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2nd step to buying a home—choosing the right loan for you

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So you’re ready to buy a home, and have finished the first step of pre-approval. Did you know that nearly half* of home purchases are from your fellow first-timers? It can be a daunting process, so we’re continuing the step-by-step approach to help you navigate this important financial decision.

There are many home loan choices. Finding the right lender will be the key to obtaining the information you need to make the right decision. The pre-approval process should have uncovered many of the factors that determine which loan will work best for you and let you know what interest rate you might be paying. Remember, to get a good interest rate, you’ll need as high a credit score and down payment as possible. The right lender will be able to guide you and explain the differences in each of the loans you qualify for.

Here is a general discussion of some of the mortgage loans available, to help prep you for your first meeting with a potential lender. The main differences are the size of the down payment and whether the interest rates can change.

Types of mortgage loans:

Conventional vs.Non-Conventional– One of the first decisions you will discuss with your lender is whether you want a conventional or non-conventional loan, which often depends on the size of your down payment.

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Conventional - A conventional loan typically requires a minimum down payment of 5 percent.  If you put down 5 to 19 percent, private mortgage insurance (PMI) may be required. This insurance protects the lender if you do not repay your mortgage.  Typically, you’ll have to pay this insurance until 78-80 percent of your mortgage is left, and then you may be able to remove PMIfrom your payments.  To avoid that extra insurance from the beginning, you’ll typically have to put down 20 percent or more.

Most first-time buyers choose homes with a median value of $147,000*, but in case you’re wondering, the conventional loan limit in most areas is $417,000. These loans can be fixed or adjustable (more on that in a minute). Conventional loans also allow you to have the seller pay up to 3 percent of your home’s closing costs and prepaid taxes and insurance.

FHA (non-conventional) – FHA loans typically require lower down payments than conventional mortgages, but there are also drawbacks to them. For example, FHA loans require mortgage insurance up front and it is usually more than private mortgage insurance with a conventional loan. Here’s how this type of loan works: The Federal Housing Authority does not actually lend the money but insures 100 percent of what the lender funds. FHA loans tend to be the most flexible in their credit guidelines. They usually allow for lower credit scores, higher debt-to-income ratios and as little as 3.5 percent as a down payment. These loans allow for up to 6 percent seller-paid closing costs and prepaid taxes and insurance.

Veterans Affairs (VA) – The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry). The VA loan does not require a down payment and does not require monthly private mortgage insurance.

United States Department of Agriculture (USDA) – This loan is intended to help people purchase homes in rural areas. The property must be located within the USDA Rural Development Home Loan footprint. USDA loans offer 100 percent financing to qualified buyers and allow for all closing costs to be either paid for by the seller or financed into the loan.

Fixed vs. Adjustable Rate Mortgages – After choosing a conventional vs. non-conventional loan, it’s time for another decision: do you want a fixed or adjustable rate?

Fixed-Rate Mortgages – Fixed-rate loans are just that, loans that have interest rates that are locked-in for the term of the loan. This means that your rate will not change during the entire time that you have the loan. Keep in mind that even with a fixed interest rate your payment could vary based on changes in taxes or insurance. The repayment of the loan is also spread out, or amortized, over that same fixed period. You can choose from 10-, 15-, 20-, 25- and 30-year fixed rates. Generally, the shorter the term of the loan, the lower the rate, but also the higher the payment. For example, a 15-year loan will usually have a better interest rate than a 30-year loan, but you’ll have to pay more per month in order to get the mortgage paid off sooner. Therefore, choosing the fixed-rate period will be a large part of determining the amount of your monthly payment.

Adjustable Rate MortgagesThese loans typically allow you to have lower payments at the very beginning, but take on higher risk than fixed-rate loans. There is usually an initial time period (1 to 10 years) where the interest rate is fixed. However, the rate can change after the initial fixed period causing the monthly payment to go up. Be sure to talk to your lender about what type of loan is best for your situation. If any of these factors apply to you, your lender can explain in more detail how an adjustable rate mortgage would work for you. However, an adjustable rate may be a good option if:

  • you plan to sell in a few years,
  • you will pay off the loan early, within the next few years, or
  • interest rates are high right now and are anticipated to decrease in the coming years. (not the case today)

To avoid feeling overwhelmed, remember, your lender is there to walk you through everything. Instead, focus on what your needs are. Then, you can outline with your lender what you’re looking for so he or she can provide your best options.

Arrive at your first lender meeting with answers to the following questions:

  • How much will you have for a down payment?
  • What are your preferred neighborhoods?
  • Do you want to get your loan paid off as soon as possible even if it means higher payments, or do you need lower payments with more time to pay it off?

Choosing the right lender is just one part of your home-buying team. Adding an experienced realtor will save you time and money and will be discussed in step three of buying a home.

*statistic source: NAHB.org

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.




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1st step to buying a home: pre-approval

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Imagine walking in to your new house. You moved in a few weeks ago, you’ve unpacked most of your things, and it’s starting to feel like home. But then you wake up from this fantasy and realize you don’t know how to make this dream become a reality. We’re here to help.

