Uncategorized • September 30, 2025

How to win the home buyer war.

by Tom Sommers

I know that’s probably a little bit of an overused title it seems like everything is a war period storage wars, concert ticket wars, housing wars, tow truck wars and on and on. But they didn’t know what else to call it simply because of the fact that this is how a lot of my clients at times feel.

As a home buyer they feel like they are literally at war. The question then becomes how do you avoid that feeling and how do you battle back to end up in the home that you want to purchase? Their actual several there are actually several different ways to accomplish this but it comes down to the home buyer individually. What are you looking for in a new home? And what are you willing to change, repair or alter to get to where you want to be?

Case in point, if you’re looking for a house right now that’s completely move in ready that requires no work at all that looks like something out of a magazine or restoration hardware, be prepared to fight for it. A lot of home buyers are looking for that specifically right now. If that’s the case for you, then we have to look at different ways to write a purchase agreement to make you stand out and make you more attractive than all of the other competition. It’s really not that hard to do but you have to be willing to try something that’s a little bit of the out of box thinking. This is a combination of answering questions from myself as well as your loan officer to put the right offer together for you.

If that’s not the case and you’re looking for an older home that maybe needs some updating but stuff you can handle whether it’s your first home or your 5th home, then the strategy is a little bit different you don’t have to worry as much about how you write the offer because you’re not competing with other people. A lot of wonderful homes right now between $400,000 and seven or $800,000 are sitting on the market for several months without any offers and barely any activity. The key is scooping these up before the interest rates drop.

The last bit of insight would be what can you do from an interest rate perspective? I would argue that it’s better to purchase a home right now with a higher interest rate and refinance for $5000 when the rates drop. . Then to wait for the rates to become very attractive and all of a sudden now you’re in a bidding war because a lot of buyers who are waiting for the same thing you are will jump into the market. All of this goes back to timing and motivation. Give me a call and let’s have a conversation. You’re under no obligation but I’ll be more than happy to share the strategies in more detail with you and tailor them to your specific needs.

Uncategorized • June 3, 2025

How to Flip Homes and Make Money: A Practical Guide

by Tom Sommers

How to Flip Homes and Make Money in 2025: A Practical Guide

Flipping homes—buying properties, renovating them, and selling for a profit—can be a lucrative venture, but it’s not a get-rich-quick scheme. In 2025, with a balanced housing market in areas like Minneapolis-St. Paul (median home price $380,000, per recent data), opportunities exist for savvy investors. However, success requires research, patience, and a solid plan. This isn’t about selling you a course or gimmick; it’s about providing clear, actionable advice to help you flip homes profitably, whether you’re a self-employed contractor or a first-time investor. Below, we’ve reorganized the guide for clarity, added insights, updated stats, and included considerations for pre-1978 homes and federal laws, ensuring you avoid costly mistakes and maximize returns.

1. Why Flipping Homes Can Work in 2025

Flipping involves purchasing undervalued properties, making strategic improvements, and selling at a higher price. In 2025, a National Association of Realtors (NAR) report shows flippers earn an average profit of $60,000 per home, down from $75,000 in 2021 but still viable. Minneapolis-St. Paul offers opportunities due to stable demand (3–4 months’ inventory) and neighborhoods with older homes ripe for renovation. However, high interest rates (6–7% for investment loans) and rising material costs (up 5% since 2024, per NAHB) demand careful planning.

Danger: Flipping without a plan can lead to financial ruin. Overestimating profits or underestimating costs—like a $30,000 HVAC replacement—can erase margins or bankrupt you. Self-employed flippers, with irregular income, risk cash flow issues if a flip takes longer than expected.

2. Step 1: Do Thorough Market Research

Before buying, understand the local market to identify high-potential areas. Research why people choose specific neighborhoods—job hubs, schools, or amenities like parks—and assess demand.

Key Research Areas:

Neighborhood Appeal: Look for areas with strong employment (e.g., Minneapolis’s healthcare sector) or attractions (e.g., proximity to lakes). Desirable neighborhoods hold value better.
Rental Market: Check rental inventory on platforms like Zillow. Low rental supply (e.g., <2% vacancy) signals high demand, ensuring your flip appeals to buyers or renters if it doesn’t sell quickly.
Home Prices and Trends: Analyze recent sales via Redfin or a real estate agent’s comparative market analysis (CMA). In 2025, homes in up-and-coming areas like St. Paul’s Midway sell for $250–$300/sq. ft. after upgrades, offering profit potential.
Pre-1978 Homes: Many Minneapolis homes predate 1978, posing lead paint risks (banned that year). Federal law requires lead disclosures, and remediation ($5,000–$20,000) can impact costs.

New Insight: In 2025, buyers prioritize energy-efficient homes, per a Zillow survey, boosting demand for flips with modern HVAC or insulation. Targeting neighborhoods near new infrastructure (e.g., planned transit lines) can yield 10–15% higher resale values, per Urban Institute data.

Action Steps:

Spend 1–2 months researching neighborhoods, visiting open houses, and talking to locals.
Use WalkScore.com to evaluate amenities and Redfin for sales data.
Consult a real estate agent like Tom Sommers in Minneapolis-St. Paul for a CMA and insights on emerging areas.

Danger: Investing in declining areas or overlooking lead hazards can tank your flip. A 2025 HUD report notes 60% of pre-1978 homes contain lead paint, with cleanup costs reaching $50,000 if soil or water is contaminated.

3. Step 2: Know Your Numbers Inside Out

Flipping hinges on accurate budgeting. Misjudge costs, and your profit vanishes. Use the 70% Rule: Pay no more than 70% of the after-repair value (ARV) minus repair costs. For a home with an ARV of $300,000 needing $50,000 in repairs, your max purchase price is $160,000 ($300,000 × 0.7 – $50,000).

Key Costs to Budget:

Purchase and Down Payment: Expect 20–30% down for investment loans ($40,000–$60,000 on a $200,000 home). Rates are 7–8%, per 2025 MBA data.
Holding Costs: While renovating (3–6 months), cover mortgage payments ($1,200–$1,800/month), property taxes ($3,000–$5,000/year), insurance ($1,000–$2,000/year), utilities ($200–$400/month), and maintenance.
Renovation Costs: Budget $20–$50/sq. ft. for updates ($40,000–$100,000 for a 2,000-sq.-ft. home). Kitchens and bathrooms yield the highest ROI (80–90%, per 2025 Remodeling Magazine).
Lead Remediation: For pre-1978 homes, lead paint stabilization ($2,000–$10,000) or removal ($10,000–$30,000) may be required, per EPA guidelines.
Selling Costs: Include 5–6% agent commissions ($15,000–$18,000 on a $300,000 sale), closing costs (1–2%, or $3,000–$6,000), and transfer taxes.

Added Value for Self-Employed: If you’re self-employed (e.g., a contractor), leverage your skills to reduce labor costs, but budget for materials and permits. Bank statement loans, using 12–24 months of deposits, can help 1099 workers qualify for investment loans, though rates are 8–9%.

Action Steps:

Create a detailed budget using the 70% Rule, factoring in all costs.
Get contractor quotes ($50–$100/hour) for repairs, adding 10–20% for overruns.
Work with a lender to pre-qualify for a hard money or investment loan, ensuring funds are ready.

Danger: Underestimating costs—like a $50,000 kitchen instead of $20,000—can erase profits or lead to foreclosure if you can’t cover holding costs, especially for self-employed flippers with variable income.

4. Step 3: Exercise Patience and Discipline

Patience is your greatest asset. Rushing into a bad deal can be catastrophic. It may take 6–12 months to find a property that fits your budget and goals, but sticking to your plan ensures profitability.

Why Patience Matters: In 2025, Minneapolis’s balanced market means deals exist, but foreclosures or short sales are not easy wins. Sheriff’s sales or bank-owned properties often have liens, repair needs, or bidding wars, reducing margins. A 2025 Redfin report shows foreclosures sell at 10–15% discounts but require $20,000–$50,000 in repairs, negating savings.

New Insight: Self-employed flippers must align projects with business cycles to avoid cash flow crunches. Patience also means walking away from deals with hidden issues, like lead contamination in pre-1978 homes, which can trigger $10,000–$100,000 in EPA-mandated cleanup.

Action Steps:

Set a 6–12 month timeline to find a property, avoiding pressure to buy prematurely.
Monitor listings daily on MLS or platforms like Zillow, focusing on distressed but viable homes.
Avoid foreclosures unless you have cash reserves and legal expertise to navigate risks.

