Month: July 2010

Prequalified and preapproved are two common terms you hear when it comes to getting a mortgage.

But it’s important to know they are very different things.

Prequalification

A prequalification takes 15 to 30 minutes and involves a few quick questions.

You typically do this before you look for a home.

At this point, the lender takes your word that everything you state is correct and will verify it at a later date.

A credit check is run, then all the information provided is put through an automated underwriting system, which will provide a preliminary status.

At the end of the process you’ll have an idea of how much money you can borrow, and often you will be issued a prequalification letter that states that a credit check has been run and, based on the information provided but not yet verified, you qualified for a specific dollar amount.

Real estate agents will often ask for prequalification letters in the same amount of an offer they intend to submit on a property.

Sellers, knowing that a buyer can afford much more than they are asking for a property, will be less likely to negotiate downward or offer concessions.

Preapproval

A preapproval letter is much more involved.

It will only be issued after all the paperwork is received by the lender.  This includes so much more than income and assets, such as the sales contract, the title to the property and an appraisal, most of which are sought after a contract is submitted and accepted by the sellers.

Lenders issue a conditional commitment letter between the contract date

Federal Housing Administration (FHA) and conventional financing loans are undoubtedly the most common ways of getting money to purchase a home.

FHA Loans

An FHA loan is for you if you are either asset- or credit-challenged, or both, as the minimum down payment is just 3.5%. Very few lenders, however, will fund FHA loans to buyers without a minimum credit score of 640.

According to the website LoansGuide.org, an FHA loan doesn’t require a minimum monthly income, but it does require the buyer to have no delinquent federal debts and to have steady employment.

The drawback to an FHA loan is that mortgage insurance premiums are much higher than with conventional loans.

Conventional Loans

Conventional loans are typically for borrowers who have more money to put down on a home and have better credit scores.

They require a down payment of between 5% and 20%.

Conventional mortgages typically require two months of asset reserves for mortgage, taxes and property insurance.

There are a number of types of conventional loans – from fixed and adjustable rate to biweekly.

Whatever your situation, talk to your mortgage professional about your options with regard to the two programs. A mortgage professional can help you make the best choice.

With summer well under way, many of you, especially those in areas where the weather is more adverse during the winter months, may be undertaking some of those long-overdue projects around the house.

But the cost of some larger projects like additions or remodels may prevent them from getting done.

The good news is that even with more conservative mortgage lending guidelines, using equity in your home to complete some projects could be a great idea.

Following are a few reasons why.

In the face of credit card interest rates that are at astronomical levels, tapping into a source of funding that can offer much lower rates, and interest that may be tax deductible to boot, makes a lot of sense.

Check with your tax professional for more details about your specific situation.

Home equity products come in two main types: home equity lines of credit and home equity loans.

Home equity loans, the more widely used of the two, are often of the variable-rate type and come in interest-only and amortized versions.

Rates on variable-rate loans are usually based on some economic indicator such as the prime rate.

With prime being at a historical low at this time, borrowing money for projects has never been as inexpensive as it is right now.

Home equity loans usually come with higher rates and require principal repayment each month.

Even though many homeowners may now have less equity in their homes than they used to in years past, they still have a great resource to draw on.

All in all, home equity products are a great way to go, considering some of the benefits that they offer, and should be at least looked into when considering a funding source for your next project.

With all the changes that have affected the mortgage industry over the last few years, it is now easier to get the very best loan for your needs.

When looking to purchase or refinance a home mortgage, the first question you need to ask is: How long do I plan to own the property?

If you are quite certain that you are going to be there only for a set number of years, it would be best to find a loan that will provide you with the best rate for the least cost for that period of time.

After you have decided what your needs are, it is time to go and find a mortgage. New disclosure laws that went into effect at the beginning of this year should help you compare apples to apples as far as information you receive from different lenders.

Lenders have, for some time, been required to disclose to you within three business days of application what they plan on charging you for a mortgage, both in rate and fees. Did you know that the final costs now need to be within certain percentages of the initial estimates or the broker/bank is responsible to make up the difference?

There are, of course, changes in circumstances that can occur as a result of market conditions, such as interest rate changes. You are again covered, though, as the lender is now unable to surprise you with points or fees at the closing table.

Always check with multiple lenders, and have someone you trust who is mortgage-knowledgeable, such as a real estate attorney, review anything you sign.