If you’re thinking about buying a home, then you’ve probably heard the terms “pre-approval” and “prequalification.” While often used interchangeably, there’s a slight difference between the two. This blog will go over what it means to be prequalified versus pre-approved.

Prequalified And Pre-approved: What’s the Difference?

Both terms refer to the initial steps taken to determine whether you’re a strong applicant for a home loan and how much. 

But there’s a difference between prequalified and pre-approval. Prequalified essentially is an estimate of how much your mortgage can be (the same as a pre-approval), but it’s nothing more than that –an estimate.

It’s the easiest first step to take in your home buying journey. The mortgage professional will review your financial history (like your income and debt) and sometimes they may check your credit score, too.

It’s important to note that prequalification doesn’t guarantee mortgage approval. It’s only an estimate. If you want something more definitive, get pre-approved.

What Is Pre-Approval?

Pre-approval is more involved because the mortgage professional will evaluate your credit score and do a complete verification of income and assets. Here’s some of the documentation needed for pre-approval include:

• Tax returns
• W-2s or 1099s
• Recent pay stubs
• Recent bank statements from the accounts
• Your credit score 

As you can see, pre-approval gives you a much stronger idea of what you can afford.

Does Getting Prequalified And Pre-approved Even Matter?

Getting prequalified is excellent if you only want an estimate of how much you can afford. It’s a great way to start planning and preparing to buy a home.

However, pre-approval carries a lot more weight. With pre-approval, you’ll have a clearer idea of how much you can borrow, what your interest rate might be, and you’ll be taken more seriously as a potential buyer when you begin your home search.

Pre-approval also gives you insight into your credit and whether you have some work to do on that end before you apply for a home loan.

The Bottom Line: Prequalified Versus Pre-approved

Remember that neither prequalification nor pre-approval guarantees home loan approval, but it does matter! Ready to get pre-approved? Start your application online today! By running a full credit check and reviewing your finances, you’ll be much more prepared for getting a mortgage.

One of the perks of a mortgage is the “mortgage interest deduction.” Read on to learn what a mortgage deduction is, how much you can reduce from your taxable income, and how you can take advantage of this tax incentive.

About Mortgage Interest Deduction

The mortgage interest deduction is part of your itemized tax deductions, and it subtracts any interest you’ve paid on loans used to build, purchase or renovate a property. This means that you can subtract a portion of the mortgage interest for primary and secondary homes every year when you do your taxes. This, in turn, reduces the amount you owe Uncle Sam. 

To be clear, this perk does not include payments you’ve made to your homeowner’s and private mortgage insurance (PMI). Here’s a list of other home expenses that aren’t tax-deductible:

• Title Insurance

• Deposits or down payments

• Extra payments made to the principal

• Interest accrued on a reverse mortgage

Mortgage Interest Deduction Limits

The limit has decreased since the Tax Cuts and Jobs Act took effect. This reduction means that single or married individuals filing jointly can deduct only up to $750,000 of interest. 

Married couples who file separately have a limit of $375,000 each. But there are exceptions to these new regulations. For example:

• Grandfathered Debt: If you got your mortgage before October 13, 1987, you could deduct all of your interest without limit. 

• Home Acquisition Debt: If you got a mortgage to purchase a home between October 13, 1987 – December 16, 2017, you can deduct up to $1 million –or $500,000 if married and file separately.

• Home Equity Debt: For a second mortgage taken out October 13, 1987 – December 16, 2017, for a reason other than building or renovating your home (like to consolidate debt, for example), then you can deduct interest up to $100,000 –or $50,000 if married and filing separately.

Deductions on prepaid interest points are a different story. For example, you may be able to deduct more in the year you bought the points but less in subsequent years. 

How To Get A Mortgage Interest Deduction

Your lender will send you Form 1098 at the beginning of the year stating how much you paid in interest and points in the previous year. It’s an official document that proves you’re entitled to receive a mortgage interest deduction. Note that you’ll only receive 1098 if you paid a minimum of $600 in interest during the tax year.

