and their nuances before moving forward with a mortgage application. The more in-depth the approval process, the greater the likelihood is that your application will be approved. For example, SWBC Mortgage offers an underwriting approval process in which your income, assets, employment and loan program are reviewed are verified. Additionally, your loan will be personally reviewed by a SWBC Mortgage underwriter and the buyer will receive a Certified Home Buyer Commitment™. In providing these services, we hope to provide an in-depth and transparent path to approval that reduces your anxieties and maximizes your chance of approval. For more information the approval processes available through SWBC Mortgage, submit your preapproval request today –!   

Buyer must qualify under program guidelines. Not all borrowers will qualify. This is not a solicitation and not a commitment to lend. SWBC Mortgage is an Equal Housing Opportunity lender.


Mortgage Lender Bloomington, MNWhen I was 24 and a single guy I bought a four-bedroom house in Bloomington. It wasn’t because I needed four bedrooms for myself, it was because I had three other college roommates that were all looking for a place to live. I thought to myself “what an opportunity – I could charge each one of them $500 a month for a room and have $1,500 a month coming in.” The corresponding mortgage payment of $1,400 per month was covered and I had $100 to spare. Granted that was 2004 and the recession was right around the corner. Had I been smarter I would have sold the house after a couple of years and taken my gains, but you can’t really time the market. So, fast forward 15 years and now property values have reached an all-time high. Sure, the short-term gain wasn’t there, but over the long-term I built a great amount of wealth. And let’s not forget about all the rent money that I had coming in from my roommates all those years. Now I have four rental properties, Partner in a residential real estate development company, and a full-time role as a MN Mortgage Loan Officer. For most Americans owning real estate is the number one way to build wealth. So how do we get included when most of you feel precluded from homeownership? This is where strategy comes in.


Who says you have to be able to afford a home all on your own? Some mortgage programs allow for rent from roommates to be counted into your income to help you qualify. On a duplex, if you can find one that’s reasonably priced right now, you can use the rent from the other unit to help you qualify. If you buy a big enough house and have enough rooms it is very possible to have your entire mortgage payment covered by the rent and you live there rent-free. Use that money to work aggressively at paying off some of those student loans or other debts that you incurred while starting out your career. It only takes a little bit of strategic planning to make homeownership possible for many who thought that it wasn’t. We have far too many scenarios to play them out Dave Ramsey style here, so the best thing to do is get started with a preapproval request. We’ll go through the strategic planning customized to your scenario.


I know many millennials are straddled with student loans. We hear it on the news all the time. I couldn’t tell you the exact statistics, but let’s say on average a millennial has $20,000 worth of student loans. We think this is a exclusionary factor for homeownership, when in fact it’s really not. Consider that mortgage underwriting requires us to use 1% of the student loan balances in a monthly payment analysis – that’s $200 a month. Some programs allow us to even use those income-based repayments to help you qualify for a mortgage. So if you have a salary job making $48,000 a year, have a student loan and a car payment, the student loan is 20,000 the car payment is 400 bucks, that means you could still qualify on your own for a $1,400 mortgage payment. That could still get you a $200,000 home. I know a few Realtors that could find a plethora of $200,000 homes with three bedrooms, you rent out each room at $600 a month and presto you’re living large for a $200 mortgage, less than rent, less than your roommates pay, and now you’re sharing in equity appreciation.


Now your parents might say go for it and “get the heck out of our basement.” Your Uncle Larry the financial planner might say “well you’re not considering utilities, or what if something breaks, or or what if one of the roommates doesn’t pay, or moves out, or worse yet trashes the place.” Yes those are all risks but they can be mitigated. Your roommates would have to pay a deposit anywhere else that they move to, and try to pick respectable roommates with a decent job. If they trashed the place you can sue them. As far as something breaking, there are home warranties that you can negotiate for the seller of a house to buy for you to cover everything major. And utilities? – divide them three ways. You’re going to be paying utilities anyway if you’re living with Mom and Dad, and if you’re not paying utilities now – share shame on you.


