Mortgage Preapproval vs. Prequalification: What's the Difference?

What Is a Mortgage Prequalification?

A mortgage prequalification is a quick estimate of how much home you can probably afford. (At least according to the lender—your actual home budget should be a separate conversation.)

Why is it a quick estimate? Because, honestly, you don’t need to do much to get one. All you need is your name, phone number, and some numbers (real or fake) that show your income, assets and debts. Give these to your lender over the phone, online or in person—and they’ll give you a prequalification on the spot.

When is the best time to get a mortgage prequalification?

First, decide if you’re ready to buy a home. If you are, get prequalified.

Yeah, it’s really that simple. Since a prequalification gives you a big picture idea of how much mortgage you would be approved for, the best time to get one is in the very beginning—when you’re reviewing your budget. Think of it as the first step in the mortgage process.

What do you need to get a mortgage prequalification?

Here’s the truth—you need a lender and that’s about it. As long as you have numbers in your head or on paper, you can get prequalified.

What Is a Mortgage Preapproval?

A mortgage preapproval is a step above a prequalification. It’s a thorough investigation of your income, assets, credit history, rental history and debts. It will give you a concrete idea of how much home you can afford—according to your lender. When you get preapproved, a lender verifies you’re employed, checks that you aren’t falsifying the facts, and makes sure you aren’t swimming in debt up to your eyeballs.

When is the best time to get a mortgage preapproval?

The same as with mortgage prequalification, the best time to get a mortgage preapproval is when you’re ready to start shopping for a house. In fact, we’re going to let you in on a little secret—you can skip prequalification and go straight for preapproval.

When you receive your preapproval, keep one important fact in mind: Your lender will likely approve you for way more money than you should consider spending on a home. Stick with these two guidelines and you’ll have a home you can truly afford, while you work toward bigger financial goals like saving for retirement or paying for your kids’ college:

You need to put at least 5–10% down (20% will help you avoid paying private mortgage insurace). So if you have $20,000 saved, you can afford the down payment on a $200,000 home.

Your payments on a 15-year mortgage should be no more than 25% of your take-home pay. You’ll pay thousands less in interest with a 15-year mortgage than you would with a 30-year mortgage—and you’ll be out of debt in half the time!

You’ll be tempted to look at more expensive homes, especially when you see how much your lender thinks you can afford. But a huge mortgage payment will ultimately make your home a curse, not the blessing it should be. Source

Imagine Knocking Six Years Off Your Mortgage Just Because You Asked One Question Most People Forget

 

When it comes to mortgages, most people focus on the obvious questions:

“What’s my interest rate?”

“What’s my monthly payment?”

“Is this the right time to buy?”

And while those are definitely important… there’s one question that often gets overlooked — and yet, it could literally save you years of payments and thousands of dollars in interest.

Let me tell you a quick story.

It started with one simple question…

A few months ago, I was working with a couple who were finalizing their mortgage documents. They were excited — you know, that giddy kind of excitement that comes with finally getting the keys to your own place.

We were going over the loan terms, and I asked them:

“Did you check if there’s a pre-payment penalty on this loan?”

They paused. Looked at each other. Then back at me.

“…What’s a pre-payment penalty?”

If you’re wondering the same thing — you’re not alone. Most people don’t realize that some loans come with a penalty if you pay off the mortgage early or even make extra payments outside the normal schedule. And that can be a major roadblock if you’re trying to build equity or save on long-term interest.

Luckily, their loan didn’t have a penalty — which meant we could get strategic.

The real numbers that make a big difference

Let’s look at this in plain English — with real-life numbers.

Let’s say you take out a $550,000 mortgage at a 6.5% interest rate.

If you make the minimum monthly payments for 30 years, you’ll end up paying over $714,000 in interest by the time it’s all said and done.

But… what if you added just $290/month to your mortgage payment? That’s about $3,500 per year.

