The mortgage process can be a long and complicated one, with a number of similar-sounding terms that can easily confuse first-time home buyers.
A pre-approval is not the same thing as a pre-qualification, and it is extremely important to understand all of the facets, numbers and everything else that goes into a mortgage pre-approval.
Being declined during the pre-approval process means you’ll have a hard time getting the funds you need to buy your home, so it’s important that you know what the process is going to look like before going into it.
How does a pre-approval work, and how can you make sure you won’t be declined? Here’s what you need to know.
What Is A Mortgage Pre-Approval?
A mortgage pre-approval is a step that happens somewhere near the start of the home buying process. Being pre-approved means you have a preliminary loan commitment from a mortgage lender. Pre-approval isn’t necessarily a guarantee that you’ll get a mortgage, but rather, a statement that if all goes according to plan, your lender will most likely issue a mortgage to you.
Pre-approvals can make the mortgage process shorter and easier, but they’re not legally binding. If you later find a better mortgage through another lender, you don’t have to take out a mortgage through the lender that pre-approved you.
What Do You Need To Be Pre-Approved?
In order to be pre-approved, your lender will need to evaluate your finances and your ability to pay for your mortgage. You’ll want to meet with your lender and provide them with bank and creditor documents that clearly show your income, your assets, and your debts. You can expect your lender to run a credit check on you in order to determine your employment status and verify that you’ve accurately reported your finances.
If you meet your lender’s criteria, you’ll receive a commitment letter that states what size of a mortgage your lender is willing to give you.
Red Flags: Sure Signs That You’re Destined To Be Declined
You can be declined for a mortgage pre-approval for any number of reasons. If you have a poor credit score, a high debt-to-income ratio, or a low or unstable income, you likely won’t meet the lender’s minimum borrower requirements – and you’ll be declined.
To avoid being declined for a pre-approval, you’ll want to ensure you always pay your bills on time, negotiate with your creditors to pay off your debts, or boost your income.
A mortgage pre approval can help you to narrow your home search and access a mortgage loan. That’s why it’s important to ensure you don’t get declined during the pre approval. Contact me today to learn more about the process at 303.668.3350.
Happy New Year!
This week’s report of economic events and activity will be shortened due to the holiday.
Existing Home Sales Dip, New Home Sales Rise
According to the National Association of Realtors®, sales of previously owned homes dipped from October’s seasonally adjusted annual rate of 5.32 million sales to 4.76 million sales of pre-owned homes.
This was considerably lower than analysts’ expectations of 5.30 million sales. Factors seen as contributing to November’s reading included pent-up demand caused by low inventories of available homes and affordability issues emerging as demand pushes home prices up. New regulations that extended the closing period for home sales were cited as causing some closings to be pushed into December.
In contrast to lower sales for pre-owned homes, November sales of new homes rose by 4.30 percent from October to November based on a revised October reading of 470,000 sales. The original October reading was 495,000 sales of new homes, which provided the basis for analyst projections of 505,000 new homes sold on a seasonally-adjusted annual basis.
New home sales were up by 9.10 percent year-over-year in November. New home sales account for approximately 9.30 percent of home sales. Regional reports for new home sales were mixed. The Northeast region reported a drop of 28.60 percent, while the Midwest reported a gain of 20.50 percent. New home sales rose 4.50 percent in the South and fell 8.60 percent in the West. The good news about new home sales softened concerns about cooling housing markets caused by the abrupt drop in home resales.
Last week’s financial news ended on a positive note with December’s reading of 92.60 for consumer sentiment rose from November’s reading of 91.30 and also surpassed analysts’ expected reading of 92.
This week’s roster of economic reports includes Case-Shiller Home Price Indexes, Pending Home Sales and Consumer Sentiment for December. No reports will be issued Friday in observance of the New Year’s Day holiday.
Happy New Year!
Clients will not have to deal with price hikes for Fannie and Freddie-backed loans, following the advocacy of one industry association that went to bat for home buyers.
“The House and Senate wrapped up work last week on a long-term transportation funding bill, sending the legislation to President Obama's desk for his expected signature,” the Mortgage Bankers Association said in a release. “In a key victory for MBA, the final package did not contain a provision to pay for a portion of the new transportation spending through an extended increase in the fees charged by Fannie Mae and Freddie Mac to guarantee a loan.”
The MBA’s Mortgage Action Alliance lobbied for months in a bid to sway congress not to use buyers as a means to contribute to the unrelated transportation funding.
Last Tuesday, the House and Senate agreed to a five-year transportation reauthorization bill, H.R. 22, the Fixing America’s Surface Transportation Act.
