Sunrise Homes & Renovations, Inc.

Should You Get Pre-Qualified Or Pre-Approved For Your New Home Purchase?

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How Pre-Qualifying Helps You Find The Right New HomeOften times, home buyers can be disappointed when they find their dream home only to discover they are not able to get a mortgage to purchase the property. There are methods that potential buyers can use to ensure this does not happen to them.

One of the options is to ensure you obtain a pre-qualification from your lender. It is important to understand the difference between a pre-approval and a pre-qualification. While both are helpful, they do not carry the same weight.

What are the differences between these options?

A pre-qualification allows a borrower to determine how much money they may be able to borrow. For most borrowers, this allows them to start the house-hunting process with a mortgage amount in mind. Borrowers should understand, while the loan amount can be calculated, changes in interest rate as well as the borrowers credit are not evaluated in this process.

In general, the lender will request specific information from the borrower including income and expenses as well as ask about their credit. None of this information is typically verified by the lender through an underwriting process before sending a pre-qualification letter.

On the other hand, a pre-approval requires the borrower to provide a number of documents to the lender, typically the same documents borrowers need to apply for a loan. The documentation supplied to the loan professional is then treated as a full purchase loan application and run through underwriting to secure a conditional commitment from a bank or mortgage lender.

Oftentimes, this difference between the two options leads borrowers to speculate as to whether a pre-qualification is useful.

Why pre-qualification helps in your home hunting?

There are many valid reasons why potential homebuyers should ask about pre-qualifying for their mortgage. Some of these include:

  • Home prices – if a borrower is eligible for a mortgage of $200,000 they will know they will have to seek homes in a specific price range. If a borrower is only able to put down 10 percent, they know the maximum home price they can afford is $220,000.
  • Down payments – in most cases, borrowers who can afford to put down a large down payment will have more options available to them. In some cases, understanding how much mortgage a borrower may qualify for beforehand allows them to save additional money for a down payment.
  • Estimates of dollars needed – another advantage to pre-qualifying is borrowers can get an idea of what additional closing costs they may need to qualify for a mortgage. This can be very helpful for a first time home buyer.

Pre-qualifying for a loan can save a home buyer from being disappointed. There are few things that are more upsetting than finding a home you love only to discover you are not eligible for the loan you need in order to purchase that home.

Typically, when you are seriously looking for your next home it would be a good idea to move to the full pre-approval process in order to get the most leverage when you find the home of your dreams.

As always, it’s a good idea to consult with your trusted real estate professional for advice when preparing to look for your new home.

 

How To Successfully Use Your Down Payment to Achieve Your Home Buying Goals

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How To Successfully Use Your Down Payment to Achieve Your Home Buying GoalsWhen you are considering purchasing a home , understanding the lending guidelines regarding a down payment is important. 

Here are a few key tips to consider:

Gifting of a Down Payment

There are some programs that will allow you to use a gift for your home down payment. However, before you assume this, make sure you talk to your loan officer. Generally speaking, the lender will require the person making the gift to provide a letter stating the money was a gift and does not require repayment.

Windfalls as a Down Payment

When people hit the lottery or come into money through an inheritance, one of the first things they may consider is buying a new home. However, it is important ot keep in mind that lenders will typically want to know exactly how you came up with your down payment.

Borrowers still need to show a “paper trail” of how they came into money. If your down payment amount has not been “seasoned” the lender may not accept your loan.

What is a Seasoned Down Payment?

Generally speaking, your loan officer will want a “paper trail” to document your down payment. Most lenders require down payment funds to be at a minimum 60 days old. For example, let’s assume a borrower did win the lottery: If they deposit the funds into their checking account and leave it there for 2 months or more, the funds would be considered seasoned.

However not all lending guidelines are the same. Some lenders require even more seasoning to consider the money in your account truly yours. So it’s a good idea to plan well ahead of your purchase date to get your down payment funds in your account if you plan on getting money from another source.

Lender restrictions on down payment funds are fairly common. If you are uncertain if your funds meet the lender’s criteria, talk to your loan officer. In most cases, a lender will require at least one-half your down payment fall into the category of seasoned funds.

