21 Dec

What Does Getting Pre-Approved For A Mortgage Really Mean?

General

Posted by: Roberto Pelaccia

Have you been pre-approved for a mortgage? Has anyone actually reviewed your income, and down-payment documents, or looked at your credit bureau? Being pre-approved often just means a few questions were answered regarding your income, and voila you have a rate being held for the next 120 days. This does not mean you have been pre-approved for a particular mortgage amount. That process is what I call being Pre-Qualified. It means a mortgage expert has verified your income, and down-payment and has also examined your credit bureau. They would then find where you would fit with many lender’s policies, or maybe just the 1. Its a specific process and sometimes at the end of it we can get a rate hold for you.

Getting pre-qualified for a mortgage is great, congratulations if you have been. But, that doesn’t mean that your mortgage is completed locked in. There are many factors at play that could have an impact on you when you actually go to put through your application and want to use the loan for your offer.

Some of these factors include:

Changes to your application

This means that there have been some kind of major changes to your application. Perhaps you decided to get a jump on furniture shopping, so you took out a small loan for some new items. Perhaps you changed jobs. The list goes on. But, these changes can have a significant impact on whether or not a lender ACTUALLY gives you the amount you were pre-approved for.

The lender isn’t a fan of the property you’re buying

Just because you love the property, doesn’t mean the lender will. What a lot of people don’t know is that there are quite a few property types that lenders don’t always lend on. Some of those include:

  • Leased land or co-op
  • Age-restricted property
  • Any reference to water or leaks in the minutes
  • A “fixer upper”
  • Contains asbestos, vermiculite insulations or has (even partial) knob-and-tube or aluminum wiring
  • Is on land with a commercial zoning component
  • Livestock is present, etc.
  • Size of the property- below 500 sq. feet,
  • Doesn’t use municipal sewage or waste
  • Over 1 Acre and/or multiple buildings
  • Ongoing or upcoming assessments or legal proceedings

So, if you’ve been pre-qualified, but then go to put your paperwork through with a property the lender doesn’t like, they have every right to turn down your application. This is why it’s SO IMPORTANT to include a “subject to financing” clause. Pre-qualified or not, you always need to have this component!

Always have a subject to financing clause

At the end of the day, financing can be very subjective. So, if you include a “subject to financing” clause, then you’re 100% protected if you can’t find a lender for the property you’ve put in an offer on. Being pre-qualified for a mortgage doesn’t guarantee you will be approved, but it will give you your spending ballpark. You know what you qualify for, so you can tell your real estate agent, and start looking at homes that are within your price range. Have close contact to your Mortgage Expert when you want to put offers can really make a difference on your outcome. They will be able to update your file, and examine the property, so the end result of you winning your offer is much higher.

It is not a green light to start throwing out offers. So, make sure you take the proper steps to make sure you are protected. And, keep in mind that mortgage pre-approval does not mean that you are guaranteed to get your mortgage.

4 Dec

The Expectations Versus The Reality Of A First Time Mortgage

General

Posted by: Roberto Pelaccia

It’s an exciting time when you’re looking at buying your first home. So much so that we often create expectations in our head that clash with the reality of the situation.

Often times, first time home buyers walk into the mortgage and home buying process thinking it’s going to be a breeze, that they have enough money, that buying is the best option for them, but really, they haven’t spoken to an expert – a mortgage agent – to find out is those thoughts are actually true.

Here are some of the most common expectations – or thoughts – first time home buyers have, that sometimes don’t match up with their reality. Give it a read to make sure you’ve covered all your basis and are making sure your expectations are setting you up for success.

1. Going from renting to owning a home can cost the same or less

We’ve all heard the phrase that owning a home is more worthwhile because you’re putting money into something that you will one day own, versus dumping money into rent. While this is true, it’s also often said that a mortgage costs the same, and sometimes less than rent. I would like to take the time to officially debunk this theory.

Firstly, yes, you can find a cost-efficient mortgage that is comparable to what you are paying in rent. Of course that depends on how much your rent is. If you’re only renting a room and are only paying a few hundred dollars then chances are your monthly living cost will increase by quite a bit. But, if you’re renting an apartment or a house, then mortgages can sometimes be around the same price. Keep in mind that this is not always the case. So, setting the expectation that buying a home will actually save you money is not the reality.

The reality is that owning a home comes with more expenses than first time buyers realize. Some of these extra costs include repairs – you no longer have a superintendent fixing things up for you – home insurance, property taxes, utilities, etc. This is why it’s smart to sit down and build out a budget for yourself. Cash flow planning is a great option to make sure that you’re using the money you have in the best way that you can.

2. You qualified for a certain loan amount and you should use all of it

Just because you qualified for a certain amount, doesn’t mean you should use all of it. Prior to applying for a mortgage, you should have established a budget with a cash flow planning specialist to determine what you can afford on a monthly basis. And, once you’ve done that, you stick within your budget to make sure you’re not overextending yourself financially.

It’s always smart to give yourself a price range. For example, let’s say you qualify for a mortgage of $600,000.00, you can say that you would like to find a home between $450,000.00 to $550,000.00. That way, if you end up getting into a bit of a bidding war for the home of your dreams, you have some wiggle room.

3. You have enough saved for your down payment

So many people come in after saving for years, only to realize that their down payment isn’t necessarily enough. They think their down payment is quite sizeable, and it probably is, but the general rule is to have at least 5% saved for a home that is worth less than $500,000.00. But, the higher you can get that percentage, the better off you will be.

So, make sure you’re well-informed about the amount you need to be saving. And, in order to get there, you can use effective cash flow planning to make sure you are saving enough money in the amount of time you want. So, if you have a goal to save up a $25,000.00 down payment in three years, cash flow planning can look at how much you need to save and how you can use the money you’re making now to actually make that happen.

4. Once you’ve saved for your down payment, there are no other fees

Saving for a down payment is a big task and it takes time. A lot of first time home buyers think that once they’ve saved for their down payment, they just need to apply for the mortgage and they’re good to go. This isn’t the case. People often forget about all the other fees that come with buying a home.

Some of these fees include:

  • Realtor fees
  • Legal fees
  • Moving costs
  • Inspection fees
  • And so much more

These fees need to be paid before you take ownership of your home, and therefore need to be accounted for when you’re looking at applying for a mortgage and buying your home.

The Reality

I know that this blog may make it seem like there are a ton of obstacles and hoops to jump through in order to qualify for a mortgage, but the reality is, as long as you’re prepared and you know what to expect, you’ll be set up for success. So, get in touch with a mortgage agent, learn the reality of applying AND qualifying for a mortgage, and start preparing for that home you’ll get into faster than you know it.