Pre-Approval vs. Pre-Qualification

If you're shopping for a home, it can be difficult to determine how much you can afford. Your bank might tell you that you've pre-qualified for a loan but what does that mean? How does it differ from being pre-approved? Understanding these terms is essential to figuring out your home-buying budget.

Pre-Qualification
If your bank tells you that you pre-qualify for a loan, it means that they've used your reported income and debt levels to make a general estimate about the size of mortgage you could afford. It's not a comprehensive assessment, and the bank won't seek out information to prove that the figures you provided are accurate.

While pre-qualification can give you a good ballpark range, it doesn't guarantee a mortgage in that amount. Without a full assessment and credit check, the bank can't tell you up front if you qualify. Additionally, when your bank pre-qualifies you, they assume you have excellent credit. This could be a problem, since your credit score impacts your interest rate which will have a large impact on your monthly mortgage payments (and how much you will be approved for).

Pre-Approval
The pre-approval process is more comprehensive and a bit more time-consuming. To get pre-approved, your lender will run a full credit check, and might speak with your employer. You may also need to provide tax returns, bank statements, your W-2 forms and proof of social security or pension payments.

If you are pre-approved, the lender will tell you exactly how much they are willing to loan you. At this time, they will also discuss interest rates and loan types that will best suit your lifestyle.

Which one is best?
Both pre-qualification and pre-approval have their advantages. However, if you're serious about buying a home, take the time to get pre-approved. Many realtors won't work with you unless you are, and the process itself can save you from surprises down the road.

For example, if you pre-qualify, your lender is making an estimate based on your own reported income. The type of income, however, might not meet the standards that your lender has in place. The pre-approval process will tell you this; a pre-qualification will not.

Another advantage of pre-approval is the credit check that your lender will run. Credit reports often include inaccuracies or missed payments you don't even know about. The earlier you discover these discrepancies, the more time you'll have to clear them up.

Pre-qualifications do have some advantages. If you're just starting to consider home ownership and have no idea how much you can afford, a pre-qualification can give you an idea. However, the more serious you are about buying a home, the more you should consider applying for pre-approval. Not only will it give you a better sense of your true buying power, but it will move you one step closer to home ownership.

10 Rookie Home Buyer Mistakes

Great Article from Yahoo Finance................

http://finance.yahoo.com/news/10-Rookie-Home-Buyer-Mistakes-usnews-655381171.html?x=0&.v=1

I agree with all 10 points on this list!

Buyer Representation, A MUST!

When buying a home, it's in your best interest to have your own representation!

In the state of Pennsylvania, if a home buyer is shopping for homes with a real estate agent and that buyer has not signed a Buyer's Representation Agreement with the agent, that agent actually is a subagent of the seller.
In other words, the agent isn't working for the buyer at all and is obligated to act in the best interest of the seller.

Some buyers think they can do all their own research. Some think they can save money by not working with an agent and some think that if they buy a home using the listing agent they will get a much better deal. This simply is not true.

A buyer's agent represents you, the buyer, not the seller, and has full fiduciary duties, including loyalty to you. By definition, the buyer's agent has your best interests in mind throughout the transaction. The percentage of homebuyers with buyer representation has grown significantly in the past decade. According to a recent National Association of Realtors® survey, nearly half (46%) of home buyers used the services of a buyer's agent last year, and four out of every five buyer's agent agreements were in writing.

The benefit of buyer representation is the dedication of a buyer's agent to the home buyer. The buyer's agent and homebuyer establish a mutual agreement, known as a buyer agency agreement that will entitle the homebuyer to, but is not limited by:

•Loyalty
The real estate agent must act in the best interest of the buyer.

•Disclosure
All material facts such as relationships between agent and other parties, existence of other offers, status of earnest money, seller's financial condition, property's true worth, commission split with other brokers, and legal effect of important contract provisions.

•Confidentiality
Any discussions, facts, or information that should not be revealed to others but does not include responsibility of fairness and honesty in dealings with all parties.

•Accounting in dealings
Reporting of where any money placed in the hands of the broker is kept.

•Reasonable Skill and Care
Arriving at a reasonable purchase price and advising the buyer of such, affirmatively discovering material facts and disclosing them to the buyer, investigating the material facts related to the sale. With a buyer agency, the interests of the homebuyer will be represented in the purchase of the home. This scenario is different from a typical transaction where the buyer is not technically represented.

For most of us, buying a home is the biggest single investment we're likely to make – and we're only likely to do it maybe once or twice in a lifetime. The process is, by nature, filled with checks and balances - and many complex details. Having your own representation is not just and option, it is a MUST!

Mortgage News, the Good, the Bad and the Ugly!

The good news is that rates are still low; as of the first week of March on a 30 year fixed conforming loan the rate is 5.00% and a 30 year FHA rate it at 5.125%. If you are willing to pay 1/2 a point either loan could possibly be obtained at a low 4.875%!

The bad news is that just weeks before the deadline for the First Time Home Buyer Tax Credit the office of Housing and Urban Development (HUD) implements several changes for loans guaranteed by the Federal Housing Authority (FHA). Starting on April 5th the cost of closing on a home will cost more money! Possibly thousand of dollars more!

Here are a few reasons why:

On April 5th, the cost of required up-front mortgage insurance on FHA loans will jump from 1.75% to 2.25%. For a borrower purchasing a $200,000 home with a $7,000 down payment, the up-front mortgage insurance will increase by $965. Up-front mortgage insurance is typically financed in the final loan amount so the impact to a monthly payment will be minimal but overall, the increase is still borne by the borrower both upfront and monthly.

It is important to note that in order to be eligible for the lower cost up-front mortgage insurance, a lender has to order a case number from the FHA before April 5, 2010. A case number can only be generated for loan applications where a property is involved and a fully executed purchase contract exists. Home buyers who have been pre-approved but are not under contract will not be eligible for the reduced premium effective April 5th.

A great detrimental change is in the amount of money that a seller can return to the buyer from their sale proceeds. Effective April 5, 2010 it will be reduced from 6% to 3%. The reduction in these "seller concessions" can increase the amount of cash a buyer will be required to pay at closing by $6,000 for a home purchase of $200,000.

For most first time home buyers, the only reason they can even afford to close escrow on a home purchase is because of the seller assistance allowance.

If you have been casually shopping for a home thinking that you have plenty of time to meet the April 30th deadline for the tax credit, it is now time to speed up your game plan.......especially if you were counting on seller paid closing costs!

These changes will certainly make the difference in being able to buy a home or not for some shoppers.