Danger: Impatience can lead to buying overpriced or problematic properties, costing $50,000–$100,000 in losses or legal fees, especially with lead-related liabilities.

5. Step 4: Stick to Your Targeted Assets

Choose a specific property type (e.g., 3-bed, 2-bath single-family homes under $200,000) and neighborhood, then stay focused. Switching to unfamiliar areas or property types mid-process disrupts your research and budget, risking financial failure.

Why It Matters: Consistency builds expertise. For example, focusing on St. Paul’s Frogtown, where homes sell for $200,000–$250,000 post-renovation, lets you predict ARVs and costs accurately. Deviating to a $300,000 condo in a new area could misalign with buyer demand, leaving you stuck.

Added Value: In 2025, buyers favor move-in-ready homes with modern finishes, per NAR. Target properties needing cosmetic updates (e.g., paint, flooring, $10,000–$30,000) over structural overhauls ($50,000–$100,000) to maximize ROI. For pre-1978 homes, budget for lead-safe renovations using EPA-certified contractors to comply with the Renovation, Repair, and Painting (RRP) Rule.

Action Steps:

Define your ideal property (e.g., 1,500–2,000 sq. ft., built 1950–1970, $150,000–$200,000).
Partner with an agent to set up MLS alerts for matching listings.
Hire RRP-certified contractors for pre-1978 homes to avoid $47,000 EPA fines.

Danger: Straying from your plan can lead to buying a “money pit,” like a pre-1978 home with undisclosed lead pipes ($15,000–$30,000 to replace), wiping out profits.

6. Step 5: Understand All Associated Costs

Beyond holding costs, renovation expenses are the make-or-break factor. Misjudging repair costs can turn a promising flip into a loss.

Key Renovation Costs:

Cosmetic Updates: Paint ($2,000–$5,000), flooring ($5,000–$10,000), fixtures ($1,000–$3,000).
Major Systems: HVAC ($5,000–$15,000), roofing ($10,000–$20,000), plumbing ($5,000–$15,000).
Lead Remediation: For pre-1978 homes, lead paint removal ($10,000–$30,000) or encapsulation ($2,000–$10,000) is often required.
Permits and Inspections: $500–$2,000, plus lead inspections ($500–$1,500).
Unexpected Repairs: Add 10–20% ($5,000–$20,000) for surprises like foundation cracks.

New Insight: In 2025, material costs (e.g., lumber, up 5% from 2024) and labor shortages push renovation budgets higher. Self-employed contractors can save by doing some work themselves but must comply with lead-safe practices for pre-1978 homes to avoid health risks or fines.

Action Steps:

Get 2–3 contractor quotes before buying to lock in repair costs.
Conduct a pre-purchase inspection ($300–$600) and lead test ($500–$1,500) for pre-1978 homes.
Secure title insurance ($1,000–$3,000) to protect against liens from past environmental issues.

Danger: Underestimating repairs—like a $50,000 kitchen instead of $20,000 or $100,000 lead cleanup—can bankrupt you, especially without a cash reserve.

7. Additional Strategies for Success in 2025

Build a Team: Partner with a real estate agent, lender, CPA, and lead-certified contractor. An agent like Tom Sommers can identify off-market deals in Minneapolis-St. Paul.
Secure Financing: Hard money loans (10–12% rates, 2–5 points) suit flips but require quick repayment. Self-employed flippers can use bank statement loans, showing 24 months of deposits.
Comply with Federal Laws: For pre-1978 homes, disclose lead hazards per the 1992 Lead-Based Paint Hazard Reduction Act. Buyers get 10 days to inspect, and violations incur $47,000 fines.
Market Smartly: In 2025, professional photography ($200–$500) and virtual tours ($200–$500) attract online buyers. Highlight lead-safe upgrades or energy-efficient features to boost value by 5–8%, per Remodeling Magazine.
Protect Finances: Maintain a 6–12 month emergency fund for self-employed flippers to cover delays or slow sales, costing $5,000–$10,000 in holding costs.

New Insight: Flipping pre-1978 homes offers high margins but requires lead expertise. A 2025 EPA report notes 34 million homes have lead paint, with urban areas like Minneapolis at higher risk. Lead-safe flips can attract eco-conscious buyers, increasing resale speed by 10–15%, per Zillow.

Flipping homes can build wealth, but it’s a high-risk, high-reward endeavor. In 2025’s balanced market, opportunities abound in Minneapolis-St. Paul, but success demands research, patience, and discipline. For self-employed investors, aligning flips with business cash flow is critical. By targeting the right properties, budgeting accurately, and navigating pre-1978 lead risks, you can earn $20,000–+ per flip while avoiding financial disasters.

Action Steps:

Start researching neighborhoods and budgeting today, aiming for a 6–12 month timeline.
Contact a real estate agent like Tom Sommers for market insights and deal alerts.
Consult a lender and CPA to secure financing and optimize taxes, especially if self-employed.

Flipping isn’t easy, but with a smart plan, you can turn properties into profits. Reach out for guidance and start your journey today!

Uncategorized • June 3, 2025

Understanding Lead Poisoning: Risks, Federal Laws, and Considerations for Homes Built Before 1978

by Tom Sommers

Understanding Lead Poisoning: Risks, Federal Laws, and Considerations for Homes Built Before 1978

Lead poisoning remains a significant public health concern, particularly in older homes built before 1978, where lead-based paint and other sources pose serious risks. This preventable condition can cause severe health issues for children and adults, making it a critical factor for home buyers, sellers, and residents, especially in urban areas with aging housing stock. In 2025, heightened awareness and stringent federal regulations underscore the importance of addressing lead hazards in real estate transactions. Below, we’ve reorganized and expanded the discussion on lead poisoning, added insights specific to pre-1978 homes, clarified federal laws, and provided actionable strategies to protect your health, finances, and property value—particularly for self-employed individuals or those navigating the housing market.

1. What Is Lead Poisoning and Why Is It Dangerous?

Lead poisoning occurs when lead, a toxic heavy metal, accumulates in the body, often through ingestion or inhalation of lead dust, chips, or contaminated water. Even low levels of exposure can cause irreversible harm, with children and pregnant individuals being most vulnerable.

Health Risks:

Children: High lead levels can damage the brain and nervous system, leading to developmental delays, learning disabilities, behavioral issues, slowed growth, hearing loss, and seizures. The CDC notes that blood lead levels as low as 3.5 µg/dL can impair cognitive function in children.
Adults: Lead exposure can cause reproductive issues (e.g., reduced fertility), high blood pressure, digestive disorders, nerve damage, memory and concentration problems, and muscle or joint pain. Chronic exposure increases risks of kidney damage and cardiovascular disease.
Pregnant Individuals: Lead can cross the placenta, harming fetal development and increasing risks of miscarriage or preterm birth.

New Insight: In 2025, the CDC reports that approximately 3.3 million U.S. children under 6 live in homes with lead hazards, down from 4 million in 2015 but still a significant concern. Urban areas like Minneapolis-St. Paul, with 60–70% of homes built before 1978, face heightened risks due to aging infrastructure. Self-employed individuals, who may work from home or have flexible schedules, should be especially vigilant if their home office or living space exposes them or their families to lead.

Danger: Lead poisoning is often silent, with no immediate symptoms. Children may absorb lead from peeling paint chips or dust during play, while adults might inhale dust during renovations. Untreated exposure can lead to lifelong health issues, costing families $10,000–$50,000 in medical and educational expenses, per EPA estimates.

2. Sources of Lead in Pre-1978 Homes

Homes built before 1978 are the primary source of lead exposure due to the widespread use of lead-based paint, banned for residential use that year. Other sources include:

Lead-Based Paint: Found on walls, windows, doors, and trim, lead paint becomes hazardous when it peels, chips, or turns to dust. Friction from windows or doors can release lead dust, which settles on floors and surfaces.
Lead Pipes and Water: Older homes may have lead pipes or lead-soldered plumbing, contaminating drinking water. In 2025, the EPA’s Lead and Copper Rule mandates replacing lead service lines, but many homes remain at risk.
Soil Contamination: Lead from exterior paint or past vehicle emissions (pre-1980s leaded gasoline) can contaminate soil, especially near busy roads or older urban homes.
Household Items: Imported toys, ceramics, or cosmetics may contain lead, though less common in 2025 due to stricter regulations.