Next, you’ll also itemize your deductions and record them on Schedule A, Form 1040, where you also list your deductions for charitable donations and medical expenses.

Certain circumstances can make declaring a deduction more complicated, so this is when you’ll want the assistance of a financial advisor or tax professional, ensuring that you are getting the max deduction allowed. 

When it comes to the benefits of owning property, the list goes on and on. And tax deductions are just one of them. Are you a homeowner? If not, don’t you think it’s time you reap the benefits of owning a home?

Veterans have benefits awarded exclusively to them for their dedication and service, including disability and education compensation, career training, health care, and even home loans. However, with federally-funded home loans, there is more than one option. When it comes down to it, what is the best — FHA loans or VA loans? This article will help you understand and make an informed decision on which loan is best for you. 

FHA Loans

An FHA loan is a US Federal Housing Administration mortgage insured by the government and provided by an FHA-approved lender. The requirements for FHA loans are not that hard to obtain, especially when it comes to the credit score. For example, some of the requirements for FHA are: 

• A credit score of 580 or above
• A debt to income ratio of below or at 50%
• A minimum 3.5% down payment
• Enough money to cover your closing costs
• Enough to cover the upfront mortgage insurance premium payment 

VA Loans

As for the VA loan requirements, believe it or not, they are easier to obtain than the FHA requirements. A VA loan is a mortgage guaranteed by the United States Department of Veterans Affairs, and some of the requirements are:

• Although the VA doesn’t require a specific credit score, lenders typically look for at least a 580 credit score.
• The VA loan limit on a “zero down payment” mortgage is $548,250 in most of the country. However, in some areas, you may qualify for a higher VA jumbo loan.
• The VA doesn’t set limits on your DTI. However, individual lenders may set limits.
• No down payment is required.
• You’ll need enough money to pay the VA funding fee (around 2.3% – 3.6% of the loan amount)

Advantages and Disadvantages

As much as everyone would like both types of loans to be perfect, each has its advantages and disadvantages. It’s essential to look at them before making a final decision. Some of the FHA advantages and disadvantages are: 

FHA advantages 

• Low down payment
• Great interest rates
• Higher debt ratios
• Liberal card history

FHA disadvantages

• Mortgage insurance premium (MIP) is not cancelable
•  Property restrictions
• Some sellers avoid FHA offers
• Loan limits based on region
• Many condos are not approved

 

VA advantages

• No down payment required
• No private mortgage insurance
• Easier credit
• No prepayment penalty

VA disadvantages 

• Primary residences only
• VA funding fee
• Slower closing 

Private Mortgage Insurance: FHA Vs. VA Loans

The main difference between FHA loans and VA loans is the PMI and MIP. When it comes to Private Mortgage Insurance (PMI), VA doesn’t have PMI. However, FHA loans require you to pay the government equivalent of PMI, called MIP (mortgage insurance premium). 

So what’s the better option?

After a deep analysis of both loans and looking at the advantages and disadvantages/the requirements, a VA loan comes out on top for veterans looking to purchase a home. With no down payment, PMI, easier credit, and lower interest rates, VA home loans are more comfortable and accessible than FHA loans. Still wondering if the property qualifies for a VA mortgage? Contact us today to get all your questions answered.

An interest-only mortgage starts with payments that only pay down the mortgage interest. Generally, this makes your monthly payments lower than a typical mortgage payment. This option is attractive for those who cannot afford high mortgage payments. However, it has its drawbacks if you’re not careful. Let’s explore the benefits and disadvantages of interest-only mortgages. 

Benefits

• Interest-only loans give you time to increase your income. Are you expecting an income increase in the next few years? Then an interest-only loan can be advantageous. For example, let’s say you’re in a lower management position right now but on track for a promotion in the next year or so. Once you move up, your earning power will also increase. An interest-only loan lets you buy more now with payments in step with your future earnings.

