Why is becoming pre-approved for a mortgage so important?

In today’s market, with so many loan programs being offered and the increased amount of homes for sale, you will find being preapproved for your mortgage will save both you and your real estate agent a tremendous amount of time. 

A “preapproval” is a commitment from a lender for financing to a specific loan amount that was concluded from a review of your credit and income verification.

Becoming preapproved will allow your real estate agent to find homes that fit into your price range, based on the amount for which you have been preapproved to obtain financing.  By doing this, you can eliminate homes from the large available inventory that would simply waste your time.

Keep in mind that a preapproval doesn’t always mean that a home that matches your price range is a guarantee once you have negotiated and signed a Purchase & Sale Agreement.  The preapproval is a process to examine just the borrower(s) and although you may qualify to afford the home, the home itself also has to qualify to allow for financing.  The home is qualified by having a Satisfactory Title Search done as well as a Satisfactory Appraisal.  If the Title Attorney’s exam of previous deed changes and survey changes are acceptable, and a Licensed Appraiser can find value in comparable homes to support the purchase price, you are doing great. 

One final item to remember is that a preapproval is generally only good for 120 days.  After that time, a new credit report will be required along with updated income verification to allow for the continuance of the preapproval decision.  If your original loan application changes in any way, such as, loss of income, or assets, the original preapproval will be voided, and a new decision will be delivered based upon the current information.

The preapproval process is relatively simple, and can usually be completed within 24 hours.  Feel free to contact me with any questions about the preapproval process.

Simple savings

Have you given any thought towards putting additional money toward your monthly mortgage payment?  Sometimes spending a little more money actually will save you a lot of money in the long run. 

“That doesn’t make sense,” you say.  Let me show you.

To set up my example let me give you some upfront information.  Let’s say you just bought your home and financed $100,000 for the next 30 years at a rate of  5%.  If you have access to a mortgage calculator, you would agree with me that equals a monthly principle and interest payment of $536.82.

Here is what your amortization table would tell you that you received at closing:  if you make your payment on time for the next 30 years, you would repay a total figure of $193,255.78.  Which means, it will cost you $93,255.78 in interest to borrow the $100,000 for 30 years.  It got you the house of your dreams, but I will agree, that is a lot of money.

Here is how you can beat the amortization table. . . . 

By adding an extra $100 to your monthly payment (re: the example above instead of $536.82 you send $636.82) and identifying that you want it applied to the principal, it changes the total repayable to $162,675.53.  That is a difference of $30,580.25.  Not a bad savings for applying an extra $100 towards your monthly mortgage payment.  This same example would also allow you to own your home in just under 22 years.

Or

Instead of electing the 30-year mortgage note, consider a 15-year note.  By substituting a 15-year term in the example above, the monthly payment would be $790.79, and the total repayable on the mortgage note would be $142,342.85.  Again significantly less interest over the life of the loan compared to the 30-year option.

Recovering from a major credit event

The current economic climate has put turmoil in the lives of many citizens.  If you have had to choose between paying a bill or buying food, you are not alone.  Based on current data, it appears positive affects from Economic Stabilization are starting show.  If you have been affected by the poor economy and are now looking to buy a home, below are some general ideas of how long to wait after a major event impacted your credit.  Please note, it is not a guarantee if you wait the appropriate time that you will be granted funds to buy a home, they are just general rules that most Government Lenders - Underwriting Guidelines adhere to.

Bankruptcy – Most lenders require a minimum of 2 -4 years after the discharge of the bankruptcy along with re-established credit.  “Re-established credit” refers to to a minimum of 3 accounts reporting to the credit bureau reflecting no late payments, and the trade lines are provided a minimum of 12 months worth of payments.  All three Credit Bureaus will need to reflect a good credit score (680 or higher would be desired). 

Foreclosure Sale – Most lenders will require a minimum of 3 – 4 years from the transfer of title of the foreclosed property.  Written evidence will need to be provided to validate the foreclosure was beyond the borrower’s control.  Re-established credit with 3 or more trade lines with a minimum of 12 months worth of history, along with a good credit score (680 or higher would be desired).

Late Payments – Most lenders require that there be no more than 2 payments that are 30 days late within the most recent 12 months.  The borrower would have to explain and validate the late payment(s) were beyond their control.  There can be no more than 1 payment that is 60 days late within the most recent 24 months.  A good credit score would need to be reflected by all three Credit Bureaus (680 or higher would be desired).

The regulations and guidelines for mortgage lending tend to change quite often to adapt to National Economic Data, so please give me a call when the time is right to review your current situation. 

Getting a mortgage close to home-the credit union difference

When looking for a mortgage you can go to a number of different types of lenders (the places that lend you the money to buy your home): banks, mortgage brokers, or credit unions are the most typical lenders. 

What’s a credit union?  The research continues to show that many people – particularly those under the age of 40 – do not know the difference between a credit union and a bank.  There are several overall differences that I won’t go into a whole lot of detail on here in this post, but if you’re not sure, I recommend this link.   This short video explains the big differences very clearly – and comically!

What I’d like to talk about here is the credit union difference, as it applies to mortgages or home lending.  Some of the unique characteristics of a credit union are that we are local and owned by our members (as customers are called in the credit union world).  In addition to offering competitive rates, our structure makes us particularly strong in providing excellent service.  When you are shopping for a mortgage, working with a lender that’s knowledgeable, accessible, and “hands on” is incredibly important, especially if you are a first-time home buyer.

Another distinct feature of many credit unions in Maine is our product offering.  I mentioned the “CU Promise”  program in a previous post with respect to the flexible down payment options.  However, there are other great features to this product, such as guaranteed same-day decision making, guaranteed local servicing, and guaranteed on-time closing.  And believe me, based on my years’ of experience in this business, you’ll be especially glad for the on-time closing feature! 

As you think about where you want to get your mortgage, think about the features that are most important to you in a lender then research various institutions.  It is likely you will find that credit unions offer the characteristics that you value.

How much house payment can I afford?

Here is a simple calculation to help you find out how much of a house payment you can afford.

a. Gross Monthly Income                    __________

b. Multiply by .36                                   __________

c. Other current monthly bills          __________

d. Subtract c. from b.                             __________  

Line d shows your available monthly housing total.

Please keep in mind that your available housing expense needs to include your monthly Principal, Interest, Taxes, Insurance, and PMI* obligations.

As a homeowner you will also want to make sure you have set aside reserve funds for times in which you need to replace something in your new home, or even for those long winter months where you will need fuel to heat your home.

* - PMI stands for Private Mortgage Insurance, and is needed for any Real Estate Lending Transaction where the loan amount exceeds 80% of the current market value of the property.  This monthly premium is paid to a Mortgage Insurance Company to supply coverage to satisfy the Lender in case of default on your loan.