Here’s what happens:

• You shave off about 6 years from your loan
• You save over $160,000 in interest payments

That’s a down payment on another property. That’s college tuition for your kid. That’s retirement savings. That’s freedom.

All from one smart move — that only works if your loan allows it.

So, what’s the takeaway?

Always ask:

“Is there a pre-payment penalty on this loan?”

This one simple question gives you the power to make strategic financial decisions that put more money back in your pocket over time.

Here’s the truth:

Sometimes the smartest thing you can do as a homebuyer isn’t just picking the lowest rate — it’s knowing what to ask before you ever sign on the dotted line.

And the best part? You don’t have to be a math genius or financial planner to do this. You just need to be informed, ask the right questions, and work with someone who has your back. 

Reach out to us today! We would love to assist you or answer any questions regarding your mortgage...

5 Steps to Saving for a Down Payment

 

Step 1: Set a clear savings goal.

The first step in saving for a house is to know the exact dollar amount you actually need. In a perfect world, you’d pay for your house with 100% cash. But that’s not realistic for everyone.

So, if you’re getting a mortgage, start by asking yourself these questions:

• How much should I spend on a house? The answer depends entirely on your lifestyle, your income, how you spend money, how you budget and how much house you’re looking for. But whatever you do, never spend more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage—otherwise, you’ll be house poor. And stay away from expensive FHA, VA and USDA loans that rip you off.
• How much down payment should I have? When deciding how much down payment to save, your ideal goal is at least 20% of the home price. Anything less and you’ll have to pay for private mortgage insurance (PMI). If you’re a first-time home buyer, a smaller down payment of 5–10% is okay too. But then you will have to pay PMI.
• How long will it take me to save for that down payment? This is up to you, but patience and hard work really do pay off! You should set a goal to save a nice down payment in two years. Try not to drag it out much longer than that, though. You’ve got plenty of other money goals to take on next—like your retirement and the kids’ college funds (if you have kiddos).
• Where can I put money for a down payment? Just like an emergency fund, you’ll want to put your down payment in a place that’s easy to access—but not too easy. Remember: A down payment is not an investment. So, stashing that cash in a money market savings account will get the job done. You won’t make tons on interest, but you won’t lose money either.

Again, let’s say you want to save $40,000 in 24 months to cover your down payment (plus closing costs and other moving expenses). Now that you’ve set your goal, it’s time to fast-track your savings.

Step 2: Tighten your spending (temporarily).

Let’s start with the money you’re already bringing in every month. That’s right—let’s flex your budgeting muscles! You’ll be amazed at how much money you find when you pay attention to your spending. Here are some ideas to help you tighten your spending temporarily while you work on saving for a house:

• Take a break from the gym: $60 per month
• Save going out to eat for special occasions: $200 per month
• Trim your clothing budget: $100 per month
• Buy generic: $160 per month
• Cut the cable: $110 per month

These tips could save you $630 every month! That adds up to more than $15,000 over the course of 24 months. Now, get creative and think up even more ways to trim your spending.

Step 3: Hold off on your retirement savings (temporarily).

If you’re already saving for retirement, this might feel really weird. After all, at Ramsey, we teach you to start investing 15% of your household income for retirement after you’re out of debt and have your full emergency fund in place.

But if you’re planning to buy a house in the near future, it’s okay to hold off on your retirement savings and put that money toward your down payment. Remember: You’re in charge of how gazelle intense you want to be. If that’s what you decide to do, that’s okay! It’s only temporary. Once you’re sipping coffee in your new breakfast nook, you can get right back to putting 15% toward your retirement goal. Just make sure this is only a quick detour (like a year or two)—not a five-year pause. Think of it like this: If you’re currently investing $500 a month into 401(k)s and IRAs but you put that money toward your down payment savings instead, you could save around $12,000 in two years. That’s a big boost for your down payment!

Pro tip: Don’t borrow from or cash out your retirement accounts to speed up your down payment savings. Not only will you get hit with taxes and early withdrawal penalties, but you’ll also tank the long-term growth of your retirement savings—costing you hundreds of thousands of dollars at retirement. Yikes.