• Interest-only mortgages allow you to speculate.  If you think that the property value will increase, you can now purchase an interest-only loan. In a few years, before the full repayment period begins., sell the property! This is a common tactic that house flippers use to maximize their profits.

• Interest-only loans free up your cash flow. Since this type of mortgage is one of the most affordable ways to borrow money, you’ll have the extra cash to pay your debts or invest in other projects while still owning a home. 

• Interest-only loans offer you a tax break. If you itemize your taxes, you could deduct your entire monthly interest-only payments on up to $750,000 of your home value. 

• Interest-only loans let you pay down equity on a flex schedule. Most interest-only loans don’t restrict extra principal payments. So if you have extra cash sooner than expected, you can make extra payments on your principal, lowering your overall debt.

Disadvantages

• Interest-only loans don’t build equity. Equity is built through making full mortgage payments. 

• Interest-only loans cost more over time. Interest-only loans cost more than other popular mortgage options such as ARMs or fixed-rate mortgages. 

• Full repayments can be a shock. After years of paying interest only, suddenly switching to a full repayment can hit your wallet hard. Be 100% sure that you can make your full repayments before you accept an interest-only loan.

• Your speculation might bust.  If the home decreases in value, it’ll limit your ability to sell or refinance — a major problem for investors.

• Interest-only loans are high-risk. Current economic conditions mean fewer lenders are willing to offer interest-only loans. 

An interest-only loan is a smart choice if you’re confident that your income will increase in the coming years, but they still have some drawbacks. Fortunately, there are many loan options for you to consider. Curious as to how low your payment could be with an interest-only mortgage? Want to learn more about another program? Check out our interactive loan calculators found here on our site, and contact us today for personalized answers. 

 

Your credit score matters in home loan approval and determining the rate you ultimately receive. Essentially, the higher the score, the lower the interest rate. That’s why you must consider any action that might affect your score, such taking out new credit. Even a small loan can have a significant impact. If you’re applying for a home loan within the next few months and considering taking out a loan or applying for new credit before then, you’ll want to get the facts.

Quick Overview: Why Your Credit Score Matters in Home Loan Approval

Lenders use your credit score as a sort of barometer for your financial credibility. The higher your score is, the more credible you are in the eyes of lenders.

There are five areas they look at:

• Whether you pay your bills on time.
• The amount of credit you’re using considering what’s available to you.
• The age of the earliest available credit.
• The variety of credit you have like mortgages, student loans, and credit cards.
• Your ability to get new credit.

There are two types of inquiries made when applying for new credit, soft and hard, and each of these impacts your credit in different ways.

A soft inquiry (sometimes called a soft pull) is primarily for educational purposes, such as when an employer conducts a background check, or you’re getting preapproved for a home loan. This type of inquiry has no impact on your credit score.

A hard inquiry (or hard pull) happens when you’re attempting to establish new credit, such as getting a mortgage, credit card, student loan, or car loan. A hard inquiry does impact your credit score and lowers it temporarily. 

How Much Will My Score Drop After A Hard Inquiry?

A typical hard inquiry can make your credit score drop by around 5 points per occurrence. Although this can seem like a huge dip, “new credit” only accounts for about 10% of your overall score, and it usually recovers in a couple of months. But if you’re shopping around and applying for several loans “just to see if I get approved,” the negative impact can start to add up and lower your score significantly.

“I Just Applied For A Loan. Can I Still Get A Mortgage?”

Hard inquiries will influence your credit score but not by an amount significant enough to disqualify you from getting approved for a home loan. If you’ve been on time with the rest of your bills and have been limiting your credit utilization, then the chances are excellent that you’ll be approved for a low-interest rate home loan.

 

Unsure if there are steps you need to take before applying for a home loan? We can help! After a free consultation and a 360-degree view of your financial health, we’ll let you know the fastest route for getting approved for a low-rate home loan. 