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The process of purchasing your first home should be exciting and rewarding knowing you are taking control of your finances by investing into your own home. We want to give you a head start with understanding the process.

First things first. You’ll need to shop for a lender. Start with your own bank (a source you trust and believe in) and shop with other lenders as well. You’ll want to compare rates, cost associated with the loan and feel comfortable with the lender’s service levels before you apply.  A good lender will work closely with your specific situation. They will explain the loan and buying process and answer all your questions as a first-time home buyer.

The mortgage loan process has changed drastically over the years, so be prepared that the lender will want at least 30 days to get your loan approved and closed. Processing times will vary based on how complex your personal history is to document and verify. We suggest getting a pre-approval letter from your lender before shopping for your new home.

Why do you need a pre-approval letter?

  • A pre-approval letter will give your real estate agent a price range to know what homes to include in your search. It outlines the loan amount and terms you are approved for.
  • Pre-approval gives you a negotiating advantage. A seller might be more inclined to accept your offer if you have a pre-approval letter, even if you make an offer that’s lower than a buyer without a pre-approval. Sellers want the assurance of knowing their buyer can get financing since they are also planning on a home move.
  • A pre-approval letter is a stronger option than a pre-qualification letter because the approval is based on verified credit, income and asset data that an underwriter has reviewed and approved. The pre-qualification is based only on the data provided on the loan application that has not been verified or reviewed by an underwriter.

In order to expedite your loan process, here is a list of the documentation to bring to your lender when you have your first meeting for a loan application:

  • Last two years of W-2’s and tax returns with all schedules – This allows the lender to evaluate any other income or loss for qualifying purposes. All self-employed borrowers will need to provide a two year history of tax returns to determine income for qualifying purpose.
  • Most recent paystubs to cover 30 consecutive days – The lender will review and calculate income for wage earners.
  • Most recent asset statements to cover 30 days – This statement, also known as your bank statement, will need to show you have sufficient funds in your account to close on the loan. Any large deposits will need to be documented as to where the funds came from to meet loan requirements.
  • Additional information may apply based on the type of loan you are applying for – another important reason to select a lender who will walk you through the process and give you clear explanations.

The home-buying process can be long and complicated. Preparation involved in getting a pre-approval letter is fairly simple and it helps both you and the seller in the long-run.

Stay tuned for part two of this series: The second step to buying a home—choosing the right loan for you.

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Diane Hughes is Sr. Vice President/Director Mortgage Sales for UMB at 1010 Grand Blvd., Kansas City, MO.  She is responsible for the bank-wide mortgage services and has 29 years of experience as a Mortgage Banker. 



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Scarred by Great Recession, small business owners are still playing it safe

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SmallBusinessOwners

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UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.



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Don’t Get Sacked Buying a Big Screen for the Big Game

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The big game is just around the corner and many people are thinking about buying a new big screen. You may think you’re getting a Hail Mary of a deal, but make sure you’re not getting blitzed. Here are some ways to score the TV you want and advance your financial goals down the field.

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  • Your budget is your playbook. Even if you can’t execute every play perfectly, the closer you can stick to your plan, the more points you’ll put up on the board.
  • Plan out your maximum price, the features you want and the size you want.

For example, when you start looking, you may be thinking about buying a 47-inch TV for $700, but then you find a great 47-inch TV marked down to $500. Then the helpful sales associate says that they have a 50-inch marked down from $1,000 to $750. They say that with the bigger TV you save 300 dollars instead of 250 and you’re still under your budget.

Watch out: they’re going for an interception!

If you have a budget and you spend the full amount, you did not save any money. You were never going to buy the $1,000 dollar 50-inch TV. When you came in the store, you were thinking you’d be happy with the 47-inch model. Remember the play you’re running, buy the size you originally wanted and you’ll have another $250 to put towards saving. 

  • In the NFL, players will watch hours of game tapes to learn about the other team. Do your homework by checking out customer reviews or other trusted sources.
  • That helpful sales associate may also offer you no payments or no interest for months. But even the worst referee would call a flag on this play. These deals often take the form of deferred interest, so if you don’t pay back the full amount in the given time frame, you could owe interest for the entire length of time. Every loan and credit card is different, so be sure to read the fine print before you sign on the dotted line. You may gain 10 yards on the play, but paying a high interest rate can set you back worse than a 15 yard penalty.

Remember, buying a TV is just one play in one game. For saving money, the season never ends. NFL players train their entire life to get to the big game. We save money our entire life to get to retirement. Don’t let spending sideline you. 


John R. Moreau is a product manager for Consumer Loans and Deposits at UMB Financial Corporation. He joined UMB in 2008. Moreau earned a Bachelor of Science from Arizona State University and a Master’s in Economics from the University of Missouri-Kansas City. He is currently pursuing a Ph.D. in Economics at the University of Missouri-Kansas City.



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The business of doing good: How to manage your non-profit’s finances (Part 3)

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Recently, UMB hosted a group of almost 40 representatives from Colorado Springs non-profits to talk about a variety of financial management tips for non-profit organizations. In my previous blog posts I highlighted two topics that came up during the conversation: streamlined fundraising processes and supporter/employee enthusiasm. The third subject we discussed was the idea that non-profits need a bank that acts as an extension of the organization.