It comes down to a matter of alternatives. Maslow’s Hierarchy of Needs has shelter right there on the basic level. Food, water, shelter. You have to live somewhere. It might seem exciting to live in a tiny home out in the woods, but do you know someone who owns woods? Would they let you just camp out there indefinitely? And do you know anything about building a tiny home? Youtube might have the step by step, but it isn’t going to save you when you wire something wrong and the whole thing burns down. Let’s get real – the alternatives are renting from someone or owning. For some, renting makes sense. Maybe you are planning to move to warmer climates (not far from my mind after this winter, trust me!). Perhaps you want to travel the world and not be bogged down with maintenance (associations have maintenance agreements to take care of it for you). Or, you want to rent because you want to help make people like me richer.  Either way, renting does nothing to help you build wealth. Let’s get on the train, take a fresh view at what homeownership has to offer. Stop reading into the news, all the bogus online articles about how homeownership isn’t affordable, or you can’t do it – you can. The American Dream, as we see it, should be available to attain for everyone who has the desire and works for it. Start a conversation with us today and we’ll customize a plan for tomorrow. We’ll review, advise, create a plan, and guide you free – all things you won’t get a from a bank. The age-old wisdom used to tell us every wealthy person has a great attorney and CPA. I would add a damn smart mortgage expert and a Realtor that has the mindset of Indiana Jones to that short list.

Buyer must qualify under program guidelines. Not all borrowers will qualify. This is not a solicitation and not a commitment to lend. SWBC Mortgage is an Equal Housing Opportunity lender.

What is an escrow account?

Wikipedia defines it this way:

Escrow generally refers to money held by a third-party on behalf of transacting parties. It is best known in the United States in the context of real estate (specifically in mortgages where the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage).

So, how does it work?

When a home purchase closing commences, the settlement agent or title agent will review the closing disclosure with the home buyer.  On the closing disclosure will be a detailed review of the funds being collected for “prepaid items” and a detailed view of “initial escrow funds paid at closing.”  The difference is prepaids are funds the title agent will disburse to third parties after closing and escrow funds start your escrow account.  Prepaids include interest for the remainder of the month, the first year of home insurance premiums (due upfront), and any property taxes being paid out to the county at time of close.

Your home insurance agent will want the first year premium at time of close.  You will bring this along with your other funds needed at closing, and then the title agent will pay your insurance from those funds.  It is also an option to pay the first year insurance premium before closing and then provide the lender/creditor with the paid in full insurance binder.

What is an aggregate adjustment?

Another line on the closing disclosure is “aggregate adjustment” which is a deduction from the total initial escrow account.  The initial escrow funds calculation for property taxes and insurance are done on a set number of months, depending upon a few criteria:

  • The month in which the loan is funding
  • The first payment date
  • When property taxes and insurance are next due

The calculation is done to keep the escrow account above $0 for the entire next year, but as close to $0 as possible.  Rules govern the amount of funds a creditor can hold in escrow, thus the aggregate adjustment is a line that balances out the account to bring the initial balance to just the right amount with a small amount of extra reserve.

With an established initial escrow account and  adding to it each month as part of mortgage payments, future taxes and insurance will be paid.  The title agent will put enough in there so it has just enough to pay the future property taxes and insurance premiums.  Typically one of the closing documents will be the escrow account agreement, and shows the monthly amount being collected and future disbursements.  It is still the home owner’s ultimate responsibility to insure the account has enough funds.  If property taxes or insurance increase, the annual escrow review from the loan servicer will have options to pay the shortfall in a lump sum or add it to future payments.  Then, of course, the monthly escrow payment will also increase to cover the future property taxes and insurance.

Benefit of escrowing property taxes and insurance:

Escrow accounts offer convenience and peace of mind.  In Minnesota, counties collect property taxes twice per year in May and October.  These are easy to miss if paid outside of an escrow account and then penalties get assessed.