The One Place You Can Borrow For Your Down Payment

Some borrowers may use their retirement account or other savings to make their home down payment.  And most lenders are perfectly fine with you borrowing against your own savings in a 401(k) or IRA account. Of course you will likely want to discuss the tax implications with your accountant or financial advisor before making these withdrawals.

Don’t wait until the last minute to discuss your down payment with your real estate agent because you may wind up disappointed. Keep in mind, your real estate professional is available to help guide you through the whole process of buying your new home.

Current Servicemember or Veteran? 4 Reasons Why a VA Home Loan Is an Excellent Choice

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Current Servicemember or Veteran? 4 Reasons Why a VA Home Loan Is an Excellent ChoiceAre you current or former member of the US military service who is looking to buy a new home? If so, you will be pleased to know that there are some special mortgage programs that are open to you. Let’s take a look at five reasons why a mortgage backed by the Department of Veterans Affairs is an excellent choice when buying your new home.

You Can Borrow Up To 100% Of The Home’s Value

You read that correctly! VA-backed mortgages are available to you even if you choose to put no money towards your down payment. This can be a huge benefit for those individuals and families who are looking to buy a new home but don’t have a large chunk of cash on hand to fund the down payment. Instead, you can work with your VA mortgage advisor to get financing for the entire purchase price of your home.

You Can Qualify For A ‘Jumbo’ Loan

Depending on the real estate market in your city, the size of home you need and how luxurious you want it, you may need a larger mortgage. The great news is that there are ‘jumbo’ options available with VA-backed home loans. In some cases, you may qualify for over $1 million in mortgage financing, which is likely to put most homes in your area within reach.

You Can Avoid Mortgage Insurance Fees

Home buyers using a conventional mortgage with less than 20 percent down are typically required to buy private mortgage insurance or “PMI.” However, this is not a requirement with VA-backed mortgages. If you qualify for a VA home loan, this can save you a significant amount of money over the loan’s term.

You Can Accelerate Your Payments At No Cost

If you decide that you want to pay your VA mortgage off a bit faster by accelerating your payments, you can do so without incurring fees or penalties. For example, if you are gifted a large sum of money or have a significant income tax return, you can contribute that amount directly against your mortgage.

These are just a few of the many great reasons to explore using a VA-backed mortgage to fund your next home purchase. For more information about VA home loans to buy your next home, contact your trusted real estate professionals today.

3 Great Homebuying Tools Millenials Have Available to Them Right Now

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Millennials Have Great Home Buying Tools AvailableThe economy seems to be heating up rapidly, but home loan interest rates are still at historically low levels. Real estate values have climbed a bit across the country, but low interest rates and affordable prices makes for an excellent opportunity for new homeowners to get into their first home before it rates and prices rise higher.

According to the recent studies, there were 4 consecutive quarters of homeownership growth where new homeowners outpaced new renters.  The solid economic fundamentals are likely responsible for creating this excellent home buying environment.

Over the past year, Millennials seem to be on board and helping to drive the upward trend. They represent the next generation of homebuyers, and as this group is getting older, they are getting married more frequently. They are also starting families which tend to encourage the idea of home ownership. In fact, a recent analysis showed that home ownership is 30% higher among married couples than non-married couples.

Specifically, low unemployment numbers and a progressively aging pool of Millennials with a desire for home ownership appear to be driving this trend. US homeownership actually increased over 2017 to an unadjusted rate of 64.2%, which was a significant uptick from the previous year at 63.7%.

Here are a few very helpful tools are still available for new buyers:

  • Any homebuyer with military status can take advantage of Veterans Administration loans with far better rates than the normal market, making mortgage payments cheaper.
  • Those buying in rural areas can take advantage of rural homebuyer’s assistance programs provided by the U.S. Department of Agriculture to help people move to small towns and similar communities.
  • The Housing and Urban Development Agency provides HUD loans that make it very affordable for those with limited income to purchase HUD-owned homes as first-time buyers and get into real estate.

Of course, the big response from Millenials is how do I earn more to even get started. Like Generation X folks before them, Millenials can’t wait for a job to be made available on a platter.