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Most people probably don’t automatically make the connection between a bank and a non-profit, but the two organizations can work together to create a productive partnership. An important part of the support non-profits need to thrive is the relationship they have with their bank. Since funding is the primary way to ensure that the non-profit can continue to operate, good financial management is key. A strong relationship between a non-profit and their bank may give the staff peace of mind and help them to focus on doing good things for their community and less about their financial management.

Some challenges that non-profits face include getting sufficient funding, board and associate development and staff retention. Your bank may be able to direct you to resources that can help you overcome these challenges:

A good relationship with your bank can also help your organization achieve a sound financial structure. In addition to keeping the organization up and running, a solid balance sheet could help attract new leadership to your organization. One of our non-profit clients came to us with a potential board member who was interested in joining the organization’s investment board. The potential board member was passionate about the organization but concerned about their investment risk management. After talking with UMB and the non-profit leadership about the investment risk, he was no longer worried and joined the board because he could focus on his passion for the organization.

Non-profits offer many invaluable services to their communities. While these organizations differ from for-profit businesses in their mission and goals, they have the same business principles. Treating the financial management of a non-profit like a business helps the organization in the long run because they’re able to focus on serving the needs of their community.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Doyle is community bank president for UMB’s Colorado Springs region. He is responsible for guiding strategic direction in the Colorado Springs region as a member of the Colorado management team. He joined UMB in 2011 and has eight years of experience in the financial services industry. He earned a bachelor’s degree in finance from Florida State University in Tallahassee, Fla. and a master’s degree in business administration from Oral Roberts University in Tulsa, Okla.



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Internal Fraud: How to protect your company

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You don’t want to believe it. But the numbers just aren’t adding up. You want to trust the people who work for you, but eventually you have to come to terms with the fact that someone in your company is stealing money. Not only does it hurt your business, but it’s often a heartbreaking realization for you as a manager or owner.

It’s not always easy to figure out who is the culprit, but there are steps you can take to detect and hopefully prevent fraud within your company.

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Dual control and separation of duties

Understand who is in charge of what financial responsibilities and make sure there are no gaps. Create a system of checks and balances so that the same person who is running payables (bills, invoices, expense reports) isn’t the same person who is reconciling the accounts (balancing the company checkbook, so to speak).

It’s also a good idea for business owners to review financial statements on a weekly or monthly basis.

Automated fraud detection

Consider implementing Positive Pay. This automated fraud detection tool is offered by most banks. It’s a relatively simple process. Your company issues checks every month and you send the bank a list of all those checks, including check numbers, amounts and payees. The bank makes sure the checks match up as each one clears. This eliminates any fraudulent or altered checks. Automated fraud detection is a great solution for companies as long as they already have dual controls in place.

Anonymous tip line

Businesses should also consider setting up an anonymous fraud tip line. Internal fraud is most often detected by a tip from another associate. As a business owner or manager, you can’t know everything that’s going on in your company. Giving your associates an anonymous way to notify you is a simple, effective way to detect internal fraud.

Other processes and procedures to consider:

  • Reputable third-party audits
  • Periodic reviews of policies, procedures and controls
  • Diversity of associates’ job functions, including rotation of job duties at times
  • Periodic spot checks of your account payables/receivables, payroll, etc.

Don’t think it will happen to you? Keep this in mind. 61 percent of financial professionals reported that their organization experienced attempted or actual payments fraud in 2012. And 26 percent of fraud is committed by an organization’s own associates (Source: Association for Financial Professionals). Even though you want to assume the best from your associates, you should have systems in place to ensure that you don’t become another internal fraud statistic.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Bibens is a treasury management officer for UMB’s Commercial Deposits department. He is responsible for providing consultative technology and cash flow management solutions to companies and public entities throughout the Greater Missouri area. He joined UMB in 2010 and has 10 years of experience in the financial services industry.



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Your culture drives innovation

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Mike Hagedorn is back to expand on the idea of company culture. This time, he highlights the importance of allowing your culture to drive innovation.

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Mr. Hagedorn is president and chief executive officer of UMB Bank and vice chairman of UMB Financial Corporation. Prior to this role, Hagedorn served as chief financial officer and chief administrative officer of UMB Financial Corporation. He joined UMB in March 2005.



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Embracing Opportunities

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Meet UMB’s chief financial officer, Mike Hagedorn. In his eight years at UMB, he has embraced his role as CFO and its many opportunities. Expanding this role beyond the traditional expectations of a CFO, he is a champion of the company culture. Here he shares his thoughts on this important position in the company and what it means to him.

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Bank deposit products provided by UMB Bank n.a., Member FDIC. Equal Housing Lender


Mr. Hagedorn is president and chief executive officer of UMB Bank and vice chairman of UMB Financial Corporation. Prior to this role, Hagedorn served as chief financial officer and chief administrative officer of UMB Financial Corporation. He joined UMB in March 2005.



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