Here’s how to prepare when applying for a mortgage

Park State Bank Steven J. Raj 08-20-2013By Steven Raj

Spring weather has arrived in the Northland, and the home-sale market is heating up, too.

As more for sale signs pop up and more buyers look in earnest, it’s a good time to consider financing a new home and the steps you’ll need to take as a buyer to be prepared. I tell clients to consider the financing side of home purchasing before they start looking for that new home. That way, they know exactly what to expect and what they can afford. Here are some of the fundamentals you need to know as you begin the process of applying for and qualifying for a mortgage loan:

  • Gather your documents: Your lender will want to see evidence of your current financial situation as well as your financial history. You’ll need to provide your W-2 statement for the last two years and your paycheck stubs. If you are self-employed, you will need your personal income-tax returns from the last two years and possibly your business tax returns as well. Your lender needs to verify your income as well as your employment status and history. If you have gaps in your work history, be sure you can explain them and show how your situation now provides a steady income stream.
  • Credit is crucial: Lenders will want to review not only your credit score but also your overall credit depth. If you have a great score but not a lot of credit history, you still may not be able to qualify for a loan. Especially for first-time homebuyers, showing a strong history of borrowing and being able to repay those funds is important. Lenders usually like to see at least four lines of credit that have been open, with a solid repayment record, for the past 12 months. But be wary of opening a lot of new credit cards or other credit accounts right before you apply for a loan, as these may bring down your credit score.
  • Non-traditional forms count, too: As you assemble your credit documentation, don’t forget non-traditional forms such as proof that you are current and have made timely payments for rent, utilities and recurring expenses such as home and car insurance. These are not traditional forms of credit, but they count in your favor if they show you as a reliable payer of your bills. Ultimately, that’s what a mortgage lender wants to see.
  • Ask about credit help: If your credit score is not where it needs to be, or if you don’t have sufficient credit depth, ask your lender about credit-building tools that can help. Community banks often have “credit builder” programs that allow you to take out a loan, place the proceeds in savings and pay the lent money back over time. It’s an easy, simple and safe way of building your credit while also building up a savings account to help with your home purchase.
  • Debt-to-income ratio matters: After reviewing your financial situation, your lender will do a calculation to determine your debt-to-income ratio. This is simply a tally of all of your credit payments and other recurring bills, along with your anticipated new house payment, divided by your income. Your debt-to-income ratio should never exceed 45 percent. If it does, you may only qualify for a smaller house payment, may need a larger down payment or will have some work to do to get your finances in better shape.
  • Explain large deposits: If you have recent large deposits in your bank account, your lender will ask you about them. Be prepared to explain them. Your lender needs to be sure that these are not borrowed funds that you will need to repay at some point. Keep a paper trail of any large deposits, such as proceeds from a car sale or funds transferred from other accounts.

Shopping for a house is exciting, whether it’s your first one or simply a new place to call home. You’ll be prepared to make the deal on the new house you want if you know what to expect when it comes to financing that purchase—and especially if you have started early and are pre-qualified to make an offer.

Steven Raj is Vice President of Lending at Park State Bank in Duluth. You can reach him at or 218-727-8001.

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When you shop for a car, shop for the loan as well

Park State Bank logoBy Dale Lewis

I’m pleased to see how diligent most people are these days about shopping for a car. But I’m equally disappointed to see how many of them fail to apply that same diligence when it comes to shopping for the money to buy a car.

When they’re looking for the right make, model and price of car, they search high and low, at local dealers, sometimes out of the area and certainly online. They’ll make sure they understand the value of the car they want, comparing new-car prices and scrutinizing reseller value books for used cars to make sure they’re not paying a penny more than they should.

But when the negotiating is over and they’re happy with their deal, they’ll stop. The problem is, they’re only about halfway through.

The financing that most buyers need to purchase a car is at least half of the battle. But too many buyers fail to realize the importance of shopping for the best vehicle loan.

It’s not difficult. Most importantly, the shopper’s tool needed to get the best loan deal is the same one that the diligent buyer has already used to find the best car at the best price.