A lien is a property right someone else has on your property and gives the lienholder legal power to take your property as compensation if you default on your payments or break the contract terms.

A mortgage is the most common type of property lien. If you don’t pay back the home loan, the lender can foreclose on your home in hopes of recouping its investment. Some home remodeling jobs, such as redoing a bathroom, may also place a lien until the work is paid off. 

Although it may sound harsh, a lien offers protection and mitigates the risk of a loan, making it possible for lenders to make financing more available. Read on to learn more about liens. 

Types Of Liens

Consensual Lien: A lien in which you get something in exchange for the lien on your property. Examples are a mortgage or line of credit.

Nonconsensual Lien: A lien where you don’t give consent. This is typically the case with civil judgment or other law enforcement matters and remains until the requirements are satisfied.

Property Lien

With Property liens, your property is the collateral for the loan. So if you default, the lender can take the property to recoup their investment.

With home loans, however, we have to consider something called “lien position.” The home loan you take out when you first financed your home is the primary loan. However, if you take out a second mortgage, you would now have a second lien next in line.  

Should you default on your mortgage payments, the primary lien holder would be paid first, then the second lienholder, and so on. Because of this hierarchy, second mortgages are considered riskier and usually have a higher interest rate. For this reason, it’s often better to refinance your primary mortgage rather than get a second.

Tax Lien

The government can place a lien on your property (real estate, car, boat, etc.) if you have unpaid taxes, and it can affect your ability to qualify for credit until it’s cleared. 

Mechanic’s Liens

In this situation, a lien is placed on your property if you owe money for work they completed. Note that not all states allow for mechanic’s liens. 

Judgment Liens

A lien may be placed on your property in jurisdiction disputes. However, once the judgment is satisfied, the lien can be removed.

How To Get A Lien Removed

• Pay off the loan.

• Negotiate with the lender: Negotiate with the lender. They may be okay with taking less than the total amount for a payoff!

Sometimes a lien may not apply to the current property holder, but it still shows up on the title. Here are two things you can do should that happen:

• Contact the lienholder to correct it.

• Dispute the lien claim. This should be a last resort, as getting into a legal dispute could be costly. Consult an attorney if you go this route.

Now that you understand the basics of liens, you can move forward with more confidence in your property purchases. Ready to explore your home loan options? Contact us today for personalized guidance. 

Have less-than-optimal credit? That doesn’t necessarily mean you have to put your dreams of homeownership on pause.

There are several factors that mortgage lenders consider when you apply for a loan, and there are even options available specifically for those with poor credit. Read on to learn more about buying a home with low credit.

What’s Considered ‘Bad’ Credit In Home Loan Financing?

To determine if you qualify for a loan and at what interest rate, lenders look at your score from the three primary credit bureaus (Equifax®, Experian™, and TransUnion®) using FICO®, which compiles the scores from all three agencies to assign an overall credit score. The score will range from 300 – 850 and are based on factors like:

• Payment history
• Amount owed
• Length of credit history
• Type of credit
• Credit inquiries

When it comes to qualifying for a mortgage, 620 and below is considered a low credit.

Can You Get A Mortgage With Bad Credit?

While it may not be easy to get a home loan with a score under 620, it’s possible. FHA loans and VA loans are two of the most popular mortgage programs for struggling credit. 

FHA Loans

The Federal Housing Administration (FHA) offers government-insured loans with more lax credit qualifying guidelines.

Additional perks of FHA loans are lower down payments and, often, favorable interest rates. Plus, if you have a median score of 580+, your down payment can be as low as 3.5%!

VA Loans

If you’re a veteran or currently serving in the military, you could qualify for a VA loan from the Department of Veterans Affairs. There isn’t a standard minimum required credit score for a VA loan, although some lenders will set their own minimum. 

