Do I Need a Mortgage Pre-Approval?

WHY You Need a Pre-Approval

 

 

If you’ve thought of buying a home, you’ve probably heard that one of the very first items on your ‘to do’ list needs to be obtaining a pre-approval from a lender.  Not a pre-qualification.  Some of the more common reasons on why a pre-approval is necessary involve making sure a credit profile is up to par, making sure your scenario meets lender guidelines, and giving sellers a warm & fuzzy feeling when you walk into their home.  These reasons are

Mortgage preapproval is necessary for the best homebuying experience
Getting a pre-approval is non-negotiable if you’re serious about buying a home, especially in a competitive market.

important, but what about the “perfect” buyers?  The ones with modelesque credit, tremendous income, lots of 0’s on the end of their assets, and an overall profile that has bankers knowing at their doors.  Well, they need a pre-approval, too.  A full and complete one.  But WHY?  We’ll get there.

 

 

The Basics

 

If you’re not pre-approved and you’re not a “perfect” buyer, you’re kind of wasting everyone’s time (we say “kind of” to be kind).  But think of it this way – you’re asking a real estate professional to take time to meet you, learn your wants and needs, and to spend time finding the perfect place for you to call home.  THEN, they’re meeting with you to tour these homes, hear why you don’t think they’re so perfect, and go back to find more listings for you after getting feedback.  Nobody’s complaining, as that’s part of an agent’s job, but would you do all of that with 0 chance of ever seeing a dime of compensation?

 

 

Let’s face it though, you’re a decent person so you probably care about your real estate professional that’s working their butt off for you, but what’s really important is you.  Do you want to go out, fall in love with a certain price range, style of home, or area, only to find out you’ve got no chance at buying, or a few years to go before you’re going to be able to buy?

 

 

In a hot market, the time between putting in an offer and agreeing to close is often one way to gain an advantage in a multiple offer situation.  Even if you CAN get preapproved, there may be some work that can be done along the way to improve your rate and terms – with a short escrow or contract period, you may not have the luxury of that time.  Wouldn’t it be nice to have some extra time to consider these things that could potentially save you thousands of dollars.  With a pre-approval, you’ll have that time.

 

 

If you made it this far and are still thinking “But I’m PERFECT!” this next one’s for you:

 

 

Let’s say you’re in a hot market and are working with an agent that’s agreed to show you homes sans pre-approval.  You find THE ONE.  This home is nearly as perfect a house as you are a buyer.  The listing agent demands a pre-approval letter when an offer is submitted.  “No problem” you think, and you call your Mason Mac loan officer to work on the pre-approval.  Your loan officer gets back to you in what seems like no time at all, your agent gets ready to send over your offer, annnnd just like that, it’s gone.  While you were getting your pre-approval, someone (less perfect of a buyer, no doubt) came through with the pre-approval they obtained before they looked at the home, and made the seller an offer they couldn’t refuse (even if the offer was less desirable than yours may have been).   You just lost the home of your dreams because you didn’t have a pre-approval.

 

The Bottom Line

 

A full pre-approval protects everyone – your lender, sellers, your buyers agent, and most importantly – you.  Is it an inconvenience?  Not if you’re serious about buying a home.  If anything, it just gives you a head start by providing your lender with documentation they’ll need anyway once you find a home.  If your real intent is to buy a home, a pre-approval prior to looking at homes is a must.  Especially in a hot market, you don’t want to miss out on a chance at your dream home because you don’t have your pre-approval completed.

Can I Get a Mortgage With Less Than 20 Percent Down?

What Mortgage Options Are Available With Less Than 20% Down?

One of the biggest mortgage mysteries is how much money is needed as a down payment when purchasing a new home.  This question is often misunderstood, but also involves a lot of misconceptions.  One rumor that won’t seem to die is that to buy a home, you need a large down payment.  Usually 20% is the most common belief.  In reality, that’s about 20% more than most people need to buy a home.