Step 4: Boost your income.

If you’re looking for another way to turbocharge your income, there’s nothing like picking up a side gig or a second job. Your side hustle doesn’t have to be torture either. When you’re thinking up ideas, start with the stuff you love doing already. Check out these ideas:

• Like driving? If you don’t mind carting strangers around or making deliveries, you could make some sweet cash on a flexible schedule through companies like Lyft or Uber.
• Enjoy teaching? Search online for tutoring jobs or ways to teach English as a second language. If you have advanced degrees, you could earn even more.
• Love pets? Let your friends and coworkers know you’re available to watch Rover the next time they’re out of town. Get some fur therapy and make money at the same time.
• Now, you’re probably wondering: Is it worth it? (That’s like asking us if Dave Ramsey hates credit cards.) Yes—it’s absolutely worth it!

Let’s say you start a side hustle and put in 10 hours a week making $15 an hour. That’s an extra $120 per week—after taxes! Keep that up and you’ll have more than $12,480 for your down payment savings in just 24 months.

Step 5: Cut the extras and save even more.

It’s time to get tough and cut out some extra spending. Ouch. It might hurt, but keep your mind on your why—home sweet home. Here are a few ideas to get you started:

• Skip the summer vacay. This one is going to hurt, but in the long run, it’ll be worth it. Skip the fancy summer vacation, and throw that money in savings instead. You could probably pocket $2,000 from that alone.
• Sell some stuff. Do you have a lot of extra stuff collecting dust around your house? Sell. It. All. Take advantage of online sites like thredUP or Poshmark for gently used clothes, then use Facebook Marketplace or eBay for everything else.
• Have a garage sale. Is your neighborhood having a sale soon? A garage sale can bring in some extra dough like nobody’s business. Scoring $500 from a Saturday morning garage sale is a win in our book.
• Save all the money you earn from your annual raise or bonus. Planning to get a little Christmas bonus? What about a bonus for a job well done? No matter what that extra cash is for, you can tell the big-screen TV to wait. Stash your bonus money in savings instead. That could be an easy $1,500 bump.

Source

When Is The Best Time Of Year To Purchase A Home?

 

Historically, spring and summer have been the busiest times in the real estate market. But the traditional seasonality of homebuying and selling was upended by the pandemic: Home sales slowed significantly amid stay-at-home orders, then dramatically spiked, and the market remained volatile for quite some time.

The good news is, things have since returned to something closer to normal. One positive sign: After years of a distinct lack of available homes for sale, which kept homebuyers at a disadvantage, Realtor.com is forecasting an 11.7 percent increase in existing housing inventory for 2025. This increase would bring more balance to the supply-and-demand metric — and also more leverage for buyers. In other words, seasonality may once again become the most important factor in determining the best time of year to buy a house. 

Spring and early summer are the busiest and most competitive time of year for the real estate market. There’s usually more inventory listed for sale than other times of year, and home prices tend to be steeper to reflect the increased demand. Since 2011, the months of February through June have been the most lucrative time to sell, according to a 2024 study by ATTOM Data Solutions, with May in particular earning sellers an average premium of 13.1 percent above market value. The other months in the range all yielded premiums ranging from 12.2 percent to 12.8 percent.

“Typically, sellers choose spring and summer as the time to list as the majority of buyers are out in the market,” says Ryan Jancula, principal and lead broker with Jancula Group at Compass in Los Angeles. “This is a double-edged sword for a buyer, as you will be met with more opportunities but [also] much more competition, which may lead to further increase in prices or less desirable sale terms.”

If you’re hoping to save some money and your timeline is flexible, consider waiting until the rush is over and not starting your home search until mid- or late-summer. The most expensive month of the year to purchase a home is May, when seller premiums are as high as 13.1 percent above market value, according to ATTOM data.