Also, there’s no down payment required with a VA loan nor necessary mortgage insurance (unlike an FHA loan). Although credit score qualifications are more lenient with VA loans, you’ll still need to be:

• Currently active in the United States military.
• Have been honorably discharged
• A surviving spouse of a veteran who died in service or from a service-related incapacity.
• Able to obtain a VA Certificate of Eligibility, and either you or your spouse must live in the home.

Should You Buy A Home If You Have Bad Credit?

Here are some pros and cons that can help you decide. 

Pros

There are essential market factors that you should consider, namely, the current low rates. 

Another thing to consider is that rent tends to rise faster than mortgage payments do, and depending on your location, this could push you out of your desired location if you stick with renting. 

There’s also the benefit of home equity and satisfaction of being able to create your living space (whether by decor or remodel) as you like. Having a permanent place to call home is also a joyful accomplishment.

Cons

Here are the cons to buying a home with less-than-stellar credit:

• May need a higher down payment.
• If getting an FHA loan, you’ll pay a mortgage insurance premium for the life of the loan. You can eventually refinance this cost out, but you need to raise your credit score and reach at least 20% equity before this comes into play.
• Your interest rate will be higher than if you had good credit. 

 

Many falsely believe that buying a home with low credit is impossible or a poor decision, but neither is true. Several factors affect getting a home loan, and you may be pleasantly surprised at how perfect this time may be for you to buy your first home. Contact us today for personalized assistance. 

Whether you’re a first-time home buyer or an experienced homeowner, you may be wondering if it’s truly necessary to work with a real estate agent when buying a property. Here’s what you need to know about working with an agent and how to go about purchasing a home without one should you choose to.

Benefits of Working with a Real Estate Agent

1. They’re considered experts in the industry and can help you navigate the home buying process, which can be complicated and competitive.

2. They can save you time and energy by arranging open houses and searching for properties that fit your criteria, including looking in databases that you may not have access to.

3. They help with negotiations and deal with any concerns you may have to make sure you get the best deal for your money.

4. Put your mind at ease since they are handling the most tedious part of looking for a home.

Downsides of Using a Real Estate Agent

1. Paying commission. On average, you can expect to pay your agent about 6% of the total sale price.

2. Multiple clients mean that their attention is divided, possibly slowing down the process.

3. Needing to work within their timeframes, which may not align with yours. 

4. Still need other professionals. Real estate agents can give recommendations regarding the price of a home. However, you’ll still need to hire an appraiser and perhaps an attorney to review the legality of the documentation.

If you choose to buy a home without an agent, make sure to prepare as much as possible. Including:

1. Prepare your home loan documentation by getting preapproved. Preapproval helps accelerate the home buying process and may even help you get ahead of other potential buyers! While you make an offer on a home without a preapproval, it can slow the process and lessens your chances of getting the home of your dreams.

2. Research recent home sales in your neighborhood. This helps you become more aware of the market so that you can make a reasonable offer. 

3. Get familiar with the community. Understand crime rates, school ratings and stats, property development, and any other important factors about where you choose to live.

4. Build contingencies into the offer, so you have a way out of the contract if something goes wrong or it’s not as it should be.

5. Hire a home inspector. Don’t skimp on this part! Even homes that look great cosmetically can have costly issues lying beneath. 

6. Hire a real estate attorney to review your contract and provide legal advice. 

7. Purchase a title insurance policy should any previous owners surface and contest ownership of the property.

8. Request seller disclosers and prepare a list of questions to ask the seller. 

Apply for a Mortgage with Us! 

 

Whether you choose to work with a real estate agent or go about buying your home DIY, it’s important to have a trusted mortgage professional like us by your side. We can advise you on the best loan product and terms for your budget and expedite the approval. Need recommendations for a great real estate agent? We can help with that too! Contact us today for all your home buying needs.

A home equity line of credit (HELOC) is a type of mortgage loan that acts similar to a credit card, except the line of available credit is tied to your home’s equity. So instead of using funds advanced to you by a creditor, you use the cash from the value of your home.

