Lenders

Prequalified or Preapproved: Which Is Right For You?

By Nicole Johnson of New American Funding*
September 13, 2017
Originally published on September 12, 2017

(Photo courtesy of New American Funding)

This is it. You’re ready to make the move into homeownership. From all the online searching you’ve done, you know you need to get “pre-something-ed” to prove you are a serious buyer. However, which is it: prequalified or preapproved? Both sound good, but they serve different purposes.

Getting Prequalified

When you ask a Loan Officer to perform a prequalification, you can do it online, by phone, or in person. They’ll ask you to share information, often verbally, on your credit, your income; assets (savings, investments, retirement accounts the amount of equity you have in any real estate you currently own); and the amount of debt you owe.

It’s a conversation that helps establish some financial parameters before you start looking at and making offers on homes by helping you answer two key questions:

What price range should I be looking in when I start my search?
Am I ready to do this, or do I need to save more or pay down more debt?

While the process is useful, especially for first time homebuyers, it isn’t rigorous enough to distinguish you from the other attendees at an open house or when you request a showing. The reason is that the letter is based off something akin to a “best guess” by the Loan Officer, it’s not reviewed by an Underwriter, and doesn’t address the question that matters most to sellers, Real Estate Agents, and to you: Can they/we expect to be approved for the type of mortgage needed to buy this home? To answer that, you need to be preapproved.

Preapprovals Open More Doors

The preapproval process is like a test drive before you submit your application for a mortgage. The Loan Officer and an Underwriter will verify the facts and figures you discuss, along with your credit history. This process can also help pinpoint things you might want to improve—or errors that you’ll want to correct—before entering the formal application review process. Loan Officers will also begin looking for mortgage programs that might apply to your financial situation. The preapproval process is more rigorous than a prequalification and because it is fully underwritten, helps ensure your home buying process with go more smoothly.

In addition to ordering your credit report, Loan Officers may ask for copies of:

Last year’s W-2s.
Current pay stubs.
Brokerage and other savings account statements.
Your monthly expenses.
A current mortgage statement and homeowner’s policy (if applicable).

Once you are preapproved, you’ll receive a letter to share with Real Estate Agents and sellers. After you have an offer accepted on a property, you will still need to officially apply for a mortgage. That review process will involve a deeper dive into the information you’ve already provided, as well as into the specifics of the property itself. Fortunately, having a preapproval also means faster service and turn times to get you into your home sooner, so the official mortgage application is likely to be easier than with just a prequalification.

Why Bother Getting Prequalified?

The prequalification process takes very little time or effort on your part. Any cost is typically limited to that of ordering a credit report. When you already have an idea of the area where you want to look and what type of home you can afford, skipping the prequalification step can make sense. Its best use is as a preliminary step for those who need a starting point.

By comparison, for most buyers, a preapproval is a step they shouldn’t skip. Having a letter from a lender that states you are preapproved can be especially helpful in neighborhoods where the existing home inventory is tight…and when the home you are looking at is perfect. Being preapproved makes it easier for the seller to accept your offer over that of a buyer that hasn’t taken this extra step.

*Article reprinted with permission from New American Funding. Licensed by the California Department of Business Oversight under the Residential Mortgage Lending Act – License #4131117 Broker Solutions Inc. dba New American Funding (NMLS #6606) Corporate Office is located at 14511 Myford Road, Suite 100, Tustin, CA 92780. 800.450.2010

What Drives Mortgage Rates?

By Chris Smith
September 27, 2016

There are many things that drive mortgage rates available to Buyers. Some things are out of your control: National Employment Patterns, the Stock Market, actions of the Federal Reserve, natural disasters and geopolitical or global events.

Let’s focus on the things you CAN control to get the mortgage rate that fits your budget and allows you to get into that home you want.

Credit Score
The better your credit score the lower your interest rate. Having a high credit score makes you a more favorable borrower in the eyes of the lender. First, find out what your credit score is. Then try improving your credit score before you start the loan application process. Talk to your loan consultant on ways you can improve your score.

Down Payment
There are a lot of low down payment options for borrowers. What you may not know is that if you increase your down payment on the home you are buying you can secure a lower interest rate. This can ultimately save you more money over the life of the loan.