Selling your home is a major step in life.  The reasons for selling are as varied as real estate itself.  The reason(s) for selling generally outweighs the cost, but how does one evaluate all the costs?  We immediately think of the tax consequences, the Realtor fees and the price for a new home, but let’s not leave out the details.  This article will explore many other financial considerations when selling your home.  It might be a good idea to make a list of any of these items that might apply to you:

Tax Benefits/Consequences

What tax benefits?  Consider the current amount of interest, property tax and any mortgage insurance currently being paid.  These are all tax deductible items now.  If your new home carries a higher amount of any of these, that will add to your schedule A itemized deductions (new mortgage may be $100 more, but take away $x of that for the increased tax deduction).  Your new home may be currently lacking utilities and/or appliances, or in need of replacement (thinking of you, fixer uppers).  New appliances and utilities can have energy tax credits that you can deduct on your federal income taxes.  Think about tax assessments – do you live on an old street that may be coming up for replacement?  Is your association starting to talk about a new roof on the building?

Capital Gains Tax

Always be concerned with capital gains, but know when it applies.  This is where a good CPA comes in handy.  Often capital gains tax doesn’t apply when selling your personal residence, but not so fast with investment property or inherited property.  Schedule a time with your tax professional before listing your home.


Newer homes are generally more energy efficient due to technology in construction and appliances.  In Minnesota, we think of utility costs in regards to electricity in the summer and heating fuel in the winter.  Consider the age of your appliances, your current energy bills and how a potential buyer might look at those in evaluating their home options.


Going from a townhome to a 1/2 acre estate?  Consider what your current maintenance expenses are compared to what they will be.  Some people sell their home to not have maintenance anymore.  Aside from the work, maintaining certain systems can be expensive.  If your home has a pool, wood siding, aging appliances, or other features that have upcoming maintenance a buyer will notice (or their inspector will).

Property Taxes

We touched on this earlier, but more than assessments or income tax implications, property taxes can vary greatly from property to property and city to city.  Look at the property tax amount on your home compared to other homes around you for sale.  How does it compare?  How do the taxes on your home compare to the taxes on new prospective homes?

Home Insurance

Premiums are based on a variety of factors, some concern your personal credit and other policies bundled in, but many factors regard the features of the property.  A new roof, proximity to fire stations, having a sump pump and generally new construction will have lower premiums.  Wood fireplaces, pools, older homes, aluminum siding, outdated electrical systems, visibility from the road, no garage,  and other factors can drive premiums higher.  Talk with your insurance agent about how your premiums might change from the old to the new.

Stress and Finances

Selling a home is stressful, of course, but did you think about how that translates into your finances?  Stress can lead to “comfort spending” – that extra mocha or dinner out, spa visits, yoga class or a getaway just to help you cope with this process should go into the transaction expense.

Moving Expenses

Add in the truck, boxes, blankets, Paul and Roger (the two moving guys), fuel, tape, set up fees, take down fees, and did we consider the piano?

Current Interest Rate Environment

The market has changed since your bought your home, or completed your last mortgage.  Consider the differences in the market compared to what terms are on our current financing.  You might have to let go of that 30 year fixed at 3.25% you have and accept the current interest rate for what it is.

Selling Expenses

This is where we discuss Realtor costs, mortgage payoff, and title costs.  We won’t get into the different commission structures or fees, but rather to just consider the expense.  Your professional Realtor can cover all of these with you by reviewing a “net sheet,” which illustrates a breakdown of how your sales price translates to your bottom line net proceeds.  The Realtor expenses (includes commission and broker admin fee), deed tax, title closing, recording fees, mortgage payoff (includes interest through payoff date), and prorated property taxes are all subtracted from the sale price.  Also subtract any seller paid closing costs for the buyer, but this isn’t actually an expense.  It should be deducted from the sale price and the net of the two considered the actual sales amount.  The buyer is essentially “financing in” their costs to obtain a loan.  As a seller, look at the net sale price after seller concessions.

Buying Expenses

When buying a home the closing costs for title, mortgage loan, appraisal, inspection, recording of the deed and mortgage, and broker admin fees all apply.

Home Search Expenses

I know your first thought – “We can find our home online, right from our living room.”  We don’t buy houses this way, or at least most of us don’t.  Unless your Realtor is driving you from point A to B, add in the fuel and wear and tear on your vehicle.  Also keep in mind your time spent and the possibility of having an inspection completed on a new potential home only to find a serious issue and having to start over.