The best advice I can offer is don’t take the first loan offer you get. You wouldn’t do this with your car choice or price. But that’s exactly what many buyers do when they have picked out their vehicle, agreed on price and are ready for the financing.

Start shopping for your auto loan before you shop for your new vehicle. Narrow your search to several respected lenders, offer your credit history and see what they propose.

You can include your car dealer’s lending options in that search. But don’t forget traditional lending resources such as your local community bank, especially if you have a relationship with that bank. An independent lender doesn’t have the need to sell you a vehicle. As a result, they can look at the loan as the separate transaction that it is.

Check rates, loan terms and payment options. If one loan program looks good, ask other lenders if they can beat it.

Also, consider taking dealer incentives such as money off the purchase price instead of a lower loan rate and then trying to match or beat that rate with another lender. Doing this may give you the best of both worlds.

When you offer your credit history to lenders, it will count as an inquiry on your credit history. But if you do your loan shopping in the space of two weeks, it shouldn’t impact your credit score any more than a single inquiry.

As you shop for your loan, or even beforehand, familiarize yourself with your credit history and know your credit score. This will give you a firm grasp on your credit picture and will let you know if what lenders tell you is in line.

Don’t be so eager initially to talk monthly payment with your lender. Yes, this is important in the end. But one way many car buyers end up paying a lot more is by lowering their monthly payments and extending the loan term for a longer period—sometimes much longer. Do at least rough calculations about what you can afford, in terms of a down payment and your monthly payments. Think also about how long you plan to own the car as you’re determining your loan term.

These are just a few tips for those in the market for a new or used car. It’s great to be aggressive when it comes to finding the right vehicle at the right price. But remember that when you’ve struck a deal on a new car or truck, you’re only halfway done.

Dale Lewis is president of Park State Bank in Duluth. You can reach her at or 218-722-3500.

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Why giving locally has so much impact

Park State Bank logoBy Dale Lewis

Buy local. Eat local. Shop local. Give local, too.

All around us, messages ring out about the benefits of living our lives more locally. To my mind, they ring true. As a community banker, I regularly see the benefits of doing business close to where we live and work.

I’ve even advocated in this space another message—bank local. Just as it makes sense to keep more of your shopping dollar with local merchants, we all benefit when we bank with local institutions that plow that money right back into our communities.

Today I want to talk about an important way we can focus our attention and resources closer to home: Give local.

It’s the time of year when many of us give to nonprofits and charities as part of the holiday spirit and tax planning. Lots of good options abound. But I’d like to point out three distinct advantages of local charities and non-profit organizations when it comes to giving.

First, more of the money—and in many cases all of it—stays local. When you give to a local charity, they spend most of those funds on program activities, supplies, salaries and other expenses in the region. In fact, all of it usually stays right here to do good work right here. That’s a distinct advantage.

When we give, we want to have impact. Local nonprofits give you more bang for your buck. Whenever we spend or give, our funds become amplified by something called the multiplier effect. That means every dollar we spend or give is respent. Then it’s respent over and over again, each time by a larger group of beneficiaries.

Just as it makes more sense to support local merchants, restaurants, farmers and, yes, banks, it makes sense to support local groups doing good works because the full effect of the multiplier plays out locally. That means the people feeling the effects of the multiplier effect started by you are your neighbors. When that happens, your dollar has maximum impact improving the place you call home.

Second, giving locally allows a measure of accountability and involvement that giving to more distant organizations generally does not. When you donate to a local charity, you can go to their offices or to their operation centers and see firsthand the impact you’re having through your donation. You can talk to the people the organization helps. You can volunteer. You can check on the progress of the organization towards its goals by attending its events and meetings, getting on its contact lists and reviewing its annual report.

You can do some of that with more distant charities. But the opportunity for in-person connection with the organization’s leaders, doers, volunteers and beneficiaries is much more possible and likely when the good work you are supporting is close to home. You may even find yourself giving your time as well as your money because you have a greater understanding and appreciation of the work underway.