With the resurgence of low- to no-down payment products and programs, getting a mortgage for a new home requires very little in the way of down payment.  Below, you can read about

Buying a home with less than 20% down
MasonMac can help bring you home with low and no down payment loan options

several programs that require little or no down payment, along with some info on when it’s a good idea to have or use a larger down payment, if possible.

 

The VA Loan program

For qualified veterans, the VA loan program allows a veteran and their spouse to purchase a new home with 0% down payment required (in most cases, as long as they have full eligibility and are buying a home using a VA loan under or equal to the VA mortgage limits for their area).

The VA loan has 0% down required, no monthly mortgage insurance, tremendous interest rates, allowances for sellers to pay closing costs, and flexible underwriting requirements for borrowers with less than perfect credit.  You do have to be a qualifying veteran to take advantage of this program, but if you can get a VA loan, it’s one of the best low/no down payment mortgage options available.

 

The USDA Loan program

USDA loans are available to low-moderate income buyers (low-moderate is subjective, but determined by county numbers, so those in high priced markets can have higher income than those in low priced markets), and require 0% down payment for qualified buyers.

USDA loans are available in rural areas (by definition, but many USDA-eligible areas are quite close to metropolitan areas), require $0 down, are flexible with credit requirements, allow sellers to pay closing costs, and have low monthly PMI.  Rates tend to be great on this product, too, so for those who can get a USDA loan, it’s a great product option for buyers without a lot of money for a down payment.

 

The FHA Loan Program

FHA loans generally have a down payment requirement, but it’s far less than 20%.  With just 3.5% down, a buyer can use the FHA loan program to obtain a great fixed rate.  To add to that, FHA allows buyers to use local or national down payment assistance programs to cover the gap between a true $0 down loan and FHAs 3.5% requirement.  There are many products and programs locally and nationally to help buyers with their down payment, and many will cover most or all of the down payment and closing cost requirements.

FHA loans have PMI, but it’s not that expensive, and the low rates and low down payment requirements, even with less than perfect credit, help to offset that cost.  Add in the fact that sellers can contribute to paying closing costs, and FHA becomes one of the best low down payment mortgage options out there.

 

Conventional Loans

This one is probably the biggest mystery, and also where the 20% down misconception comes from.  In order to get a conventional loan without PMI, a buyer needs to either have 20% down or get creative with a first and 2nd mortgage (commonly referred to as an 80-10-10 or 80-15-5).

Conventional loans, though, can be obtained with as little as 3% down.  There are also products for 5% down, 10% down, and 15% down under the conventional loan umbrella.  Conventional loans are priced (both the loan rate and mortgage insurance, or PMI, rates) based on down payment and credit score, so a buyer with great credit and 15% down will see a lower monthly payment than someone with less than good credit and 5% down, but that doesn’t mean a conventional loan isn’t possible to get.  With low fixed rates, PMI that can be cancelled when enough equity accrues, and an easy loan process, conventional loans with less than 20% down can be a great choice for many buyers.

 

Bottom line is that if someone wants to buy a home with less than 20% down, they have a tremendous amount of loan options at their disposal.  Rates, mortgage insurance, and other factors will determine which loan program is best for a buyer, and a great loan officer can share all of the available options, along with their positives and negatives.  So if a down payment is what’s holding you back from owning a home, please reach out to one of our Mason-McDuffie Mortgage professionals.  Chances are, you’ll be able to call yourself a home owner a lot sooner than you think.

Refinancing a Home Equity Line of Credit (HELOC) – What You Need To Know

Things to Know When Refinancing a HELOC (Home Equity Line of Credit)

Hard to believe it’s been almost 10 years since the real estate downturn and resulting recession.  One of the most popular products on the market toward “the end” of the housing boom was the HELOC – a home equity line of credit that offered many borrowers the opportunity to borrow 100% of their home value or more.  These loans were attractive because most offered a 10 year “interest-only” period, after which the loan would recast to a short term, fully amortized (aka, full principal & interest payment), loan, with substantially higher payments

Many HELOCs are set to adjust from 2017 thru 2019. The good news is there are options to help!

than the original interest-only, or “draw” period.