Opportunity Cost

Ever heard the story of the poor sap who sold his farm that laid upon an oil field, only to be discovered by the next owner?  If you live in an up and coming area, consider the cost of selling your home now just before the neighborhood booms!

Did we miss something?  Send an email to [email protected] and we’ll add (or “price”) it in.  Thanks for reading!



That is the question, but how to find the right answer?  First things first – have your goals together.  Mortgage Lenders are great at putting together loan options, but they are often times basing those options on what you tell them.  If you are asking for the lowest rate, they will put those options in front of you, but surprisingly they may not always be the best options.  Wait!?  What, the lowest rate isn’t always the best option?  Of course not – considering that the lowest rates are adjustable, or shorter loan terms with payments that may be out of reach for you.  So, let’s look at your goals for the refinance:


Everyone likes to save money – we like to save money!  That’s why we’re writing this blog instead of mailing you a letter.  Letters cost stamps!  Let’s be more specific: do you want to save money now, as in lowering your monthly debt payments, or do you want to save the most over the term of the loan?  Are you struggling to make the payments you currently have, or does your end of month surplus cash look like the US Treasury’s?

The best place to start is by looking at your budget.  How much are you spending on all of your debt each month?  Is that a high or low percentage of your monthly income?  Do you have discretionary funds?  Do you have a large amount of unsecured debt?  How did you get to where you are and what changes need to be made to not get there again (if it’s not where you want to be)?  Is your retirement savings on track?  Having the answers to these questions before approaching a refinance is a great idea.  Even better – meet with your financial planner before talking to your lender to help put these answers, and goals, together.  Define what “saving money” looks like for you first.


Debt isn’t much fun (well, it is for us, but for different reasons than you would think), but what it offers can be great.  Mortgage loans are necessary for most people to own a home.  We think owning a home is great!  Auto loans are generally necessary to finance your transportation.  Student loans – education.  Credit cards?  We’re not much of a fan of these.  Using a credit card for convenience and paying off the balance each month?  That’s generally a good thing.  Credit cards are bridge financing if you carry a balance – the interest is costly and paying the minimum will take forever to pay off the balance.  The point is: carrying the right kind of debt is ok, but eliminating the wrong debt is essential to your financial health.  Sounds like we are talking about cholesterol here and the analogy works: having a mortgage loan is like HDL- your financial health is better with this kind of debt, but high a high credit card balance is like high LDL and puts your finances on the path of systemic failure.  Refinancing offers an opportunity to right the ship, a “statin” for your system.  By eliminating the bad debt and restructuring/lowering your monthly debt payments you can bring your finances to a better place.  But beware – the last thing you want to happen is to combine all of your debt, lower your payments and then go on a spending spree.  It’s important to take full advantage of the opportunity and create a sound financial plan to avoid adding the “LDL” debt again in the future.  If your payments are reduced, plan to put some emergency money away and make sure you can pay off that credit card each and every month for good.


Construction loans, credit lines, fix up funds and often times local money is available in addition to your existing mortgage loan.  Sometimes it doesn’t make sense to refinance your current mortgage just to get some money to put a new roof on the house.  Look at the terms of your current mortgage and what is available from your lender.  If the interest is going up on your current loan by more than what you would save on the construction financing portion, then just add the construction loan instead.  Generally construction financing rates are higher than first mortgage rates, but if you are borrowing a small amount or your current mortgage has a much lower rate, then adding the secondary financing is a better option.  If the construction project is larger, then it might make sense to refinance to a construction loan program like FHA 203k or Homestyle so that you can make the improvements and get a low, fixed rate loan for the project and your current mortgage balance all in one.