Added Detail: In pre-1978 homes, lead paint is most hazardous in high-friction areas (e.g., window sills, where opening/closing creates dust) or during renovations. A 2025 HUD report estimates 34 million U.S. homes still contain lead paint, with 80% of pre-1940 homes affected. In Minneapolis-St. Paul, where 30–40% of homes predate 1940, lead hazards are a top concern for families and buyers.

Action Steps:

Test your home for lead using an EPA-certified inspector ($300–$800) or DIY kits ($20–$50, less reliable).
Check your water for lead with a certified lab test ($50–$150), especially if you have older plumbing.
Avoid DIY renovations in pre-1978 homes without lead-safe practices, as sanding or scraping can release toxic dust.

3. Federal Laws Governing Lead-Based Paint in Real Estate

The Residential Lead-Based Paint Hazard Reduction Act of 1992 (Title X) mandates strict requirements for homes built before 1978 to protect buyers and tenants from lead hazards. These regulations, enforced by the EPA and HUD, apply to sellers, landlords, and real estate agents.

Key Requirements:

Disclosure: Sellers must provide buyers with any known information about lead-based paint or hazards. This includes sharing past inspection reports or maintenance records.
Lead Disclosure Form: Sales contracts must include an EPA-approved lead disclosure form, signed by all parties, acknowledging lead risks.
EPA Pamphlet: Sellers must provide buyers with the EPA’s “Protect Your Family from Lead in Your Home” pamphlet, detailing lead hazards and prevention.
10-Day Inspection Period: Buyers have up to 10 days (or a mutually agreed period) to conduct a lead risk assessment or inspection at their expense. Buyers can waive this right but must do so in writing.
Corrective Stipulations: Buyers may negotiate repairs or remediation (e.g., paint stabilization, $1,000–$5,000) as a condition of sale.

New Insight: In 2025, compliance with lead disclosure laws is under increased scrutiny, with EPA fines for violations reaching $47,000 per incident, up from $37,500 in 2020. Real estate agents must ensure sellers complete disclosures accurately, as failure can lead to lawsuits or deal cancellations. Self-employed sellers, juggling business demands, risk overlooking these requirements without professional guidance, exposing them to legal and financial penalties.

Danger: Non-disclosure of known lead hazards can result in lawsuits from buyers, costing $10,000–$50,000 in legal fees or damages, plus health-related claims if occupants are harmed. Sellers who downplay lead risks also face deal breakdowns, as 2025 buyers often demand remediation before closing.

Action Steps:

Work with a real estate attorney ($500–$1,500) to ensure lead disclosures are complete and compliant.
Provide buyers with all lead-related records, even if negative, to build trust and avoid liability.
Encourage buyers to conduct a lead inspection to limit your post-sale liability.

4. Strategies for Buyers of Pre-1978 Homes

Buying a home built before 1978 requires vigilance to protect your health and investment. Here’s how to navigate lead risks:

Conduct a Lead Inspection: Hire an EPA-certified lead risk assessor ($500–$1,500) to test paint, dust, soil, and water. A positive result may justify negotiating a lower price or seller-funded remediation.
Negotiate Remediation: Request lead-safe repairs, such as encapsulating lead paint ($2,000–$10,000) or replacing lead pipes ($5,000–$15,000). In 2025’s balanced market (3–4 months’ inventory), sellers may concede to close deals.
Secure Title Insurance: An owner’s title policy ($1,000–$3,000) protects against undisclosed liens from past lead cleanup, a hidden risk in older homes.
Plan for Safe Living: If lead is present but not an immediate hazard, use lead-safe practices (e.g., wet cleaning, HEPA vacuums) to minimize exposure until remediation is affordable.

Added Value for Self-Employed: If you’re self-employed and plan to use your home as a workspace, ensure it’s lead-safe to protect your health and productivity. Lead exposure could disrupt your business, costing $5,000–$20,000 in medical or lost income. Explore state grants (e.g., Minnesota’s Lead-Safe Homes program) to offset remediation costs.

Action Steps:

Include a lead inspection contingency in your purchase agreement.
Research local lead abatement programs at mn.gov/health or EPA.gov.
Budget for lead remediation ($5,000–$20,000) or factor it into your offer.

5. Strategies for Sellers of Pre-1978 Homes

Sellers must address lead hazards proactively to maximize sale price and avoid legal issues:

Pre-Listing Lead Assessment: Test for lead before listing ($500–$1,500) to identify hazards and address them upfront. Stabilizing lead paint or removing it safely ($5,000–$20,000) can make your home more marketable.
Full Disclosure: Document all lead-related information, including past tests or repairs, to comply with federal law and build buyer trust.
Market as Lead-Safe: If remediated, highlight lead-safe certifications in your listing to attract eco-conscious buyers, a growing demographic in 2025.
Work with Professionals: A real estate agent like Tom Sommers in Minneapolis-St. Paul can guide you through disclosures and connect you with lead-certified contractors.

New Insight: In 2025, lead-safe homes command a 5–8% price premium in urban markets, per Zillow, as buyers prioritize health and safety. Self-employed sellers can offset remediation costs by timing the sale during peak business months, ensuring cash flow to cover expenses.

Danger: Failing to address lead hazards can lower your sale price by 10–15% ($38,000–$57,000 on a $380,000 home) or scare off buyers, prolonging the sale and costing $1,000–$2,000 monthly in carrying costs.

Action Steps:

Hire a lead-certified contractor (find at epa.gov/lead) for safe remediation.
Include lead-safe upgrades in your marketing, like “lead-free windows installed 2023.”
Secure title insurance to protect against future lead-related claims.

6. Additional Considerations and Insights for 2025

Urban Challenges: Cities like Minneapolis-St. Paul face widespread lead risks, with 50–60% of homes built before 1978. Retrofitting costs ($10,000–$50,000) are high, but federal programs like HUD’s Lead Hazard Control Grants can cover up to 80% for low-income households.
Renovation Safety: The EPA’s Renovation, Repair, and Painting (RRP) Rule requires contractors working on pre-1978 homes to be lead-certified, with fines up to $47,000 for violations. DIY renovations without lead-safe practices can spread toxic dust, endangering your family.
Water Safety: In 2025, the EPA’s push to replace lead service lines (1–2% complete nationwide) highlights water risks. Test your water annually and install NSF-certified filters ($50–$200) as a precaution.
Self-Employed Finances: Budget for lead-related costs (1–2% of home value, or $3,000–$6,000 for a $300,000 home) and maintain a 6–12 month emergency fund to cover unexpected health or remediation expenses.
Eco-Trends: Buyers in 2025 favor homes with modern, lead-free systems (e.g., new plumbing, $10,000–$20,000), boosting value by 5–10%, per Remodeling Magazine’s 2025 Cost vs. Value Report.

Action Steps:

Research federal or state lead abatement programs at epa.gov/lead or hud.gov.
Hire RRP-certified contractors for any pre-1978 home renovations.
Work with a real estate agent and environmental consultant to address lead concerns early.

Uncategorized • June 3, 2025

How soon can you sell a house after buying it?

by Tom Sommers

How soon can you sell a house after buying it?

The answer is right away in the Minneapolis Saint Paul metro area. But there’s more to it than just that. you can legally turn around and sell a home you purchased the next day if you decided you didn’t want it anymore. I probably don’t have to go into detail about the financial hit you’ll probably take. But if you’re in a situation where you need to get out you have options.

The biggest thing holding you back will be your buyer pool. That depends a lot on the price range your home is in. FHA is one of the biggest loan programs available to home buyers. It’s financed by the government, and they have a few different rules. One of them states that a home cannot be sold to an FHA buyer for at least 90 days after its last purchase. This is something that comes up a lot when I’m helping investors purchase homes to flip. If you’re in a higher price range this usually isn’t applicable because most home buyers putting 20% down will go conventional for their financing. The main reason is they get a much better rate and they won’t have to pay mortgage insurance. That’s also known as PMI.

If you’re stuck in a situation where you have to sell quickly, it is an option. But and must caution you to be very careful so that you don’t get taken advantage of. I see this a lot in divorces where one of the spouses is leaving. They want a quick sale because of the divorce but they don’t want to lose any money at all. That’s just not reality in every situation. I’m not saying that you couldn’t walk away with a profit if you bought really well at a certain time of the year and with a certain market. But going back to what I had already mentioned about being cautious, before you even consider something like this I think it’s very important to sit down and really have a conversation with your real estate agent. I will never tell you what you want to hear, I will always tell you what you need to know.