Well, here we are 10 years later, and many people are approaching their “uh oh” date, the day when the loan will recast and the payments will go up.  Fortunately, many people in this position have regained all of their home equity or more since the recession, and the possibility exists to refinance these mortgages to avoid a large payment increase.  Refinancing a HELOC is subject to a specific set of rules that vary widely by lender and loan type, so if you’re one of the millions with a soon-to-adjust HELOC, here’s what you need to know:

 

Your loan MAY be a cash-out refinance

If you used your HELOC for anything other than purchase money (aka a 2nd mortgage used solely to buy your home) since it’s inception, refinancing it into a new conventional loan will be considered a “cash out” refinance.  This is important to know, especially when shopping, because cash out refinance rates are typically a little bit higher than “rate/term” refinance rates.  So if you’re looking to combine your HELOC into a new mortgage and you’re noticing rates are a bit higher than you see advertised, this is likely why.

Your loan MAY be a rate-term refinance

Rate-term refinance loans (those where no additional cash is withdrawn or debt beyond mortgage debt is paid) have some of the most attractive mortgage product rates, historically.  If you’re refinancing a HELOC into a conventional loan and the HELOC was used to buy your home, and not drawn against since, your refinance will be considered a rate/term refinance, and thus be offered better rates, as long as no additional cash out is taken.

If you’re considering refinancing your HELOC into a new FHA loan, it can still be considered rate/term even if you withdrew HELOC funds after your home purchase, as long as you haven’t withdrawn HELOC monies within the 12 months prior to applying for your new mortgage.  This is important because FHA allows a borrower to borrow a substantially larger portion of their home equity under rate/term refinance guidelines than they do under cash-out guidelines.  So if you’re still a bit short on equity, this may be one option tp get rid of your HELOC.

You can turn your HELOC into a new HELOC

Since market conditions have improved since the real estate crash, HELOCs have made a come back.  There are many lenders offering HELOCs, and if you have a minimum 10% equity in your home, options should be plenty.  This option is a good one for those with less than 20% equity, or a rate that’s too good on their first mortgage to give up to consolidate their HELOC into 1 new loan.  A new HELOC could restart the 10 year “interest only” clock and keep your payments down for the foreseeable future.  While we don’t recommend carrying an “interest only” loan forever, this could be your best option if you’re in a pinch or if it’s in your best overall financial interests.

The good news is, if you’re one of the millions with a soon-to-adjust HELOC, you have options, and your loan officer should be able to point you in the right direction and give you choices in how to best reduce the impact of the pending adjustment.

 

If you have questions on a HELOC, a coming adjustment, or anything else mortgage-related, you can ask an expert here!

 

5 Ways Your Lender Can Help You Get the House

In today’s competitive housing market where many areas nationwide are seeing a far-leaning seller’s market with limited inventory, it’s important for buyers to put their very best foot forward and have all their t’s crossed and i’s dotted before they find “the one”.

Most buyers don’t consider just how much their mortgage lender can help them land their

Loan officers can help buyers win in a competitive sellers market
Your mortgage lender should be an asset in getting your offer accepted

dream home, but aside from a buyer’s real estate agent, the lender is the next most important asset a buyer has when putting together an offer.  Using these 5 tips will help ensure you’ve got yourself in the best position to get an offer accepted.

Work with a Reputable Lender

One of the things a listing agent will consider when advising their seller whether or not an offer is a good one is the name of the mortgage company on the pre-approval letter.  Especially in a multiple offer situation, a seller is likely to choose the offer that’s most likely to make it to the closing table on time and with no headaches or financial harm.   That means if your competition is working with a reputable lender and you’re pre-approval is from anonymousmortgage.com or ABClowestrateXYZ Mortgage, you’ll be at a disadvantage with all other things being equal.

It’s a bonus if the listing agent knows the company and has had a good experience in the past.  If the seller asks for their input, reassurance and a seal of approval from their agent can help an offer in getting accepted.  On the flip side, if a listing agent has had a terrible experience with the lender, the seller will likely hear all about it before making a decision.  Choose your lender wisely, and be wary of internet refinance lenders.

