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.
Over the next five years, the housing market will see around 1.5 million eligible return buyers jump back into home ownership, the Associated Press reported. These return buyers, nicknamed ‘boomerang buyers,’ lost their homes during the housing crisis, and they’ve restored their credit and are ready to purchase again!
Since 2006, 950,000 of these former owners have already purchased a home, and boomerang buyers will continue to be an important market for real estate professionals to target. Though the credit crisis hit hard, the past years of time, have helped restore the credit many lacked.
“Now fueled by a gradually improving economy and the strong rebound in home prices, credit scores, and jobs, some of these former distressed owners have returned to the market, and more will likely become eligible in coming years,” says Lawrence Yun, chief economist with the National Association of Realtors (NAR).
A recent study from NAR showed the states that will be most impacted by return buyers are California, Florida and Arizona.
One of these return buyers, Debbie Cooley-Guy, in an interview with the Associated Press, said this of her housing journey. “I used to look at people like me and think, ‘How did you let this happen?’ In hindsight, I had set myself up so well. Just because you can afford things, it doesn’t mean you should buy them.”
But her story is one with a happy ending. After agreeing to a short sale, getting rid of her debt, repairing her credit, and saving up money, Cooley-Guy got an FHA loan and re-entered the housing market. Many stories like this abound. Don’t think that you are ineligible until you consult with your mortgage Team. New options are available for many people.
Cooley-Guy’s story will become more common, as many of the 7.3 million homeowners who went through foreclosure, or short sale, or even bankruptcy, would now (or soon) be eligible to re-enter the mortgage world.
(via The Associated Press)
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.
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.