Making the decision to buy your dream home is a huge step in life, although it’s one that you should be proud of taking. It may be stressful at times, but you should be proud of your home and happy to be living there. The biggest stress of buying is coming up with the down payment. If you’re part of the minority, you will have managed to save up over the years and will be able to buy your dream home without having to worry about where that money will come from. But most people will need to really discuss the options with their mortgage professional to see how much they will need, and then save, get money from family, or sell something to come up with cash.
Taking out a mortgage can be very stressful if the process is not explained well to you. You need to understand the monthly payments, the terms of the loan, how you can pay it back sooner, if possible, and how the tax deduction of the interest and property taxes can help you going forward. In order to do that, you’ll want to make sure that the mortgage transaction is closed as quickly and painlessly as possible.
Finding the right home for you can be a difficult task and can often be frustrating. Low inventory in the Bay Area has made this process more difficult than in other parts of the country. Through the property searches that you will do, it’s important that you keep your hopes high and look at all properties that come up in your price range, as the perfect home often comes available.
When you do find a home, you will have a property inspection to ensure that the home has no issues. An appraisal will ensure that the price you are paying is fair market value, and you will need to get the lender all income and banking information necessary for the loan approval process.
Getting a pre-approved mortgage is a MUST DO in this market. This will show the seller that you are able to buy his/her home, and the lender is willing to give you the money to do so. You should start with this “before you start shopping for a home” so that you can show your Realtor that you are qualified to buy in the price range he/she is showing you homes in.
Once you have a pre-approval, you will know your maximum buying price, and you can then decide if that is how much you want to spend. Or you may choose to spend less for your new home.
The overall message here is that before you take out a mortgage, sit down and think about whether you’re ready to do so. It does not need to be a stressful/last minute ordeal if you prepare yourself and work with a professional mortgage banker throughout the process. Buying the home of your dreams is possible, but you need to prepare for the financing and do so upfront. If everything is processed properly from the start, you should have no delays.
There are many types of mortgage loans, but most of them involve the bank or mortgage lender issuing a loan to the homebuyer. That is not the case in the purchase money mortgage. In this loan, it’s the seller who finances the loan as a part of a purchase transaction. These are often called “seller carry-back” loans, as the seller will act as “the bank” in holding the note.
The purchase money mortgage is usually used when the borrower is unable to qualify for a traditional mortgage loan, due to a low credit score, or other credit issues, but will only work if there is equity in the home. If the seller has a mortgage that needs to be paid off, this option will not work.
In this case, where the seller financing will work, the seller of the house would agree to become the holder of the mortgage. He would not receive the full amount right away, but, if no problems arise and the buyer pays back the mortgage as agreed, the seller will actually make more money in the end, as he will have earned interest from the payments that the buyer makes.
The interest rate on these types of purchase money mortgage loans is usually higher than on conventional loans due to the higher risk factor. As the process involves only the seller/lender and the buyer/borrower there are no universal rules and qualifications – everything is based upon an agreement between the two parties.
However, most seller/lenders will still want to be sure that the borrower will be able to repay the loan and therefore, ask for most of the same documents that any other lender would, in terms of income, assets and credit. They will want to verify the buyer’s source of income and often, credit recommendations – anything to make sure that the borrower will be able to pay back the loan. Most sellers who agree to hold a purchase money mortgage also may ask for a larger than normal down payment.
The purchase money mortgage loan is a great opportunity for buyers who are otherwise unable to get a loan, and for sellers who want to make more money on the sale or want to use it as a long time investment.
A jumbo loan, or a jumbo mortgage as it is sometimes referred to, is a mortgage that is larger than the conventional FNMA loan limits. It is a type of loan that makes it possible to purchase the high-priced home, where borrowers need larger mortgages.
Many people do not realize that there are lending limits across the United States, often varying from state to state; and within the states, from County to County. All conforming loan limits are established by regulation, and for the majority of US states and counties, they are $417,000. The Santa Clara, San Mateo, Contra Costa, and other Northern California Counties (called “high cost areas), have a higher limit at $625,500. A jumbo mortgage is considered a loan amount that is higher than these limits. (If you are in other Counties please check to see what your lending limit may be).
Traditionally, the interest rates on the jumbo loans have been higher than for regular mortgages. However, in the past few months, these rates have dipped down to historical low points, often lower than rates given on conforming loan limits. The investors who offer these loans tend to give lower rates when a borrower has an extremely high FICO score (over 760) and a lower loan to value (generally under 60%).
If you are looking at a more expensive home or currently have a higher loan amount than “conventional”, now is the time to check your mortgage payments. As with the lower rates, the payments will be lower than anticipated. (A refinance might be appropriate at this time).
Although the loan qualifying process is similar to the regular mortgages, there are a few differences in the qualification requirements. First of all, a down payment for a jumbo loan is usually higher – 20%-30%. Most lenders also require borrowers to have a higher credit score of at least 700 and a debt-to-income ratio that’s 43% or lower to show their financial strength and qualify for the loan. (On the conventional loans, lower down payments and higher debt-ratios are often allowed.)
To qualify for a jumbo mortgage, borrowers should also have at least 6-12 months worth of reserves left in the bank after closing (sometimes more, depending on the loan amount). Call today if you are in the market for a new jumbo loan, and we will show you the options available on both adjustable and fixed rates.
All in all, a jumbo mortgage is great option for financially-strong borrowers who want to purchase a high-priced home.
What they don’t realize is that these are two completely different things, and mistaking one for the other can cause home buyers a lot of trouble.
So, what is the exact difference between pre-qualification and pre-approval?
Pre-qualification is just an estimate. It is an informal way to see how big a mortgage you might qualify, based on “verbal” information given only. It should be free of charge, and usually just involves the buyer giving the banker their overall financial picture, including their income, debts, and how large a down payment they will be able to afford. No credit report is required and the buyer’s overall ability to buy a house is not taken into account.
A lender can use the provided information to give the buyer an estimation of the approximate mortgage amount they can expect to qualify for. Because the pre-qualification does not take into account everything, and is based solely on the information you verbally submit, there is no guarantee that the pre-qualified amount will be the same as the actual approved amount.
Pre-approval, on the other hand is a real commitment a lender makes to the buyer. It is a much more complex procedure than pre-qualification but it carries actual value. Pre-approval requires the buyer to give the necessary information to the Banker
Pre-approval requires the buyer to give the necessary information to the banker to have credit pulled and supply all the necessary financial documents the lender needs to do an extensive check on the buyer’s financial background. The lender will be able to use this information to determine a specific mortgage amount to approve the buyer on, and the best program options available for a buyer to compare. The pre-approval is a commitment made in writing for an exact loan amount, based on the rates “at that time”. It shows the buyer where he or she stands financially and shows sellers that the buyer is serious about buying and able to obtain the necessary financing.
Although pre-qualification is a fast and easy way to get a general idea of what you can expect to get, there is little value to it as it’s not exact. The only result you can rely on is the one that comes from lender pre-approval.