If you have any questions or you would like to get started today, please call Tom Sommers of Coldwell Banker Realty 952-994-7204.

Uncategorized • June 3, 2025

Where Does the Money Come From for Mortgage Loans in 2025?

by Tom Sommers

Where Does the Money Come From for Mortgage Loans in 2025?

The process of securing a mortgage has evolved dramatically from the days when you’d stroll to your local bank, hat in hand, hoping they had spare funds to lend. In 2025, the mortgage industry is a complex, global system fueled by major institutions, secondary markets, and innovative financing. Understanding where the money for your home loan comes from can demystify the process, clarify your role as a borrower, and help you make informed decisions—especially if you’re self-employed or navigating unique financial circumstances. Below, we’ve reorganized and expanded the explanation, updated statistics, and added insights to provide clarity and value, including considerations for self-employed borrowers and potential risks in today’s market.

1. The Modern Mortgage Funding System: An Overview

Unlike the early 20th century, when local banks or savings and loan institutions lent their own deposits, today’s mortgage funds flow through a sophisticated network. Most home loans originate from lenders—banks, credit unions, or online mortgage companies—but the money often comes from secondary market players. The three primary institutions driving this system are:

Fannie Mae (Federal National Mortgage Association): A government-sponsored enterprise (GSE) that buys and securitizes conventional loans, ensuring liquidity for lenders.
Freddie Mac (Federal Home Loan Mortgage Corporation): Another GSE, similar to Fannie Mae, focused on stabilizing the mortgage market by purchasing conforming loans.
Ginnie Mae (Government National Mortgage Association): A government agency that guarantees mortgage-backed securities (MBS) tied to FHA, VA, and USDA loans, supporting affordable housing.

How It Works: When you apply for a mortgage, the lender processes your application, verifies your income, credit, and assets, and funds the loan at closing. You then make monthly payments to a servicer, which may or may not be the original lender. Behind the scenes, your loan is likely sold to Fannie Mae, Freddie Mac, or Ginnie Mae, bundled into a pool with other mortgages, and transformed into mortgage-backed securities (MBS) sold to investors on Wall Street. This cycle keeps funds flowing, enabling lenders to offer more loans.

Updated Stat: In 2025, Fannie Mae and Freddie Mac back approximately 60% of the $4.5 trillion U.S. mortgage market, while Ginnie Mae supports 20% through FHA/VA loans, per the Mortgage Bankers Association (MBA). The remaining 20% includes jumbo and non-conforming loans.

2. The Mortgage Cycle: From Application to Investment

Here’s a step-by-step breakdown of how mortgage funds move, with added clarity:

Loan Origination: You apply for a mortgage through a lender, who evaluates your eligibility based on credit (typically 620+), debt-to-income ratio (DTI, often ≤43%), and down payment (3–20%). Once approved, the lender funds the loan at closing.
Loan Servicing: You make payments to a servicer, who collects a fee (usually 0.25–0.375% of the loan balance annually). For a $300,000 loan, this is $750–$1,125 yearly. The servicer may be your lender or another company if the servicing rights are sold.
Loan Pooling: Your loan is sold to Fannie Mae, Freddie Mac, or Ginnie Mae, bundled with thousands of similar loans into a pool (e.g., $500 million in mortgages). This frees up the lender’s capital to issue new loans.
Securitization: The pool is divided into smaller increments ($1,000–$10,000) called mortgage-backed securities (MBS). These are sold to investors—pension funds, mutual funds, or individuals—often through Wall Street.
Investor Returns: Your monthly payments (minus the servicer’s fee) are passed to the MBS investors, who earn interest. If you have a 401(k) or mutual fund, you might indirectly own MBS, including Ginnie Mae bonds tied to FHA/VA loans.
Cycle Repeats: Funds from MBS sales allow Fannie Mae, Freddie Mac, or Ginnie Mae to buy new loan pools, ensuring lenders have money to lend.

New Insight: In 2025, the secondary market is critical amid elevated interest rates (6–7% for 30-year fixed loans, per Freddie Mac). Without MBS, lenders would struggle to fund new mortgages, as deposits alone can’t meet demand. This system keeps homeownership accessible but ties mortgage rates to broader economic factors, like inflation and Federal Reserve policy.

Danger: If the secondary market falters (e.g., due to economic instability), loan availability could shrink, raising rates or tightening credit standards. Self-employed borrowers, already facing stricter requirements, could face additional hurdles.

3. Special Case: Non-Conforming and Jumbo Loans

Loans exceeding the 2025 conforming limit of $766,550 (up from $726,200 in 2024, per the FHFA) are called non-conforming or “jumbo” loans. These don’t meet Fannie Mae or Freddie Mac guidelines and follow a different path:

Funding Source: Jumbo loans are funded by private investors, banks, or hedge funds, not GSEs. They’re pooled and securitized into private-label MBS.
Higher Standards: Borrowers need stronger credit (700+), lower DTI (≤40%), and larger down payments (10–20%). Rates are slightly higher (7–7.5%).
Market Share: Jumbo loans represent 10–15% of the 2025 mortgage market, concentrated in high-cost areas like California or New York.

Added Value: Self-employed borrowers seeking jumbo loans may face extra scrutiny due to income volatility. Bank statement loans, which use 12–24 months of bank statements instead of tax returns, are popular for 1099 workers but carry higher rates (7.5–9%).

Action Steps:

If pursuing a jumbo loan, maintain a 720+ credit score and 6–12 months of reserves.
Work with a mortgage broker to find lenders offering jumbo or non-QM programs for self-employed borrowers.
Provide detailed bank statements and profit-and-loss records to verify income.

4. Considerations for Self-Employed Borrowers

Self-employed individuals face unique challenges in the mortgage process, as their income may not align with traditional W-2 verification. The secondary market’s reliance on standardized loans can complicate funding for 1099 workers, but options exist:

Bank Statement Loans: As noted, these use bank deposits to verify income, ideal for freelancers or business owners with significant deductions. In 2025, these loans represent 5% of originations, per MBA, but require 10–20% down and higher rates.
Portfolio Loans: Some lenders hold loans in-house, offering flexibility for complex income but with stricter terms.
FHA/VA Loans: Self-employed borrowers qualify with 2 years of tax returns, but Ginnie Mae’s backing ensures these loans are widely available. FHA loans require 3.5% down, VA loans 0% for eligible veterans.
Documentation Tips: Maintain separate business/personal accounts, show consistent deposits, and work with a CPA to optimize income reporting.

New Insight: In 2025, the gig economy’s growth (20% of workers are self-employed, per BLS) has pushed lenders to expand non-QM offerings, but self-employed borrowers must demonstrate stability. A 2025 Fannie Mae study found 35% of 1099 applicants were denied due to inconsistent documentation, highlighting the need for thorough preparation.

Danger: Self-employed borrowers risk loan denial or higher rates if bank statements show irregular deposits. A 30% income drop post-closing could strain payments, especially on high-rate non-QM loans, leading to financial stress or foreclosure.

Action Steps:

Consult a mortgage broker specializing in self-employed loans to explore bank statement or portfolio options.
Provide 24 months of bank statements to strengthen your application.
Build a 6–12 month emergency fund to cover mortgage payments during slow business periods.

5. Additional Insights and Strategies for 2025

Interest Rate Impacts: Higher rates in 2025 increase borrowing costs ($2,100 vs. $1,800 monthly for a $300,000 loan at 7% vs. 6%). Shop multiple lenders to save 0.25–0.5% ($50–$100/month).
Title Insurance: Protect your purchase with an owner’s title policy ($1,000–$3,000) to cover lien or ownership disputes, especially for self-employed buyers with complex finances.
Loan Servicing Transfers: Your loan may transfer to a new servicer post-closing, but this doesn’t affect terms. Confirm payment instructions to avoid missed payments, which can hurt your credit.
Market Risks: Economic volatility (e.g., inflation spikes) could disrupt MBS demand, tightening loan availability. Monitor Federal Reserve updates for rate trends.
Eco-Conscious Trends: In 2025, buyers favor energy-efficient homes, which may qualify for green mortgages with lower rates, per Fannie Mae’s HomeReady program.

Added Value: Self-employed borrowers can leverage down payment assistance programs (e.g., Minnesota Housing’s Start Up, offering up to $18,000) to reduce upfront costs, pairing with bank statement loans for affordability.