Size of the Loan
The amount of money you borrow can impact the interest rate. A larger loan amount will usually have a higher interest rate. The reason for this is because paying back a larger loan amount will likely take long and there is more at stake for the lending organization.

Type of Property and Occupancy
Loan pricing is slightly lower for single family homes compared to condominiums. Owner occupied loans also have lower rates than non-owner or investment properties.

The best way to understand all your options regarding interest rates is to talk to a loan consultant BEFORE you start your home search.

About the Author: Chris Smith is a Senior Mortgage Consultant (NMLS #253394) with New American Funding. For more information about home financing you may contact him at 714.401.5921.

Saving Money on Your Mortgage

By Shantell Lorraine Nicole Russell of New American Funding*
March 22, 2015
Originally Published on March 19, 2015

Everyone loves saving money and your monthly mortgage payment is no exception. When you apply for a home loan or are thinking about refinancing, there are a few things you should consider to keep your payments more affordable.

Providing a larger down payment
While government-sponsored enterprises Freddie Mac and Fannie Mae are now offering loans with a 3 percent down payment option, paying more money up front can help keep your interest rates and monthly bill lower. Credit.com also noted that you can pay off your mortgage faster and this can leave you with the ability to access more spending money in the future.

Deciding on the right mortgage
There are a number of options available to individuals interested in purchasing a new home. The two main types of loans available are fixed- and adjustable-rate mortgages. According to Nerd Wallet, FRMs guarantee a specific interest rate over the course of the loan’s life. This is a great long-term option that you can easily organize your finances around. An ARM offers a lower introductory rate, but after a pre-determined amount of time the interest rate can fluctuate with the market.

Deciding on the best loan option for you depends on what type of loan fits your situation. You may not intend to use this mortgage toward your forever home. Perhaps you know that you are hoping to sell the house in the next five or 10 years. In this instance, an ARM with a lower interest rate would save you more money. However, if you are investing in a home you do not intend to move out of any time soon, an FRM might be a more dependable and ultimately more affordable option.

Lender-paid and borrower-paid mortgage insurance
Mortgage insurance provides protection for lenders if an individual is unable to pay back a loan. Zillow noted that there can be differences in the payments and rates associated with borrower-paid PMI and lender-paid PMI. Ensure that you consider the total monthly cost of PMI after tax deductions to decide which option is most cost-effective for you.

Shopping around for a mortgage
Before buying a new television, people usually check a few stores, browse the Internet and conduct a little research of their own. When you decide to purchase a new home, your hunt should be just as thorough, if not more intense to ensure you are getting the best deal. Bankrate noted that you can either shop for a loan yourself or hire a broker to do the hunting for you. If you decide to hire a broker, ask to speak with his or her clients before. They can offer you insight about the services he or she was able to provide for them.

You may also want to speak with your real estate agent about different lenders. He or she can direct you to a variety of options available and you can begin shopping for the best deal.

Consider paying extra
U.S. News and World Report suggested adding an extra payment each year. The additional payments are put toward your principal and help bring down the total amount you owe on your home and you will not have to pay as much interest on that total.

Making more payments on your mortgage now can ultimately save you more money on the total amount that you owe lenders. For example, if your current mortgage is $200,000 with a six percent interest rate on a 30-year FRM and you made one extra payment of $1,199 each year, you could not only save $47,000 but also cut five years off of your 30-year commitment.

Take a look at your current financial situation and determine whether this is a viable option for you.

Refinancing your mortgage to save money
While interest rates on home loans are low, you may find that refinancing is an increasingly appealing option. However, U.S. News and World Report noted that before you jump the gun and decide to refinance your home, you should calculate long term savings and the closing costs and fees you may accrue.

You should only move forward with this process if you have done the math and see that the savings make it worthwhile.

Another factor to consider is whether you are currently a good candidate for a new mortgage. Make sure that your credit score is healthy and you will qualify for a lower interest rate.
If you decide to refinance, remember that you should look at a few different lenders before committing. It is important that you find the best deal available.

Saving money is always helpful. Finding new ways to help with the cost of your mortgage can help your financial situation a great deal. Reach out to a professional, consider your options and make a plan to help you save money on your monthly payments.

For more information about loan options contact
Chris Smith NMLS# 253394 at Chris.Smith@nafinc.com
Bill FitzMaurice NMLS# 290216 Bill.Fitzmaurice@nafinc.com