Buying off-season has its benefits, though. The ATTOM study, which analyzed 59 million single-family home and condo sales between 2011 and 2023, showed that October is the month with the lowest seller premium by far at 8.8 percent, compared to May’s 13.1 percent. The next lowest were September and November, both at 9.5 percent. That means October is when homebuyers are likely to get the best deal. In fact, a recent Zillow report declared early fall to be “the next housing sweet spot.” The least expensive month of the year to purchase a home is October, when seller premiums are at their lowest, according to ATTOM.

Just because spring is the industry’s prime time doesn’t automatically mean it’s the right time for you. You have to consider your personal circumstances as well as seasonality — for example, if you are getting married or having a baby in August, you may not be able to wait nearly a year for a larger home.

“While spring is typically referred to as the home buying season, that doesn’t necessarily guarantee that it is an optimal time to buy,” says Mark Hamrick, Bankrate’s senior economic analyst.

In addition, if price is of concern to you, you may in fact be better off waiting out the rush. This chart illustrates median home prices since the start of the COVID-19 pandemic, using data from the National Association of Realtors. Once the chaos of the early pandemic died down, the highest price spikes were uniformly in June or July, and the lowest prices occurred in the dead of winter. Source

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4 Important Accounts To Have When Buying A Home

 

Buying a home is one of the biggest financial moves you’ll ever make. And if you’re planning to buy in 2025, setting up the right financial accounts now can make all the difference between a smooth homebuying experience and unnecessary stress. 

So, let’s break down the four essential accounts you should have before you buy a home;

1. Checking Account – The Hub for Your Finances

Your checking account is where your financial transactions happen—paying bills, covering daily expenses, and managing cash flow. But here’s the mistake many homebuyers make: keeping too much money in their checking account.

Your checking account should only hold enough money to cover three months of expenses at any given time. Why? Because idle money sitting in a checking account isn’t working for you. Interest rates on checking accounts are typically very low, meaning your money isn’t growing. Instead, use this account strictly for expenses and keep your excess funds in high-yield savings accounts where they can earn interest.

2. High-Yield Savings Account (HYSA) – Your House Fund

If you’re planning to buy a home, you’ll need funds for your down payment, closing costs, and initial home expenses—and this money needs to be in a safe place where it can grow. That’s where a high-yield savings account (HYSA) comes in.

Unlike regular savings accounts, HYSAs offer higher interest rates, typically around 3.75% or more. This means your money grows while you’re saving, helping you reach your homeownership goal faster. Look for an HYSA with no fees and easy access, so you can withdraw your funds when it’s time to close on your home.

3. Emergency Fund – Your Safety Net

Life happens. Unexpected car repairs, medical bills, or job changes can throw a curveball at your finances. The last thing you want is to be financially stretched right before (or after) buying a home.

A good rule of thumb? Keep 3-6 months’ worth of expenses in a separate HYSA dedicated to emergencies. Some banks allow you to create sub-accounts within your HYSA, making it easy to separate your emergency fund from your house fund while still earning interest. An emergency fund provides peace of mind, ensuring that you can handle surprises without dipping into your home savings or disrupting your mortgage payments.

4. Retirement Accounts – Thinking Long-Term

While buying a home is a major financial milestone, it’s not your only financial goal. Retirement planning should still be a priority, even when saving for a house.

If your employer offers a 401(k) with a match, contribute enough to get the full match—it’s free money! After that, consider opening an Individual Retirement Account (IRA) to further grow your retirement savings.

Not sure if you’re on track? Tools like Vanguard’s retirement calculator can help you estimate your future savings and adjust your contributions as needed. While your home is an investment, you don’t want to neglect the bigger picture of long-term financial security.

Final Thoughts: Build Your Financial Foundation Now

Buying a home is exciting, but it requires smart financial planning. Setting up these four accounts will put you in the best position to purchase a home without unnecessary stress or setbacks. As a mortgage broker, my goal is to help you navigate the homebuying process with confidence. 