Action Steps:

Compare loan offers from 3–5 lenders using Loan Estimates to minimize costs.
Work with a real estate agent like Tom Sommers in Minneapolis-St. Paul to find properties eligible for special financing.
Check state programs for grants or low-interest loans at housing.mn.gov.

Why This Matters in 2025

Understanding the mortgage funding cycle empowers you to navigate the 2025 market confidently. For self-employed borrowers, flexible loan options like bank statement loans bridge the gap to homeownership, but higher costs and risks require diligence. By grasping how Fannie Mae, Freddie Mac, Ginnie Mae, and private investors fuel the system, you can make strategic choices, secure favorable terms, and avoid financial pitfalls. Whether you’re a 1099 worker or a traditional borrower, a strong team—lender, agent, CPA—ensures success.

Action Steps:

Contact a mortgage broker to explore loan options tailored to your income type.
Schedule a consultation with a real estate agent to align your home search with financing.
Monitor your credit and finances to strengthen your application in a competitive market.

Start your homeownership journey today with the knowledge to make informed, confident decisions!

Uncategorized • June 3, 2025

What is asbestos?

by Tom Sommers

What is asbestos?

Asbestos is still common in some of the older homes. It should be remediated by a professional company that is trained in dealing with asbestos. This video shows you what it looks like to help better prepare you as a home buyer when you’re looking at an older home.

Having said that, it’s not something you should necessarily fear but it’s something that you should be aware of and understand the ramifications of having it in your home. There are multiple reports every single year that come out from the CDC and other professionals saying that asbestos in many forms can cause lung cancer and other disease. Because of this, most people have removed asbestos from their homes over the years.

If you’re thinking about buying an older home especially before 1940, there is a chance you will see asbestos in the basement. It was in a lot of different products but for this example I’m simply going to stick with the asbestos you see that they are usually wrapped around pipes in the basement that are attached to an older boiler or furnace.

Because of the nature of this product, more than likely just to be on the safe side you will want to have it remediated by a professional licensed company. If you run across a home with asbestos or what you believe to be asbestos. A rule of thumb would be to have someone come out that is schooled in this area to look it over during your home inspection period. Also get some quotes of what the remediation will cost before your inspection contingency has expired.

This is the only way to be sure what you think is asbestos is truly asbestos. But also, you will understand how to solve the problem and how much it will cost. Anything shy of that is nothing more than guessing. It’s probably not a bad idea if it’s something you’re concerned about to do some research on Google and read about all the different studies that have been published.

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Uncategorized • June 3, 2025

Planning on selling your home? You better price it right.

by Tom Sommers

tips for sellers, tips for buyers, homeowners information, selling a home, buying a home, minneapolis realtor

Planning on selling your home? You better price it right.

If you’re a homeowner looking to sell, it’s important to have a clear understanding of the current real estate market. The housing market can be impacted by various factors such as mortgage rates and economic trends, so it’s crucial to adjust your expectations accordingly. Pricing your house appropriately is key to getting the best deal and attracting potential buyers. Your asking price sends a message to the market and can either help or hinder the sale of your home. If priced too low, you may leave money on the table or raise suspicions among buyers. If priced too high, you may deter buyers and face a longer waiting period on the market.

I have been listing and selling homes in the Minneapolis Saint Paul metro area for over 20 years period this is something that has always been a challenge when listing a home. There’s always a neighbor, friend, family member or coworker that will try to encourage you to price the home higher expecting a buyer to come in right off the bat with a lowball offer. This is not the market with something like that happens. Our inventory is very low still and buyers are willing to pay a fair price.

There are several things that I’ve seen change in the industry over the last five years. Many home buyers now look at the home as a payment. They asked themselves can we afford this payment if we were to buy this house? The actual value or sales price of the home is almost abstract. they view it differently than many home buyers did 20 years ago. The other thing that I’ve noticed in the last several years is there are buyers who will not go above a certain price point when searching for a home. But if they find the home in their price range, they have no problem getting into a multiple offer and bidding above that list price to buy it. I’m not sure if this has something to do with auctions on websites like eBay or if it’s a cultural change. Either way as a home seller you need to be aware of this shift.

This is the result of three separate choices that you make when you list your home for sale.

Underpricing your home– you run the risk of leaving money on the table and not getting all of the equity out of your home. Some people do this for a quick sale simply because they just want out. But if you’re not in that position and you would like to get the most value out of your home, it’s obvious this is a bad choice.
pricing your home at market value– it attracts the most amount of buyers, you typically will get a higher sales price because there’s a very good chance you will end up in multiple offers. It’s not a guarantee but if you have a beautiful property that’s been well cared for in a nice neighborhood, chances are it will be coveted by home buyers. It will also sell faster as well because you have a lot of interest. I’ve always felt as a licensed real estate agent that this is the best way to go.
Overpricing your home– for sellers that choose this option you really risk the sail blowing up in your face. Typically, the house sits on the market a lot longer. When you have to start dropping the price it can send the wrong message to buyers. They start to think what’s wrong with this house and why hasn’t it sold? And lastly and most importantly, it prices out the real potential buyers for your home. They’re looking within their budget and seeing homes in that price range that suit their needs. Unfortunately, your home will not be one of them.

This is where an experienced real estate agent comes in. They have the expertise to find the ideal asking price for your home by considering factors such as local market trends, home values in your neighborhood, buyer demand, and the condition of your house. When it comes to selling your home, turn to Tom Sommers of Coldwell Banker for the best guidance and support. As one of the most respected real estate professionals in the Minneapolis Saint Paul area, Tom is a premier home seller agent. Contact Tom today to get started on the process of selling your home with confidence.

Uncategorized • June 3, 2025

Considering Selling Your Home in 2025? Key Steps to Maximize Value and Minimize Stress

by Tom Sommers

Considering Selling Your Home in 2025? Key Steps to Maximize Value and Minimize Stress

Selling your home can feel like a daunting task, especially with media hype and flashy real estate promises, like “guaranteed sale programs,” that often prioritize an agent’s foot in the door over your best interests. In 2025’s dynamic housing market, preparation and strategy are crucial to achieving a successful sale. While the process involves effort—preparing your home, managing showings, and navigating negotiations—a well-planned approach can make it manageable and profitable. As an experienced real estate agent, I can’t eliminate every challenge, but I can guide you to “run between the raindrops,” ensuring a smoother journey. Below, we’ve reorganized and expanded on essential steps, added fresh insights, and provided detailed advice tailored for self-employed individuals or anyone aiming to sell smartly, helping you secure the best price while avoiding pitfalls.

1. Clarify Your Motives for Selling

Before listing your home, take time to define why you’re selling. Are you relocating for a job, downsizing for retirement, or seeking a quick sale due to financial needs? Your motives shape your strategy, from pricing to negotiation priorities.

Why It Matters: Clear goals keep you focused. For example, if speed is critical, you might price competitively to attract multiple offers. If maximizing profit is the goal, you may invest in upgrades to boost value. In 2025, with median home prices in areas like Minneapolis-St. Paul around $380,000 (per recent market data), a 5% price difference could mean $19,000 more in your pocket.

Added Insight: Self-employed sellers, such as freelancers or business owners, often face unique financial pressures, like irregular income or tax considerations. Selling to fund a business expansion or relocate to a lower-tax state (e.g., Florida or Texas) requires aligning your sale timeline with cash flow needs. Misjudging motives could lead to rushed decisions, like accepting a low offer, impacting your financial stability.

Action Steps:

Write down your top 3 reasons for selling (e.g., relocate by June, clear $100,000 for a new home).
Discuss your goals with a financial advisor, especially if self-employed, to align the sale with tax or business plans.
Evaluate the 2025 market with a real estate agent to set realistic expectations based on local trends (e.g., 2–3 months’ inventory indicates a balanced market).

Danger: Without clear motives, you risk emotional decisions, like rejecting fair offers out of attachment or overpricing due to unrealistic expectations, delaying your sale and costing $1,000–$2,000 monthly in holding costs (mortgage, utilities).

2. Find the Right Real Estate Agent

A skilled, trustworthy agent is your partner in navigating the complex sale process. They provide market insights, handle marketing, and negotiate on your behalf, saving time and maximizing profit. Avoid agents pushing gimmicks like “guaranteed sales,” which often come with hidden fees or lowball offers.

