Mortgages

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.

Do’s and Don’ts During The Loan Process

By Bill FitzMaurice
May 19, 2016

You found your dream home and your offer was accepted. Congratulations, but before you start packing for your big move there are some definite Do’s & Don’ts we recommend buyers to follow as they go through the loan process.

DO:

DO ask donor(s) for gifted funds as soon as possible, if being used towards your down payment. Ask your Loan Officer about the necessary steps and documentation for gifts.

DO stay current on all your payments: mortgage, car payments, credit cards, student loans and any other debt.

DO continue to use your credit as normal. Changing your pattern may raise a red flag, causing your credit score to go down.

DO wait to make a major purchase such as a new car, boat or appliance until after your loan has funded.

DO keep copies of all important financial documents so you will be ready to provide if asked: check stubs, W-2’s, tax returns, bank and investment account statements, rental agreements, etc.

DON’T:

DON’T keep cash in a safe or an overseas account if you plan to use these funds as a down payment. Ask your Loan Officer how and when would be the best time to put funds into your U.S. bank account if needed.

DON’T close credit card accounts. Keeping accounts open after you have paid them off lowers your debt-credit ratio. If you close a credit card account, it may appear that your debt ratio has gone up.

DON’T apply for new credit or give your personal information to anyone else who might run your credit report. Multiple credit inquiries may hurt your credit score.

DON’T make career moves. Your mortgage lender must verify your employment, so it’s crucial to maintain employment status.

DON’T make large deposits into your back account unless 100% necessary. If you must, save the documentation showing where the funds came from. Keep a “paper trail”.

Make sure to discuss any changes in your financial situation with your Loan Officer right away.

About the Author: Bill FitzMaurice is a Senior Mortgage Consultant (NMLS #290216) with New American Funding. For more information about home financing you may contact him at (949) 291-1770.

Interview with C.A.R. Chief Economist Leslie Appleton-Young

By Joe Lins
February 15, 2016

I had the opportunity to interview California Association of REALTORS® Chief Economist Leslie Appleton-Young after her presentation at the Pacific West Association of REALTORS® February general membership meeting. I asked her three questions about the real estate industry and specifically Orange County real estate.

Those three questions were:

1) What is the biggest disruption facing the real estate industry?

2) How healthy is the Orange County real estate market?

3) What is the biggest opportunity for the consumer in Orange County?

She’s a smart woman and I value her insight. Watch this short video for her responses.

About the author: Joe Lins is President and Co-owner of CENTURY 21 Discovery. If you are interested in becoming part of the CENTURY 21 Discovery team or would like more information about our services contact Joe at 714.626.2069.

Understanding Your FICO Score

By Courtney Lynch of New American Funding*
April 15, 2015
Originally published on March 24, 2015

Many of your financial investments depend greatly on one small three-digit number. Your FICO score dictates what kind of loans you receive and ultimately the purchase you can handle. It is important to be cognizant of your FICO score and know whether you need to make improvements to your credit.

What is a FICO score?
The National Association of Realtors noted that aFICO score determines your creditworthiness and it ranges between 300 and 850. Lenders consider borrowers with lower scores to be at a higher risk and those with higher scores to be at a lower risk. NerdWallet noted that your interest will correlate with your FICO score. Keeping your credit score low will save you money in the long run.

To determine how your credit score compares, speak with your financial adviser and know what is considered to be a good or bad score. Experian, a credit information service company, released its fifth annual credit study and 2014 showed the national average credit score increased two points from 664.

How is a credit score calculated?
The scoring model used by most lenders to determine your creditworthiness was developed by the Fair Isaac Corporation. There are a number of types of credit scores, but NAR reported most lenders prefer referencing FICO scores before providing a loan.

According to MyFICO, the scoring model uses five different categories to calculate a score. These include:

Types of credit used
New credit
Length of credit history
Amounts owed
Payment history

The types of credit used only accounts for 10 percent of how your FICO score is calculated while payment history makes a much larger and profound impact at 35 percent. Knowing which elements have the most profound effect on your score is important – especially when you want to improve your creditworthiness.

MyFICO also noted that your scores are not contingent upon your age, salary, current interest rates or whether you are enrolled in credit counseling.

Where is your score relevant?
When submitting a loan application, your credit score is always at the forefront of a lender’s mind. Given that creditworthiness determines how likely you are to pay back your loans, a good score is incredibly important when applying for a loan of any sort. Whether you are trying to obtain an auto or home loan, your FICO score can make or break you.

Freddie Mac reported that your credit is one of the most important and necessary elements of applying for a home mortgage.

What other factors may lead to a rejected loan application?
Opening multiple lines of credit and cosigning history are two additional elements lenders could potentially view as red flags, according to Bankrate.

Signing up for multiple credit cards in a short amount of time could alarm some lenders.

“That would raise some questions,” said Norm Magnuson, the vice president of public affairs for the Consumer Data Industry Association. “It could be an indicator of something that’s going on. I don’t think it’s in the best interest of any consumer to go out there and be a collector of credit lines.”

Cosigning is an additional factor that could impact whether you are approved for a loan. While you may not have to pay money when you help someone become approved for a loan, you may pay in other ways. When you cosign, you are also taking on that individual’s line of credit. If he or she does not have a good credit score, that can now be associated with your own creditworthiness.

In addition, if the individual you cosigned for decided not to make payments or turned them in late, these behaviors would count against you.

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

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

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