Long term planners – this paragraph is for you.  How much does the rate need to decrease for a refinance to make sense?  If your other debt is in order, and your home is perfect as-is, then let’s look at break even points and a cost-benefit analysis.  The absolute way to compare your current loan to a new loan is how much and how long.  Take your current payment times the remaining term to calculate a total cost on your current loan.  If the refinance option reduces that total number by an acceptable amount, by the same math (how much times how long), and the payment works, then it generally makes sense to do.  Let’s look at an example:

Current principal and interest payment (exclude taxes and home insurance): $1200

Remaining number of payments on your loan: 280

Total cost: $336,000

New 15 year loan principal and interest payment: $1516

New total cost: $272,880

If the higher payment fits into your budget, this certainly makes sense to do if you are looking for long term savings.   Even if the refinance costs $3,000, the savings is about $60,000 over the term.  This is a common scenario right now for many 30 year loans with rates in the mid-4% range to refinance down to a 15 year term.  You should also compare the total cost on your current loan if you simply increased the payment, but generally the refinance will add up to more savings.

The other calculation you need is the break even point.  At what point in the future will I recoup all of the costs of doing the refinance?  Two ways to calculate the break even offer manipulation of this time frame.  One way to calculate break even is on the interest savings.  If you save .625% in interest on the loan (reducing the rate by this much) and the refinance costs 2.375% of the loan amount, then it will take 3.8 years to recoup (ignoring time value of money and the decreasing benefit of interest savings over time).  If you are a spreadsheet guru you could put this into an amortization table and calculate the exact break even by interest savings, but hey, life isn’t exact anyway.  The other way to calculate break even is on a cash flow basis, but this isn’t as effective a calculation.  If the monthly payment savings is $300 and the loan costs $6,000, then it will take 20 months to break even.  The reason this approach is flawed is that you might be extending the term on your loan for this payment savings, which would potentially cost more in the long run.  The simple formula here is: cost divided by benefit.  That will yield the break even point.  Have your lender help, and if they don’t know how to calculate this for you, then find a different lender!


Mortgage interest is tax deductible.  If you consolidate other debt that doesn’t have tax deductible interest, you could reduce your overall tax liability.  Bring in your CPA and let’s have coffee with calculators.  It’s great fun, and so is saving money!  We think the government has enough to work with anyway, so why give Uncle Sam more than he has contracted for?


This likely has been more fun for us to write than for you to read about it.  We are only going to complete a refinance for you if it makes financial sense to do so.  Sure, completing loans is fun, but we need to make sure it is to your benefit.  MN State law requires that the loan have benefit for you, and we’re you’re fiduciary, which means we need to look out for your best interests (no pun intended!).  Bring your questions and scenarios to us and we’ll crunch numbers, calculate the savings, project long term costs, ask CPAs for tax analysis, talk with financial planners about retirement and other savings goals, and have you leaving our office more confident in your financial future.  Maybe then you can spend more time working on getting that LDL lower instead of worrying about making extra payments on that credit card that seems to be stretching out to infinity.

Mortgage programs are becoming more flexible for different scenarios.  Although guidelines are strict and offer little variance from the rules, at least we are starting to see rule changes.  Some of these may help you get approved for a loan when you couldn’t before.  Others might present obstacles.  Let’s take a look at a few underwriting tidbits that are relatively new in the last year.

Down Payment Funds

The minimum down payment for conventional financing was reduced to 3% of the purchase price.  Resources are available to help with this based upon the location of the home or a borrower’s income.  Some home buyers get creative with where they get their down payment funds.  Here are a few rules to know:

  • All funds used in a real estate transaction must be sourced.  If your rich uncle Jimmy is giving you money as a gift, be prepared to show a copy of the check you received and have Jimmy sign a gift letter.  If you are selling baseball cards, cows, a truck, snowmobile or those gold bars you have been stashing in a secret hole behind grandma’s house, get a bill of sale and have the seller provide a check.  Cash is not traceable and cannot be used!  Underwriters need to do a look-back for 60 days on your asset statements, so any big deposits you have in there also need to be sourced.
  • You may use gift funds with all loan programs.  Hey, we all know saving up money is a challenge.  If mom, dad, grandma, or uncle Jimmy wants to give you some money to buy a house – take it!  Don’t expect underwriting to accept gift funds from some random college buddy that lives in Montana though.  Many programs have rules that require gift funds come from a family member or employer.
  • The Minnesota Housing Finance Agency may have money waiting for you.  We’re a proud partner with this Agency to offer down payment assistance, which allows a home buyer to own a home with as little as $1,000 for down payment.
  • Marry an eligible veteran and you won’t need a down payment.  VA programs don’t require a down payment up to a $417,000 purchase price for eligible veterans with full entitlement.
  • Creative financing is allowed for a down payment.  Creative what?  Think of all of your assets – not just the car and diamond earrings you inherited from Grandma.  Your 401k may offer loans that you can use for the down payment.  If you have stocks, bonds, IRAs, whole life insurance – many times you can take a loan against these assets or open a margin account.  Basically, borrowed funds can be used for the down payment as long as the loan is secured to an asset.  No, you can’t use a credit card to buy a house because it is unsecured.