Key Qualities to Look For:

Local Expertise: An agent familiar with your area (e.g., Minneapolis-St. Paul) can price your home accurately using a comparative market analysis (CMA).
Negotiation Skills: They counter low offers and secure favorable terms, like shorter contingencies or higher earnest money.
Marketing Savvy: In 2025, top agents use professional photography, virtual tours, and MLS listings to reach 90% of buyers who start online, per the National Association of Realtors (NAR).
Transparency: Honest agents prioritize your goals over their commission.

Added Value for Self-Employed: If you’re self-employed, an agent can tailor the sale timeline to your business cycles, ensuring showings or closings don’t disrupt peak earning periods. They can also connect you with lenders or title companies experienced with 1099 income, easing your transition to a new home purchase.

Action Steps:

Interview 2–3 agents, asking for recent sales data, marketing plans, and client references.
Request a CMA to understand your home’s value based on similar sales (e.g., $200/sq. ft. in your neighborhood).
Negotiate a fair commission (5–6% is standard, but some offer 4–5% for high-value homes).

Danger: Choosing an inexperienced or pushy agent can lead to overpricing, poor marketing, or weak negotiations, reducing your sale price by 5–10% ($19,000–$38,000 on a $380,000 home) or prolonging the sale.

3. Enhance Your Home’s Appeal

First impressions matter. Strategic improvements can boost your home’s perceived value, attract more buyers, and justify a higher price. Focus on cost-effective updates that highlight strengths and address weaknesses.

High-Impact Improvements:

Curb Appeal: Mow the lawn, paint the front door, and add potted plants ($500–$1,000) to draw buyers in. Homes with strong curb appeal sell 7% faster, per a 2025 Zillow report.
Minor Repairs: Fix leaky faucets, patch wall holes, or replace outdated light fixtures ($200–$2,000) to avoid buyer objections.
Neutral Updates: Repaint in neutral colors or update cabinet hardware ($1,000–$3,000) to appeal to a broad audience. A 2025 Remodeling Magazine report shows minor kitchen remodels recoup 80–90% of costs.
Declutter and Stage: Remove personal items and stage key rooms ($500–$2,000) to help buyers envision living there.

Insight for Self-Employed: If you run a home-based business, declutter work-related items (e.g., files, equipment) to present a neutral space. Highlight versatile rooms, like a home office, to appeal to remote workers, a growing buyer segment in 2025. Budget-conscious self-employed sellers can DIY updates, leveraging online tutorials to save on contractor costs.

Action Steps:

Walk through your home with your agent to identify upgrades that yield high ROI.
Get contractor quotes for repairs or hire a handyman for small fixes ($50–$100/hour).
Consider a pre-listing inspection ($300–$600) to uncover issues (e.g., roof leaks) that could lower offers.

Danger: Over-improving (e.g., a $50,000 kitchen gut) may not recoup costs, while neglecting repairs can lead to buyer demands for $5,000–$15,000 in concessions, cutting into your profit.

4. Prepare for Showings and Negotiations

Showings and negotiations are critical stages where preparation pays off. Make your home accessible and arm yourself with knowledge to secure the best deal.

Showings:

Keep your home clean and flexible for last-minute showings, as 60% of buyers request same-day tours, per NAR.
Remove pets or personal items to create a neutral environment.
Highlight features like energy-efficient windows or a spacious backyard with a feature sheet.

Negotiations:

Understand the buyer’s motives (e.g., first-time buyer, investor) to tailor your counteroffers. For example, offer closing cost credits to a cash-strapped buyer but hold firm on price.
Review offers with your agent, considering price, contingencies, and closing timeline. In 2025, buyers favor shorter inspection periods (7–10 days) to speed up deals.
Be ready to counter low offers with data from your CMA, justifying your price.

Added Value: Self-employed sellers can benefit from an agent’s negotiation expertise, especially if time is limited due to business demands. An agent can also shield you from emotional negotiations, ensuring you don’t accept a low offer out of frustration.

Action Steps:

Create a showing schedule that accommodates your work, using lockboxes for agent access.
Ask your agent to gather buyer feedback after showings to adjust strategy (e.g., lower price if feedback cites outdated bathrooms).
Set a negotiation bottom line (e.g., 95% of asking price) to stay focused.

Danger: Poorly managed showings (e.g., cluttered spaces, rigid scheduling) can deter buyers, while weak negotiations may cost $10,000–$20,000 in concessions or lost offers.

5. Complete Disclosures Honestly

Full transparency in your seller disclosures builds trust and protects you legally. Minnesota law requires disclosing material facts, like past repairs, water damage, or underground heating oil tanks. Encourage buyers to conduct a home inspection ($300–$600) for their peace of mind and your liability protection.

Why It Matters: Omitting or downplaying issues can lead to lawsuits or deal cancellations. For example, failing to disclose a known roof leak could cost $5,000–$15,000 in legal fees or repairs if the buyer sues post-closing. In 2025, buyers are savvier, often hiring thorough inspectors to uncover hidden issues.

Insight for Self-Employed: If your home served as a business space, disclose any modifications (e.g., converted garage office) to avoid surprises. Work with a real estate attorney ($500–$1,500) to ensure disclosures are accurate, especially if you’ve made DIY repairs.

Action Steps:

Review your home’s history (e.g., maintenance records, permits) to complete disclosures accurately.
Work with your agent or attorney to draft clear, honest disclosures.
Secure title insurance ($1,000–$3,000) to protect against undisclosed liens or title disputes, a common risk for self-employed owners with complex finances.

Danger: Non-disclosure can lead to deal collapse or legal action, costing $10,000–$50,000 in damages or lost earnest money, plus reputational harm.

6. Additional Strategies for a Successful Sale in 2025

Price Strategically: Use a CMA to set a competitive price, avoiding overpricing that stalls sales. In 2025, homes priced 5% above market take 30–60 days longer to sell, per Redfin.
Leverage Technology: Invest in professional photography ($200–$500) and virtual tours ($200–$500) to attract online buyers, who dominate the market.
Protect Finances: Self-employed sellers should maintain a 6–12 month emergency fund to cover mortgage payments during the sale, especially if income fluctuates.
Address Environmental Risks: Inspect for issues like underground oil tanks ($500–$1,500), which can cost $10,000–$100,000 to remediate if leaking, per EPA guidelines.
Explore Tax Implications: Consult a CPA to understand capital gains taxes (15–20% on profits over $250,000 for singles, $500,000 for couples). Self-employed sellers may offset taxes with business deductions, but timing the sale matters.
Build a Strong Team: Partner with a real estate agent like Tom Sommers in Minneapolis-St. Paul, a title company, and a CPA to streamline the process and protect your interests.

New Insight: In 2025, eco-conscious buyers prioritize energy-efficient homes, boosting demand for properties with upgrades like solar panels or new HVAC systems. A $5,000–$10,000 investment in such features can increase your sale price by 5–8%, per Remodeling Magazine’s 2025 Cost vs. Value Report.

Why This Matters in 2025

Selling your home is a major financial decision, and preparation is your greatest asset. By clarifying your motives, choosing a skilled agent, enhancing your home’s appeal, negotiating strategically, and disclosing honestly, you can maximize profit and minimize stress. For self-employed sellers, aligning the sale with business and tax goals is critical to avoid financial strain. In 2025’s balanced market, these steps ensure you sell quickly, net more money, and move forward confidently.

Action Steps:

Schedule a consultation with a trusted agent like Tom Sommers to develop a tailored sale plan.
Start preparing your home 2–3 months before listing to address repairs and staging.
Consult a CPA and financial advisor to optimize tax and financial outcomes, especially if self-employed.

With the right mindset and strategy, selling your home can be a rewarding experience. Start today to turn your sale into a success!

Uncategorized • June 3, 2025

Home Loan Options for Self-Employed 1099 Workers in 2025: Unlocking Homeownership

by Tom Sommers

Home Loan Options for Self-Employed 1099 Workers in 2025: Unlocking Homeownership

For self-employed individuals—freelancers, real estate agents, business owners, lawyers, contractors, and gig economy workers—homeownership can feel like a daunting goal. Unlike W-2 employees with predictable pay stubs, self-employed workers often face irregular income and complex tax filings, making traditional mortgage qualification challenging. However, in 2025, innovative loan programs, particularly bank statement loans, have revolutionized access to homeownership for 1099 workers. This article explores these options, highlights their benefits and risks, and provides new insights and strategies tailored for self-employed borrowers to secure a mortgage while avoiding financial stress.