Third, federal and state tax impacts of giving locally exist for many individuals and organizations. It’s true that the tax benefits of charitable giving don’t discriminate based on whether the charity is local or distant. But by having a local connection, you’re probably more likely to understand giving options that may provide extra donation flexibility, such as programs that allow giving in installments or through direct paycheck deductions. Also, simply having a charity’s offices close makes it easier to drop off a check in person at the end of the year or to donate through a distinctly local program like we have in Minnesota with November’s annual Give to the Max Day.

All of these local options may make it easier to give a little more. You can even give as a gift in honor of a friend or family member.

Many of us include a wide range of giving in our charitable activities. Whether it be the human needs of food or shelter, the arts, education, recreation or health and well-being, the needs are great in our community. Your opportunity to help is great as well.

Thanks in advance for however you choose to give.

Dale Lewis is president of Park State Bank in Duluth. You can reach her at or 218-722-3500.

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Enjoy the gift of financial security this holiday season

Park State Bank logoBy Dale Lewis

As we enter the holiday season, one of the best gifts you can give yourself is an extra measure of vigilance to protect yourself against fraud and identity theft.

Sad to say, a time of year when most of us are counting our blessings and thinking about making the holidays bright for friends and family is a time of increased activity by those who would separate us from our money with scams, consumer fraud and criminal deception. Here are some of my tips, from the perspective of an experienced community banker, to make your holidays safer when it comes to handling your money and monitoring your accounts:

Credit cards are a favorite target for criminals seeking to use your money for their holiday cheer. As you are out and about making purchases in stores or shopping online, be extra careful with your credit cards and keep a more focused eye on them, along with your printed and online statements.

When you are shopping, carry only the credit cards you plan to use. I suggest putting holiday spending on one card to limit the risk of potential problems and also to keep better track of what you’re buying and how much you’re spending.

I also recommend that you designate just one card for all of your online purchases. This will limit your exposure if somehow that card becomes compromised. Also, you can reduce your chances of falling victim to online fraud by ensuring that your computers have the most up-to-date security software and by reporting any suspicious activity as soon as you suspect it.

When you are in stores, don’t let your cards out of your sight or even out of your hands. New security features are in place at many retailers, requiring you to insert your new card with a security chip into a credit-card reader instead of, or in addition to, swiping the card. Make sure take your card when you leave the store.

When using your card to obtain ATM cash, check the machine for evidence of tampering before you use it. Glue and overlays on the card reader are typical evidence of tampering through devices designed to steal your card information and allow others to withdraw funds from your account. If you see anything suspicious, report it—and find another machine.

One of the best ways to safeguard your bank accounts and credit cards is to monitor transactions online. Yes, go over your monthly statement when it arrives in the mail or by email. But the holiday season is a time when it’s worthwhile to go online every few days and make sure that all of the credit card spending you see on your account is spending for which you are responsible.

Don’t get hooked by phishing, a form of online fraud in which consumers receive email messages from criminals claiming to represent their banks or credit cards and asking for personal or account information. These contacts usually start with a request for personal or account data for “validation” or to address a phony problem. They sometimes also ask consumers to click on a button that downloads a compromising file.

Reputable banks never ask for your secure information this way. So never give it out—and report suspicious solicitations if you get them.

Lots of legitimate charities become more active around the holidays. But lots of unscrupulous characters also get more active. Pretending to raise money for charity is a familiar scam that plays on the emotions of unsuspecting, good-hearted people.

It can be difficult to tell which charities are legitimate and which are not. My advice is to be extra alert and vigilant. When you are approached by email or phone, ask for a call-back number or for the person making the offer to send information to you by U.S. mail. Such validation efforts are a quick and effective tool to separate the real charities from the scam artists.

As we enter the holidays, you’ll be better able to enjoy this special time if you’re more confident about the safety of your accounts. A few extra but simple steps can provide the security to give yourself the gift of financial peace of mind.

Dale Lewis is president of Park State Bank in Duluth. You can reach her at or 218-722-3500.

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