Student Loans

  • Minimum payments – let’s say you owe $25,000 on student loans and your minimum payment is $80.  First, it would take quite a while to repay that loan with that payment amount.  Underwriting for Fannie Mae and FHA require that 1% of the balance be used as a minimum payment for qualifying.  However, Freddie Mac programs allow us to use the minimum payment as long as an income-based repayment plan is in place.

Self Employed Income

  • Distributions to owners on K-1 statement are needed in order to use the income from the business (corporate income) as personal income to qualify for a loan.
  • Calculating qualifying income for self employed borrowers can be easy or really complex, depending upon the tax filings.  You need to report and file business income with the IRS on at least the most recent tax year to be able to use the income, and generally two years’ worth if this is a new enterprise for you.  Some programs allow one year, but only with prior experience in the industry or profession.  At the most general level, self employed eligible income is the combination of net profit and non cash deductions (depreciation, depletion and business use of home).  Our best advice – get your personal and business tax filings together and in the hands of a self employed income expert Loan Officer to review and analyze.  If you are a do-it-yourself type, you can try it for fun here:

Disputes on Credit

  • Disputes on your credit report will exclude those account details from the calculation of your credit score, thus artificially inflating or deflating your score.  They need to be removed at the credit bureau level.  Here’s our blog on removing disputes:

Roommate and Household Income

  • Roommate income, or boarder income, can now be used to qualify for a home loan.  Keep in mind that this rental income needs to be documented for 12 months.  If you and your buddy are renting an apartment, you’ll want a lease between the two of you and have rental payments go directly to you and not the landlord.  Same goes for the tenant in your basement – have a lease and document the rent payments for 12 months and you could use this to qualify for a refinance of your home.  The Fannie Mae Home Ready program also allows the use of other household income to help you qualify for a loan even if you are the only borrower.

The mortgage industry changes every day with new updates, regulations, technology, volume of business and oh yeah – interest rates.  Our best advice – get in touch with an expert Loan Officer before you get too serious about shopping for a home.  The last thing we want you to do is ride all over town with your Realtor looking at homes that you won’t be able to buy.  Our other advice – send in everything upfront so your Loan Officer can review all of the documentation and alert you of any potential issues early on.  Generally when we have the time, most issues can be fixed or resolved.  They are all saying it, but now really is the best time to buy a home!

These days it seems offers are everywhere online to get an approval and complete a loan.  Many of these offers seem great and easy to complete.  And in some cases they are.  What is important to know is how it works, what the risks are, and how to go about determining which offers are legitimate and which are not.  Here is a quick tutorial and a quick reference guide to navigate you through the wires of an online mortgage:

How the online process works

Online technology has evolved to a point where it is easy to communicate information and documentation, even if you know little about computers.  Entering information into an online form, such as a mortgage application, is fairly straight forward.  Click the apply online button, enter your information such as employment, income, credit, assets, address, identifying information and press send.  Viola, the check arrives in the mail!  Not so fast – a lender is required to verify your information submitted via documentation and determine your ability to repay the loan and meet loan qualifying criteria.  However, entering an online application these days is a snap!

What is needed from you

Once the lender does an initial review, they will request your documentation (pay stubs, W2s, tax filings, bank statements, identification, and other items specific to your application).  Today, many lenders have the option for you to upload your documentation directly into your loan file.  This used to be referred to as FTP, or file transfer protocol, but today is as simple as click “upload file” and then select the file from your computer.  The days of faxing documents, or even bringing them into a Loan Officer’s office, are quickly slipping away.