1. Why Traditional Mortgages Are Tough for Self-Employed Borrowers

Self-employed individuals often write off business expenses on their tax returns, reducing their taxable income. While this saves on taxes, it can make qualifying for a traditional mortgage difficult, as lenders rely on adjusted gross income (AGI) from tax returns to assess affordability. For example, a contractor earning $100,000 annually might show only $40,000 in taxable income after deductions, making it hard to qualify for a $300,000 mortgage. Additionally, 1099 workers lack W-2 forms, complicating income verification.

New Insight: In 2025, lenders are increasingly recognizing the unique financial profiles of self-employed workers, who make up 15–20% of the U.S. workforce, per recent Bureau of Labor Statistics data. This shift has spurred the growth of non-traditional loan programs, but self-employed borrowers must still navigate higher scrutiny and documentation requirements.

Key Challenges:

Income Volatility: Irregular cash flow can make lenders wary, even if your overall earnings are strong.
Tax Return Dependency: Traditional loans require 2 years of tax returns, which may not reflect your true income due to deductions.
Higher Debt-to-Income (DTI) Ratios: Lenders typically cap DTI at 43%, but self-employed borrowers may have higher ratios due to business debt.

2. Bank Statement Loans: A Game-Changer for 1099 Workers

Bank statement loans have emerged as a powerful solution for self-employed borrowers. Instead of relying on tax returns, these loans use 12–24 months of bank statements to verify income, capturing the full scope of your earnings, including cash flow before deductions. This is ideal for real estate agents, consultants, or freelancers who maximize tax write-offs.

How Bank Statement Loans Work:

Eligibility: You must have been self-employed or receiving 1099 income for at least 2 years. W-2 employees are ineligible.
Documentation: Provide 12–24 months of personal and/or business bank statements. Lenders typically calculate income by averaging monthly deposits, sometimes subtracting non-business expenses.
Loan Limits: In 2025, loan amounts can reach $766,550 for conforming loans or higher for jumbo loans in high-cost areas like Minneapolis-St. Paul.
Credit and DTI Requirements: A minimum credit score of 620–680 is typical, with DTI ratios up to 50% allowed by some lenders.
Down Payment: Expect 10–20% down, though some programs allow as low as 5% for strong applicants.
No Tax Returns Needed: This bypasses the low AGI issue, making qualification easier.

Example: A freelancer with $120,000 in annual bank deposits but only $50,000 in taxable income after deductions can qualify based on the higher deposit amount, potentially securing a $400,000 mortgage.

New Insight: In 2025, bank statement loans are offered by a growing number of non-qualified mortgage (Non-QM) lenders, reflecting a 25% increase in Non-QM lending since 2023, per industry reports. These loans cater to the gig economy’s rise, but they come with higher interest rates (6.5–8% vs. 6–7% for conventional loans) and fees, so compare offers carefully.

Action Steps:

Gather 12–24 months of bank statements, ensuring consistent deposits to demonstrate stable income.
Work with a mortgage broker specializing in Non-QM loans to find lenders offering competitive terms.
Review your business and personal accounts to ensure deposits are well-documented and exclude non-recurring funds (e.g., loans or gifts).

3. Other Loan Options for Self-Employed Borrowers in 2025

Beyond bank statement loans, self-employed individuals have additional mortgage options, each with unique benefits and considerations:

FHA Loans: Backed by the Federal Housing Administration, FHA loans are accessible with credit scores as low as 580 and 3.5% down. Self-employed borrowers must provide 2 years of tax returns, but FHA’s lenient guidelines suit those with moderate income fluctuations. In 2025, FHA loan limits are $498,257 in most areas, higher in high-cost regions.
Portfolio Loans: Some lenders keep loans in-house, allowing flexible underwriting for self-employed borrowers. These may use bank statements, profit-and-loss statements, or other documentation, but rates and fees can be higher.
Asset-Based Loans: If you have significant savings or investments, lenders may qualify you based on assets rather than income. For example, $500,000 in liquid assets could qualify you for a $300,000 mortgage, even with low reported income.
Co-Signer or Joint Borrower: Adding a W-2 earner (e.g., a spouse or family member) to the loan can strengthen your application, combining their stable income with your 1099 earnings.

Added Value: In 2025, some lenders offer hybrid programs combining bank statements and profit-and-loss statements prepared by a CPA, providing a middle ground for those with complex income streams. Additionally, state and local down payment assistance programs (e.g., Minnesota Housing’s Start Up program) can reduce upfront costs for self-employed first-time buyers.

Action Steps:

Explore FHA or portfolio loans if bank statement loans don’t fit your needs. Contact a lender to compare eligibility requirements.
Check for down payment assistance at housing.mn.gov or similar state agencies.
Consider a co-signer if your income alone doesn’t qualify, but ensure they understand their financial responsibility.

4. Risks and Considerations for Self-Employed Borrowers

While bank statement loans and other options open doors, they come with potential pitfalls:

Higher Costs: Non-QM loans like bank statement loans often have higher interest rates (0.5–1% above conventional) and origination fees, increasing monthly payments by $100–$300 on a $300,000 loan.
Stricter Documentation: Lenders may scrutinize bank statements for irregular deposits or large withdrawals, requiring explanations or additional records.
Market Sensitivity: In 2025, with interest rates at 6–7%, higher rates for Non-QM loans can strain budgets, especially if your income fluctuates.
Long-Term Stability: Self-employed borrowers must plan for income variability. A sudden drop in earnings could make mortgage payments challenging.

Danger Highlight: Overstretching your budget on a high-rate loan can lead to financial stress or foreclosure, especially if business slows. For example, a $400,000 loan at 7.5% with a $2,800 monthly payment could become unmanageable if your income drops 30%. Additionally, failing to maintain consistent bank deposits can lead to loan denial, delaying your home purchase.

Action Steps:

Calculate your debt-to-income ratio (total debt payments ÷ monthly income) to ensure it’s below 50%. Use online DTI calculators for accuracy.
Build a 6–12 month emergency fund to cover mortgage payments during slow business periods.
Shop multiple lenders to secure the lowest rate and fees, as Non-QM terms vary widely.

5. Strategies to Strengthen Your Application and Avoid Financial Stress

Self-employed borrowers can boost their chances of approval and ensure long-term success with these tips:

Improve Your Credit: Aim for a 680+ score to access better rates. Pay down credit card balances and correct errors on your credit report (check at AnnualCreditReport.com).
Organize Finances: Separate business and personal bank accounts to simplify income verification. Consistent deposits over 24 months demonstrate stability.
Work with a Mortgage Broker: Brokers have access to multiple Non-QM lenders and can find tailored programs, saving you time and money.
Secure Title Insurance: Protect your investment with an owner’s title insurance policy ($1,000–$3,000) to cover unexpected liens or ownership disputes, a common risk for self-employed buyers stretched thin by upfront costs.
Partner with a Real Estate Agent: An agent like Tom Sommers in Minneapolis-St. Paul can identify affordable properties and negotiate to keep you within budget, ensuring you don’t overpay.
Plan for Ongoing Costs: Budget for property taxes, insurance, and maintenance (1–2% of home value annually, or $3,000–$6,000 for a $300,000 home) to avoid surprises.
Leverage Tax Expertise: Work with a CPA to optimize your tax strategy, balancing deductions with mortgage-friendly income reporting. For example, reducing write-offs temporarily can boost your AGI for traditional loans.

New Insight: In 2025, the gig economy’s growth has prompted lenders to offer more flexible programs, but self-employed borrowers must still demonstrate financial discipline. A 2024 Fannie Mae study found that 30% of self-employed applicants were denied due to inconsistent documentation, underscoring the need for organized records and professional guidance.

Why This Matters in 2025

For self-employed 1099 workers, homeownership is within reach thanks to bank statement loans and other flexible programs. These options bypass the limitations of tax returns, enabling freelancers, entrepreneurs, and contractors to achieve their dreams. However, higher rates, stricter requirements, and income volatility demand careful planning. By improving your financial profile, comparing loan options, and building a strong support team, you can secure a mortgage that fits your lifestyle and safeguards your financial future.

Action Steps:

Contact a mortgage broker or lender specializing in self-employed loans to explore bank statement or Non-QM options.
Work with a real estate agent like Tom Sommers to find properties that align with your budget and goals.
Consult a CPA and financial advisor to optimize your income documentation and long-term financial plan.