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Getting a Mortgage: 5 Ways to Improve Your Chances

Buying a home is a major financial investment, and, for many people, the largest purchase they will make. To buy a home, you’ll likely need a mortgage for funding that you can pay off over the long-term. However, not everyone will qualify for a mortgage.  Here are a few ways you can improve your chances on being approved right away;

1. Check Your Credit Report

Lenders review your credit report, which is a detailed report of your credit history, to determine whether you qualify for a loan and at what rate.

By law, you are entitled to one free credit report from each of the “big three” credit rating agencies (Equifax, Experian, and TransUnion) every year.

 You can use AnnualCreditReport.com to request your free copy, which you can get immediately in electronic format. Review your credit report for errors and to get an understanding of your credit history, such as if you have a history of late payments or high credit utilization.

2. Fix Any Mistakes

Read your credit report closely to see if there are any mistakes that could negatively affect your credit. Look for potential errors such as:

• Debts that have already been paid (or discharged)
• Information that is not yours due to a mistake (e.g., the creditor confused you with someone else because of similar names and/or addresses, or because of an incorrect Social Security number)
• Information that is not yours due to identity theft
• Information from a former spouse that shouldn’t be there any more
• Out-of-date information
• Incorrect notations for closed accounts (e.g., it shows the creditor closed the account when, in fact, you did)

Consider checking your credit report at least six months before you plan to shop for a mortgage so you have time to find and fix any mistakes.

3. Improve Your Credit Score

A credit score is a three-digit number that lenders use to evaluate your credit risk and determine how likely you are to make timely payments to repay a loan. The most common credit score is the FICO score, which is comprised of different credit data:

• Payment history – 35%
• Amounts owed – 30%
• Length of credit history – 15%
• Credit mix – 10%
• New credit – 10%

In general, the higher the credit score you have, the better the mortgage rate you can get. To improve your score, check your credit report and fix any mistakes, and then work on paying down debt.

Setting up payment reminders so you pay your bills on time, keeping your credit-card and revolving credit balances low, and reducing your debt. Avoid making a major purchase while you are applying for a mortgage.

4. Lower Your Debt-to-Income Ratio

A debt-to-income ratio compares the amount of debt you have to your overall income. It’s calculated by dividing your total recurring monthly debt by your gross monthly income, expressed as a percentage. Lenders look at your debt-to-income ratio to measure your ability to manage the payments you make each month, and to determine how much house you can afford.

Lenders like to see debt-to-income ratios that are 36% or lower, with no more than 28% of that debt going toward mortgage payments (this is called the “front-end ratio”). In most cases, 43% is the highest debt-to-income ratio you can have and still get a qualified mortgage. Above that, most lenders will deny the loan because your monthly expenses are too high compared with your income. 

To lower your debt-to-income ratio, and both are easier said than done:

• Reduce your monthly recurring debt.
• Increase your gross monthly income.

To reduce your monthly recurring debt, first cut back on purchases you make with credit. Look at where your money goes each month, figure out where you can save and make it happen. To increase your income, you can try to find a second job, work extra hours at your primary job, or request a pay increase.

5. Go Large with Your Down Payment

A large down payment can also help increase your chances of getting approved for a mortgage. The more money you put down, the more you reduce the loan-to-value ratio, which also increases your chances of getting the best mortgage interest rates.

The loan-to-value ratio is calculated by dividing the mortgage amount by the purchase price of the home (unless the home appraises for less than you plan to pay, in which case the appraised value is used).

Here’s an example. Say you plan to buy a house for $100,000. You put down $20,000 (20%) and seek a mortgage for $80,000. The loan-to-value ratio would be 80% ($80,000 mortgage divided by $100,000, which equals 0.8, or 80%). If you can put down $40,000 for the same house, the mortgage would now be just $60,000. The loan-to-value ratio would fall to 60% and it will be easier to qualify for the lower loan amount. 