With the application complete and your documents uploaded, the lender can then process and underwrite your loan.  Some lenders are trying an automated system that notifies you of missing items while other will have an assigned Loan Officer inform you of any additional needed items.  Also, some lenders will allow you to complete your lock on your own and others will have the Loan Officer discuss lock options with you via phone.

The entire process can be done online without ever having to go to a lender’s office or even talk with a Loan Officer.  Seems great, doesn’t it?  For some, the convenience of it is very appealing, but for others who want to understand and know how all the moving pieces work need a Loan Officer to assist them with the process and information.

Know the risks

It is very important to know the risks!  The first risk is when you are purchasing a home, Realtors want to connect with a Loan Officer who knows your file.  If you submit an offer with a pre-approval letter from a lender with whom you have yet to communicate, the Listing Agent on that home may not accept your offer.  They will want to confirm with the lender that your documents have been reviewed, as well as credit score and some level of underwriting.  The listing agent will also want confirmation that you can close on time, and they want a go-to person with your lender who can provide timing and tracking updates.

The second risk is obvious – know who you are doing business with!  Some online lenders make all the promises, but may fail to deliver.  Reputation in the marketplace is important.  Do your research!  The Better Business Bureau, Department of Commerce and 3rd parties such as your Realtor, Zillow, Trulia and others are good ways to verify your lender is legitimate.  Not only are you submitting personal documentation to a lender you are not meeting face to face, you are also pinning your hopes and dreams of homeownership to this company.  Make sure they have a great reputation.  Another way to look up a company or Loan Officer is via  The NMLS system, or Nationwide Mortgage Licensing System, has the licensing data for each company and Loan Officer.

The third risk is having a point of contact.  Even the highest qualified borrowers will run into things that need to be corrected or problem solved.  If your loan application is in the hands of a machine and not a lending expert, who do you go to when an issue arises?  It makes great prudent sense to connect with a lender first before going through the online application process to make sure you have a contact that can help if the need arises.  Research the person as well to insure he or she is licensed and has the know-how to make sure your loan gets done, on time, and delivers the terms you are expecting.  Reading Loan Officer reviews on Zillow is a good way to get to know who you are working with, or use the trusted guidance of your expert Realtor to assist you.

Guide to the CFPB

Overall, completing a loan online is more efficient, flexible with your schedule, and can yield a positive experience if coupled with an expert Loan Officer and a highly reputable local lender.  The CFPB has a guide on shopping for a loan (Download the CFPB Guide) and a lender should provide you with a Loan Estimate within 3 days of your completed application (includes your name, income amount, Social Security number and birthdate to obtain a credit report, a property address, an estimated value of the property, and the mortgage loan amount sought.

The Furlong Team is pleased to offer the FHA Streamline 203(k).

A few quick things to know about 203(k):

  1. Find your contractor early. They need to be licensed and should be organized with their paperwork!
  2. Repairs should not require large structural changes.
  3. The timeline for closing is longer than standard mortgage programs.
  4. The underwriting process has more details and will be a bit more work than a standard loan program, but just have patience and you will be ok!

FHA’s Streamlined 203(k) program permits borrowers to:

  • Finance up to an additional $35,000 into their mortgage to improve or upgrade their home before move-in
  • Finance funding to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser

FHA offers insurance to lenders for two repair programs – the 203(k) Streamline and the standard 203(k).

Eligible repairs include, but are not limited to:

  • structural alterations (not applicable on Streamline (k))
  • additions (not applicable on Streamline (k))
  • reconstruction (not applicable on Streamline (k))
  • remodeling (only minor remodeling allowed on Streamline(k))
  • new siding
  • plumbing
  • painting
  • decking
  • heating and/or air-conditioning
  • electrical systems
  • roofing
  • flooring and carpeting
  • energy efficient improvements
  • major landscape work (not applicable on Streamline (k))
  • pool repairs and pool fences.