Have a Responsive Loan Officer with Stellar Communication

Sometimes that dream home is viewed at 7pm, or 10am on a Saturday.  Sometimes, that dream home will be slightly above the amount on your pre-approval (or maybe you have a pre-approval, but need one for a different amount).  In a competitive market, if you need an update from your loan officer and their business hours are 9-5 Monday-Friday, or if they take days to respond to your questions or voicemails, you’ll be at a serious disadvantage if other offers are going in ahead of yours.

Your loan officer shouldn’t be available 24/7, but a good loan officer is always responsive, always returns phone calls, and has an eye on their email in the evenings and on weekends – after all, the real estate business doesn’t stop in the evenings and weekends.  Your loan officer shouldn’t, either.

Get Pre-Underwritten (and DON’T get “prequalified”)

If your lender hasn’t reviewed your application, your credit, and supporting documentation, then you’re not pre-approved regardless of what they tell you.  A ‘prequalification’ is a flimsy notice that you may qualify for a loan, but it’s not nearly as assuring as a pre-approval, which involves a complete application, credit, automated underwriting, and supporting documentation reviewed by the loan officer.

Better yet, work with a lender that offers a pre-underwriting program to let the seller and their agent know that if they choose your offer, there won’t be any surprises.  With pre-underwriting, your mortgage lender will put together a full file and submit it to underwriting before a property is found.  This way, once an offer is accepted, all that’s left to do is the property-related work – inspections, appraisal, and insurance – giving a buyer the same strength as a cash buyer.  Pre-underwriting says to a seller “we’re better than pre-approved, we’re fully approved pending you accept our offer”.

Your Loan Officer Should Explain Your Pre-Approval ON Your Pre-Approval

Put yourself in a seller’s shoes and consider what looks better:

“Mr/s Seller, this buyer is preapproved” OR “Mr/s Seller, we have reviewed this buyer’s credit, income documents, proof of funds needed to close, and have received an approval through automated underwriting.”

Of course letting the seller know that the loan officer completed a thorough review of a buyer’s loan application is the better way to go – but few mortgage lenders do this.  Make sure you work with a loan officer that does.

Make Sure Your Lender Calls the Listing Agent

Your loan officer should act as a huge advocate when you’re putting an offer in on a house.  Calling the listing agent offers the opportunity to explain your strengths as a buyer, but just as importantly shows the listing agent that the lender you’re working with is professional and a good communicator (one of the biggest complaints of real estate agents is that lenders lack proper communication skills).

When buying a home, it’s a team sport.  Buyers want to buy a home, and sellers want to sell.  A loan officer should let a seller and their agent know that they’re a part of the team, and that they’ll do everything they can to make everyone’s life easy, not just the buyer.  A quick phone call also gives the loan officer a chance to explain the pre-approval process, and gives the listing agent a chance to ask any questions they may have.  Communication is very important in the home buying process, having a lender that’s proactive in this area is a major bonus. If you’re currently perusing your mortgage options, please reach out to one of our Mason-McDuffie Mortgage professionals.

What’s Ahead For Mortgage Rates This Week – August 29, 2016

Last week’s economic reports included readings on new and existing home sales, a speech by Fed Chair Janet Yellen, and a report on consumer sentiment. Weekly reports on mortgage rates and new jobless claims were also released.

New Home Sales Rise in July as Pre-Owned Home Sales Fall

Sales of new homes jumped in July to a seasonally-adjusted annual rate of 654,000 sales, which surpassed expectations of 579,000 sales and June’s downwardly-revised reading of 582,000 sales. This was the highest reading for new home sales since 2008 and represented a 31.30 percent increase since July 2015.

Builders were seen by analysts as addressing the need for more affordable homes; this trend contributes to a healthy housing market by supplying homes for a wider range of buyers. First-time buyers play a vital part in housing markets as their purchases enable current homeowners to buy larger homes or relocate.