HELOC Benefits

• Lower Interest Rates  HELOC interest rates tend to be lower than personal loans or credit cards. 
• You Only Pay For What You Use – You’re charged interest only if you withdraw funds. 
• No Closing Costs – HELOCs often have low or no closing costs, making them an attractive alternative for small loan amounts. 

Applying For a HELOC 

Similar to applying for a mortgage, there will be a credit review and a home appraisal. However, some lenders may only need to review the data regarding your property’s valuation and real estate market in the area, not a full appraisal. 

You’ll also need at least 20% equity in your home and a credit score of 620 or higher. Your debt-to-income ratio should be in the low 40s or less, with your credit history in good shape.

HELOC Draw Period

With a HELOC, you can borrow up to 80 percent of your home’s equity for the life of the loan, which lasts about 5-10 years. You can use as much or as little as you want and pay interest only on what you use, not the whole amount you were approved for.

HELOC Repayment Period

HELOCs repayment period usually lasts about 10 – 20 years, where you’ll make regular monthly payments on the principal and interest until it’s paid off. Remember that these payments are in addition to your regular mortgage payments. 

HELOC Vs. Home Equity Loan Vs. Refinance

Home Equity Loan

While a HELOC is considered a type of home equity loan, a home equity loan typically refers to borrowing a lump sum against your home. Remember that with a HELOC, you only borrow what you need and do so over an extended period.

Cash-Out Refi

With a cash-out refinance, you replace your current mortgage with a new one. You’ll have at least 20% of your equity in a lump sum along with new mortgage terms. Since a cash-out refi is a new loan, it also comes with closing costs (remember that HELOCs have no closing costs). However, you’ll only have a single payment to make to your lender versus a mortgage payment and HELOC payment with a home equity line of credit.

Is A HELOC Right For You?

 

Since every borrower has different needs, we offer various options for gaining access to your home equity. Whether it’s a flexibility of a HELOC you’re after or lowering your rate with cash out, we can match you with the best refi program. Contact us today for an obligation-free conversation.

If you’re looking into real estate and home shopping recently, you’ve probably realized that the availability of houses for sale is limited, and the competition is fierce. Of course, this varies by neighborhood, but on average, we’ve found that there’s only about 3.5 months’ worth of new real estate available versus the usual 6 months’ worth.

But despite this stiff competition, it’s still a great time to buy! Here are the top advantages of getting preapproved for a mortgage before getting serious about shopping for a home. 

Advantages Of Getting A Mortgage Preapproval

Get A Showing Faster

There are some instances where real estate agents are declining to show homes to potential buyers unless they have a preapproval letter upfront. Getting this done before starting the house hunt ensures you’re able to view and make an offer on any house that catches your eye.

Confidently Put In An Offer

The process of getting preapproved helps to clarify how much you can afford to pay in monthly mortgage payments. That way, you have an affordability budget in mind and a good idea of the mortgage payments.

Be Seen As A Low-Risk Buyer

Getting a mortgage preapproval also gives the seller confidence! Since preapproval means that an underwriting team has already verified your buying power, the seller can feel assured in accepting it. Some sellers may even view a preapproval-backed offer as solid as a cash one!

Even More Advantages Of Getting Preapproved With Us

The mortgage preapproval process becomes even more attractive when you utilize our convenient online mortgage preapproval process. From the comfort of your home, we can securely pull your credit to verify your income and assets. With just a few clicks, you can submit your documentation for items like pay stubs, tax returns, and W-2s and even virtually connect to your financial institution to verify assets. And, of course, a real-life mortgage professional is available to guide and advise you every step of the way. 

Are you serious about buying a home within the next 3 months?

If you are, then start your preapproval process today! It only takes minutes to complete the secure online application, and you can even save it to finish it at a later time. Have more questions? We’ve got answers! Contact us today for all your home loan and refinancing needs.