While looking, many smart folks have started their own businesses online or in their local marketplace. If a current job is enough to cover current bills, a second income can be entirely dedicated to saving, which can generate thousands of dollars quickly.

Even a part-time second job that creates $1,000 a month produces $12,000 a year and in two years enough for a sizable down payment. 

If you have questions about buying your next home, give us a call. We’d be happy to help!

The 4-Step Financial Checkup to Get Ready for a Mortgage This Year

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The 4-Step Financial Checkup to Get Ready for a Mortgage in 2018Are you ready to join the ranks of homeowners in our local community? Congratulations – homeownership is a big step towards building your net worth and financial freedom.

However, it is also a significant transaction that will affect your finances for the foreseeable future. Let’s take a look at a quick four-step checklist that will help you to get ready to buy a home with a mortgage this year.

Step 1: Set Up A Monthly Budget

It might sound a little basic, but the best first step is to commit to a monthly budget. After you buy a home using a mortgage, you will be responsible for making monthly payments for a period of time. The faster you get used to working inside of a budget, the better.

Your budget doesn’t have to be extravagant. Simply list your sources of income and your expenses. If you are spending more than you are making, you are going to need to cut back a bit.

Step 2: Start Setting Aside Your Down Payment

If you haven’t already, it is an excellent time to start gathering the funds necessary to make your down payment. This is the amount of cash that you put forward against the price of the home. The remainder of the purchase cost is covered by your mortgage, which you will pay off monthly in the future.

Note that the standard down payment amount is 20 percent of the home’s purchase price. If you have less than this available, you may be required to purchase mortgage insurance. But don’t let this deter you from starting the process now, especially if you have found the house that you want to buy.

Step 3: Check Your Credit Rating

Next, you will want to check your credit rating and FICO score to find out if you have any outstanding issues. You can access a free credit report from any of the major reporting agencies up to once per year, so be sure to take advantage.

Step 4: Meet With Your Mortgage Advisor

Last, but not least, you will want to schedule a meeting with your mortgage advisor. This is your opportunity to have all your mortgage-related questions answered by a professional who has your best interests in mind.

If you decide that you are ready to move forward with buying a home, you can begin the pre-approval process at your convenience. We look forward to helping guide you down the path to buying your dream home!

Questions and Answers Regarding Escrow Accounts

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What is an escrow accountWhether you are purchasing a new home or you are considering applying to refinance your home, chances are the lender will require an escrow account. These accounts are often a source of confusion for homeowners. In reality, these accounts benefit the homeowner and help protect the lender.

What is an escrow account?

Escrow accounts are sometimes called “impound” accounts. These accounts are set up to help manage payments of property taxes and homeowner’s insurance. Depending on the individual requirements of the lender, you may be asked to pay as much as one-quarter of these upfront and they will be put into the account for the purposes of making payments.

Who controls escrow accounts?

Lenders have complete control over escrow accounts. However, homeowners are entitled to receive an annual statement advising them of their escrow balance. If there is an increase or decrease in insurance payments through the year, a homeowner may request the lender evaluate the escrow account and change the amount that is paid.

Is interest paid on escrow accounts?

There is no mandate to pay interest on escrow accounts. When you refinance your home, the funds for your taxes and insurance are calculated into your overall payment. The portion that is to be used to pay taxes and insurance is placed in escrow. Federal laws do not require lenders to pay interest on these accounts.

What happens if I sell my home or refinance?

When you sell or refinance your home, your escrow account will be credited at closing. The amount may be used to lower your out-of-pocket costs or may be turned over to you as a direct payment.

What happens if there is not enough/too much money in escrow?

If your lender has underestimated your escrow payments, they may request you send an additional payment to make up the difference. In the event you are paying too much into escrow, your lender has the discretion to release the overage amount directly to you. In most cases, shortfalls or overages of $50 or less are typically not a major concern.

If your lender requires you to have an escrow account for the taxes and insurance portion of your mortgage payment, it can be very helpful. Escrow accounts help ensure you do not have to come up with a large payment once a year for insurance or quarterly for taxes.

In some cases, if a lender does not require an escrow account, as a borrower, you may request they escrow your taxes and insurance for convenience.