Sales of pre-owned homes fell 3.20 percent to a seasonally-adjusted annual rate of 5.39 million sales as compared to expectations of 5.59 million sales and June’s reading of 5.57 million sales. Year-over-year, sales were 1.60 percent lower. Limited inventories of available pre-owned homes have narrowed buyer options; increasing prices and narrow choices were seen as factors contributing to lower sales. There was a 4.60 month supply of available homes in July. Real estate pros typically consider a six months a normal reading for homes on the market.

Lawrence Yun, chief economist for the National Association of Realtors®, noted that a slowdown in home appraisals may have contributed to July’s lower sales reading for pre-owned homes. Low mortgage rates prompted a surge in refinancing which created a backlog in home appraisals. While low mortgage rates may entice home buyers, stricter mortgage requirements can also keep prospective buyers at bay.

Federal Reserve Chair Janet Yellen indicated that the stage could be set for a federal rate increase as early as next month. If the Fed hikes its target federal funds rate, interest rates for consumer credit and mortgages can be expected to rise.

Mortgage Rates Hold Steady; New Jobless Claims Fall

Freddie Mac reported that fixed mortgage rates for 30 and 15-year loans were unchanged at 3.43 and 2.74 percent respectively. The average rate for a 5/1 adjustable-rate mortgage was one basis point lower at 2.75 percent. Discount points averaged 0.60, 0.50 and 0.40 percent.

New jobless claims were lower last week. 261,000 new jobless claims were filed against expectations of 264,000 new claims and the prior week’s reading of 262,000 new claims filed. Declining jobless claims can indicate strengthening labor markets, but can also indicate that workers are leaving the labor markets.

Consumer sentiment declined slightly in August due to concerns over the upcoming presidential election. Analysts expected a reading of 91.0 for August, but the reading for August was revised from 90.4 to 89.80.

What’s Ahead

Next week’s scheduled economic news includes reports on pending home sales, inflation, construction spending and consumer confidence. National unemployment, non-farm payrolls and ADP payrolls are also scheduled.

The Type of Home You Want to Buy Determines Your Closing Cost and Here’s Why

Savvy home buyers who are preparing to make a real estate purchase should do their research and understand that they need to save money for not only the down payment but the closing costs as well. The closing costs can account for as much as three to five percent of the sales price in some cases, so this can be a rather sizable amount of money. Some home buyers however, may not realize that the amount of closing costs can vary considerably based on the home that is purchased. With a closer look at why this is, home buyers can make a more educated decision when selecting a home to purchase.

Prepaid Taxes And Insurance

One of the most significant closing costs relates to prepaid taxes and insurance, and both of these expenses are directly tied to the location and value of the property. Consider that the property tax rate can vary based on the city, county, and state. Real estate insurance can also vary based on the type of construction of the home if the home is located in a flood plain and other factors. These are only a few examples of how the location and property type can impact these fees, and home buyers should consider the costs associated with the tax rates and insurance when selecting a property to purchase.

Third Party Reports

There are several third party reports that are commonly paid for at closing, and these include an appraisal, a survey, a pest inspection and a property inspection. The third party reports may vary in cost based on the size of the home, the amount of land that is being purchased, and even the condition of the property. Those who want to keep their closing costs lower may consider learning more about how these fees are calculated up-front before finalizing their plans to buy a specific home.

Title Insurance Fees

Title insurance fees are another typically sizable expense for home buyers, and this insurance offers protection to the lender if the title is not clean. Title insurance can increase based on the size of the property as well as different factors that are revealed with a title search. This information can be difficult to learn with an initial home search, but home buyers should be aware that title defects can increase closing costs.

The location, size, age and construction of a property all impact the closing costs. Those who are shopping for real estate may be inclined to make a decision that keeps closing costs down, and they can reach out to us at Mason-McDuffie Mortgage at 925.242.4400 for more assistance with their particular situation.

What’s Ahead For Mortgage Rates This Week – August 22, 2016

Last week’s economic news included the NAHB Housing Market Index, Commerce Department releases on housing starts and building permits issued. Weekly reports on mortgage rates and new jobless claims were also released.