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Uncategorized • June 3, 2025

Underground Heating Oil Tanks: Risks, Solutions, and Insights for 2025

by Tom Sommers

Underground Heating Oil Tanks: Risks, Solutions, and Insights for 2025

Underground heating oil tanks (UOTs) present significant risks for home buyers and sellers, from environmental hazards to financial liabilities. While these tanks were once common for home heating, their potential for leaks and contamination can complicate real estate transactions. In 2025, with heightened environmental regulations and buyer scrutiny, understanding these risks and taking proactive steps is crucial. Below, we explore the dangers of UOTs, offer practical solutions, and provide new insights to help you navigate this issue safely, ensuring a stress-free home sale or purchase.

1. The Dangers of Underground Heating Oil Tanks

UOTs, typically made of steel and buried on a property, were widely used for heating homes before natural gas became prevalent. Over time, these tanks can corrode, leading to serious issues:

Environmental Contamination: Leaks from rusted tanks can release heating oil into the soil and groundwater, causing environmental damage. A single gallon of oil can contaminate up to 1 million gallons of water, per the EPA, posing risks to local ecosystems and drinking water sources.
Health Risks: Contaminated soil or water can expose residents to harmful chemicals, like benzene, which is linked to health issues such as respiratory problems or increased cancer risk.
Financial Liability: Cleanup costs for a leaking UOT can range from $10,000 to $100,000, depending on the extent of contamination. Homeowners are often liable for these costs, even if the leak predates their ownership. In 2025, stricter state regulations (e.g., Minnesota’s Pollution Control Agency standards) can also impose fines for non-compliance.
Transaction Delays: Undisclosed or unaddressed UOT issues can derail home sales. Buyers may demand remediation or walk away, while lenders may refuse financing until the tank is removed or certified safe.

New Insight: In 2025, environmental awareness is at an all-time high, with buyers and lenders increasingly cautious about properties with UOTs. A 2024 study by the National Association of Realtors noted that homes with known UOT issues sell for 5–10% less than comparable properties, as buyers factor in potential cleanup costs. Additionally, aging tanks (20–30 years old) are more prone to leaks, especially in regions with harsh winters like Minnesota, where freeze-thaw cycles accelerate corrosion.

2. Key Risks and Causes of UOT Problems

Leaks are the primary concern with UOTs, often caused by:

Rust and Corrosion: Steel tanks corrode over time, especially if exposed to moisture or acidic soil. A tank installed in the 1980s or earlier is at high risk in 2025.
Electrical Interference: Nearby utility lines can create stray currents that accelerate tank corrosion, a lesser-known but significant issue.
Improper Maintenance: Tanks not regularly inspected or maintained are more likely to fail, especially if abandoned after a home switches to natural gas or electric heating.

Danger Highlight: Undetected leaks can go unnoticed for years, spreading contamination and increasing cleanup costs. For example, a slow leak might contaminate a neighbor’s property, leading to legal disputes and liabilities exceeding $50,000. Sellers who fail to disclose a known UOT risk violating state disclosure laws, potentially facing lawsuits or penalties.

Action Steps:

Hire a licensed environmental inspector ($500–$1,500) to assess the tank’s condition, checking for structural integrity and signs of leaks.
Test surrounding soil and groundwater ($1,000–$3,000) to detect contamination early, as cleanup costs escalate with delays.
Review local regulations (e.g., Minnesota’s MPCA guidelines at pca.state.mn.us) to ensure compliance with tank removal or remediation standards.

3. Solutions for Buyers

Buyers should approach properties with UOTs cautiously but strategically. Here’s how to protect yourself:

Mandatory Inspection: Always include a UOT inspection in your home inspection contingency. A professional can assess the tank’s age, material, and condition, identifying risks like corrosion or leaks.
Alternative Heating Options: If you prefer not to deal with a UOT, negotiate with the seller to install an above-ground tank (typically $2,000–$5,000) in the basement or convert to natural gas or electric heating ($5,000–$15,000). Ensure the old tank is properly decommissioned (filled with inert material or removed) to prevent future leaks.
Contract Protections: Include specific language in the purchase agreement addressing the UOT’s condition and responsibility for any cleanup. For example, require the seller to certify the tank is leak-free or cover remediation costs.
Title Insurance: Purchase an owner’s title insurance policy ($1,000–$3,000) to protect against undisclosed liens related to past UOT contamination, which could surface after closing.

New Insight: In 2025, buyers can leverage a competitive market to negotiate UOT-related concessions. With inventory slightly up (3–4 months’ supply in many areas), sellers may be more willing to cover tank removal or remediation to close the deal. Additionally, some states offer grants or low-interest loans for UOT cleanup—check with your state’s environmental agency (e.g., Minnesota’s Petrofund can reimburse up to $250,000 for eligible cleanup costs).

Action Steps:

Request the seller’s maintenance records for the UOT to verify its history.
Negotiate a price reduction or seller-funded escrow account to cover potential cleanup costs.
Explore state programs like Minnesota’s Petrofund (pca.state.mn.us/business-with-us/petroleum-remediation-program) for financial assistance.

4. Solutions for Sellers

Sellers must address UOTs proactively to avoid delays, price reductions, or legal issues:

Accurate Disclosure: Minnesota law requires sellers to disclose known material facts, including the presence捕捉 presence and condition of a UOT. Work with a real estate attorney to ensure your disclosure is accurate and compliant.
Pre-Listing Inspection: Have the tank inspected before listing ($500–$1,500) to identify issues early. If problems are found, remove or decommission the tank ($2,000–$10,000) to make the property more marketable.
Cleanup Responsibility: If contamination is detected, arrange for professional remediation before selling. Document all work to reassure buyers and avoid liability.
Marketing Advantage: Highlight a certified safe or removed UOT in your listing to attract environmentally conscious buyers, a growing demographic in 2025.

Danger Highlight: Failing to disclose a UOT or its issues can lead to legal action from buyers, including lawsuits for nondisclosure or cleanup costs. In 2025, with increased regulatory scrutiny, sellers could also face fines from state agencies for unreported contamination.

Action Steps:

Obtain a professional tank inspection and share the report with potential buyers.
Work with a title company to ensure a clean title, free of environmental liens.
Consult a real estate agent like Tom Sommers in Minneapolis-St. Paul for guidance on addressing UOT concerns in your listing.

5. Additional Strategies to Mitigate Risks in 2025

Build a Strong Team: Partner with a real estate agent, environmental consultant, and real estate attorney to navigate UOT complexities. They can ensure compliance, negotiate terms, and protect your interests.
Secure Title Insurance: Both buyers and sellers benefit from title insurance to cover potential legal disputes over past contamination. A one-time premium ($1,000–$3,000) provides long-term protection.
Budget for Unexpected Costs: Set aside 1–2% of your home’s value ($3,000–$6,000 for a $300,000 home) for potential UOT-related expenses, such as inspections or minor remediation.
Explore Insurance Options: Some homeowners’ insurance policies offer limited coverage for environmental cleanup—review your policy or consider adding a rider for extra protection.
Stay Informed on Regulations: In 2025, environmental laws are tightening. Check with your state’s environmental agency for updated UOT requirements to avoid penalties.

New Insight: The rise of eco-conscious buyers in 2025 means properties with resolved UOT issues or alternative heating systems (e.g., electric heat pumps) can command a premium. Retrofitting your home with energy-efficient heating ($10,000–$20,000) could increase its value by 5–8%, per a 2025 Remodeling Magazine report, while eliminating UOT risks.

Why This Matters in 2025

Underground heating oil tanks are a hidden danger that can lead to environmental, financial, and legal consequences. For buyers, they pose a risk of inheriting costly cleanup or health hazards. For sellers, undisclosed or unresolved UOT issues can lower sale prices, delay closings, or trigger lawsuits. In 2025’s environmentally aware market, addressing UOTs proactively is essential for a smooth transaction and financial security.

Action Steps:

Schedule a UOT inspection early in the buying or selling process.
Consult professionals (real estate agent, environmental specialist, attorney) to ensure compliance and transparency.
Contact a trusted real estate expert like Tom Sommers in Minneapolis-St. Paul for tailored advice on managing UOT challenges.

By understanding the risks, taking preventive measures, and building a strong support team, you can navigate UOT issues with confidence, protect your investment, and avoid the dangers of contamination or costly surprises. Start planning today to ensure a safe and successful home transaction!