An earlier Senate version of the bill included the stipulation that part of the higher fees would come from Fannie Mae and Freddie Mac. However, the bill will instead be funded through a one-time draw of Federal Reserve surplus funds and changes to bank-issued dividends.
“With respect to Federal Reserve dividends, banks with less than $10 billion in assets will continue to receive the current 6 percent dividend rate, while other banks will receive the lesser of the 10-year Treasury yield or 6 percent,” the MBA said.
Source: Mortgage Banker Association December 2015
There were a multitude of economic reports released last week that would further indicate continued improvement in economic conditions.
Some of the positive - pending home sales, construction spending and ADP payrolls all increased while on the other side the equation Non-farm Payrolls fell and the national unemployment rate held steady.
Pending Home Sales, Construction Spending Increase
According to the Commerce Department, pending home sales increased by 0.20 percent in October as compared to September’s reading of -2.30 percent. Construction spending of 1.00 percent for October exceeded September’s reading of 0.60 percent growth and expectations that October’s reading would hold steady with a growth rate of 0.60 percent. Increased construction spending suggests that home builders may increase home building projects, which could relax tight inventories of available homes and ease demand for homes.
Mortgage Rates, New Jobless Claims Rise
Average mortgage rates fell last week according to Freddie Mac. The average rate for 30-year fixed rate mortgages fell by two basis points to 3.93 percent; average rates for 15-year fixed rate and 5/1 adjustable rate mortgages also fell by two basis points with readings of 3.16 percent and 2.99 percent respectively. Average discount points were 0.60 percent for 30-year fixed rate mortgages and 0.50 percent for fixed rate mortgages. Average discount points for a 5/1 adjustable rate mortgage held steady at 0.50 percent.
New jobless claims rose last week with 269,000 new claims filed as compared to the prior week’s reading of 260,000 new claims and analysts’ expectations of 265,000 new claims. The level of new jobless claims neared levels not seen since 2000. The four week rolling average of new claims dropped by 1750 claims to a reading of 269,250 new claims filed. The four-week rolling average of new jobless claims is considered less volatile than weekly readings which can be impacted by holidays and other anomalies that can cause volatility.
Labor Reports Show Growth, Unemployment Rate Unchanged
Hiring increases and lower layoffs have contributed to the lowest national unemployment rate since 2007. The national unemployment rate held steady at 5.00 percent. ADP reported 217,600 new jobs in November as compared to October’s reading of 196,000 new private sector jobs. Non-Farm Payrolls reported lower job growth of 211,000 jobs as compared to expectations of 200,000 jobs added and October’s reading of 298,000 jobs added. Non-Farm Payrolls covers government and private-sector jobs.
This week’s scheduled economic releases include reports on job openings, retail sales and consumer sentiment. Weekly reports on mortgage rates and new jobless claims will also be released.
When the market is hot some sellers are lucky enough to be in a situation where they see multiple offers come through on their property. Now the only decision left is which one to choose.It may be easy to look at the amounts offered and go with the highest one, but that is not always the wisest choice. There are several smaller factors that could mean the difference between a winning and losing bid.
Have Any Of The Buyers Been Pre-Approved For A Mortgage?
While an offer that comes in above the asking price can be very tempting, there is a risk that the entire sale can fall through if the buyer is not approved for a mortgage that large.
An easy way for a buyer to set themselves apart from the rest is to make sure they are pre-approved for a mortgage large enough to cover their asking price. This not only decreases the chances of the sale falling through at the last minute, but also shows which buyer is truly serious about purchasing the house.
Take A Close Look At The Terms
The amount being offered on a home should not be the deciding factor in a bidding war, especially if the offers are all so close. Taking a hard look at the terms in the contract will provide a better idea of which buyer should be taken seriously.
Which buyer has put up the most earnest money? A buyer who has deposited a low amount of earnest money may be more willing to walk away from the sale at the last minute, causing a severe headache. Are any of the buyers asking for appliances or fixtures to be included in the sale?
These are the small things that can make the choice between offers that much easier.
Negotiate To Have Contingencies Waived
Many buyers will put a list of contingencies into the contract to give themselves an out on buying the home. These include waiting until their own home is sold, having the place inspected by a contractor or attorney reviews of the paperwork.
If only one buyer is willing to waive these contingencies that could be the person whose offer should be taken seriously. Other small factors to look at include closing dates that match up or offers that are made in cash.
A real estate professional in your area can help get multiple buyers interested in your home and assist with going through the offers to find the right one. Don’t try to do this alone, call me direct at 303.668.3350 and I will put you in touch with a professional today!