Shortages of available single-family homes have driven up home prices and increased competition among homebuyers; short inventories of homes for sale are affecting affordability in many areas, although buyers seem motivated by lower mortgage rates and some easing of mortgage requirements. Analysts have repeatedly said that the only solution to the shortage of homes is building more homes.

Fortunately, the National Association of Home Builders reported that builder sentiment concerning U.S. housing markets increased in August. The HMI moved up to a reading of 60 in August as compared to July’s reading of 58. Readings over 50 indicate that a majority of builders surveyed are confident about housing market conditions.

According to NAHB, home builders continued to face obstacles including shortages of buildable lots and skilled labor. Regulatory issues were also cited by some builders, but overall, builders remain optimistic about housing market conditions.

Housing Starts Up, Building Permits Issued Slip in July

Commerce Department reading s on housing starts and building permits issued were mixed; housing starts rose from July’s reading of 1.186 million permits issued to 1.211 million permits issued in August. July’s reading was the second highest since the recession but was driven by multi-family construction. Building permits were lower in August with a reading of 1.152 million permits issued against July’s reading of 1.153 million permits issued.

Analysts said that under present market conditions, there is little reason for homebuilders to increase single-family home production as current pricing has put many would-be buyers on the sidelines.

Mortgage Rates Mixed, New Jobless Claims Lower

Freddie Mac reported that average rates for 30-year and 15-year fixed rate mortgages dropped last week while the average rate for 5/1 adjustable rate mortgages rose. The average rate for a 30 year fixed rate mortgage was 3.43 percent and the average rate for a 15-year fixed rate mortgage was 2.74 percent; both readings were two basis points lower than for the prior week. The average rate for a 5/1 adjustable-rate mortgage was two basis points higher at 2.76 percent. Average discount points held steady for fixed rate mortgages at 0.50 percent; average discount points for 5/1 adjustable rate mortgages were lower at 0.40 percent.

New Jobless claims fell by 4000 claims to 262,000 new claims, which was lower than analyst expectations of 265,000 new claims and the prior week’s reading of 266,000 new claims. Job security is important to home buyers and signs of strong labor markets can help propel would-be buyers into the market,

Whats Ahead

This week’s scheduled economic news includes releases on new and existing home sales and consumer sentiment. Weekly reports on mortgage rates and new jobless claims will be released on schedule.

Video: What Is “Prime”?

https://fast.wistia.net/assets/external/E-v1.js

What Is “Prime”?

The Prime Lending Rate – sometimes just called “Prime”  – is the interest rate that banks charge each other for overnight loans. Some consumer rates – like ARMs – are set in relation to Prime.

In the US, Prime is affected by the Federal Reserve lending rate to banks; historically, Prime is about 3 percent above the Fed rate.

The video shows  an example.

  • The Federal Reserve loans to Bank A at 1%
  • Bank A loans to Bank B at 4%
  • Both banks – A & B – will recalculate variable-rate loans like ARMs on that 4% Prime figure.

ARM rates are frequently defined as “% above Prime” – that gap is usually called the “margin” or “spread.” Just remember those 3 layers in Prime: Federal Reserve Bank A Bank B And finally, YOUR rate.

What Is Prime

Who Is Exempt From The VA Funding Fee?

Who is NOT required to pay the VA funding fee?

This video could save some veterans thousands. VA loan applicants pay a funding fee – as of 2014, 2.15% of the total loan amount – which can be thousands of dollars. Some veterans and spouses are eligible for exemption.

Broadly speaking, veterans who received disability benefits – current or former and who are NOT currently in debt to the government may be exempt from the funding fee. Some spouses may qualify as well.

The key thing to understand is, exemption from the funding fee is NOT automatic! Borrowers must certify their veteran status, government debt, benefits and active service state on VA Form 26-8937.

It’s important to tell your mortgage company that they need to submit this form EARLY in your home-buying process – if they just look up your records without submitting the form the VA will not begin the review and approval process and your home purchase could be delayed by weeks. Who Is Exempt From The VA Funding Fee

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