When you're setting your down payment, remember that a 20% or larger down payment will also mean that you won't be subject to a mortgage insurance requirement, all of which can save you money. Source

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What Is Adjustable-Rate Mortgage (ARM)

 

Adjustable-rate mortgages (ARMs) have an interest rate that may change periodically depending on changes in a corresponding financial index that's associated with the loan. Generally speaking, your monthly payment will increase or decrease if the index rate goes up or down.

ARM loans are usually named by the length of time the interest rate remains fixed and how often the interest rate is subject to adjustment thereafter. For example, in a 5y/6m ARM, the 5y stands for an initial 5-year period during which the interest rate remains fixed while the 6m shows that the interest rate is subject to adjustment once every six months thereafter.

When might an adjustable-rate mortgage make sense?

• If you plan to move before the end of the introductory fixed-rate period, so you aren't concerned about possible rate increases
• If you want an initial monthly payment lower than a fixed-rate mortgage usually offers
• If you think interest rates may go down in the future

Source

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All About Appraisals

An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.

Why Get An Appraisal? Obtaining a loan is the most common reason for ordering an Appraisal, however there are other reasons to get one:

• Contesting high property taxes
• Establishing the replacement cost for insurance purposes
• Divorce settlement
• Estate settlement
• Negotiating tool in real estate transactions
• Determining a reasonable price when selling real estate
• Protecting your rights in an eminent domain case
• A government agency requirement
• A lawsuit

There are 3 common approaches, or Appraisal Methods, used by Appraisers to establish property value. After thorough exercise of all 3, a final value estimate is correlated. When evaluating single-family, owner-occupied properties, the Sales Comparison Approach is heavily weighted by an Appraiser.

• Cost Approach – A formula is used to obtain the property value: Land value (vacant) added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.

• Sales Comparison Approach – The Appraiser identifies 3 to 4 comparable comps, recently sold properties in the neighborhood, ideally, sold in the previous 6 months and within ½ mile of the subject property. A comparison is done between the recently sold properties and the subject property including square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.

• Income Approach – The potential net income of the property is capitalized to arrive at a property value. Capitalization is the process of converting a future income stream into a present value. This approach is suited to income-providing properties and is used in conjunction with other valuation methods.

Who Owns The Appraisal? The mortgage company owns the appraisal even though the borrower paid for it. This is because the mortgage company orders the appraisal on the borrower's behalf, and the Appraiser lists that mortgage company on the report. The borrower does have the right to receive a copy; however it's the mortgage company's discretion to give the borrower the original appraisal report.

Who Determines The Market Value Of Your Property ?

The property seller sets the price, especially for residential property, not the Appraiser. Sellers usually don't order an appraisal because they want to obtain the highest price for their home and therefore don't want to be bound by the Appraiser's assessment.

The real estate agent receives a percentage of the price as compensation and often represents the seller in the transaction and assists them in setting the sale price. They perform a Comparative Market Analysis (CMA), which real estate agents in most states are allowed to perform without an Appraiser's License or Certification. The CMA is vital to the agent’s preparation for a listing examining recent property sales in the neighborhood to arrive at a listing price. Typically the agent will suggest a price to the seller based on the CMA however the seller may choose to list their property for a higher price. Source

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What Are Some Mortgage Requirements?

Lenders set minimum mortgage requirements you’ll need to meet to get pre-approved for a home loan;

The higher your credit score, the lower your interest rate will be

A lower interest rate means a lower monthly payment, which makes homeownership more affordable.

The higher your down payment, the lower your monthly payment

A down payment of 20% will help you avoid mortgage insurance if you’re taking out a conventional loan. Mortgage insurance covers the lender’s foreclosure costs if you default on your loan.

The longer the term, the lower your monthly payment

First-time homebuyers typically choose 30-year terms to get the lowest monthly payment.

The less monthly debt you have, the more you can borrow

Clear out those car loans, student loans and credit card balances if you want the most mortgage borrowing power. Source

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How Does Inflation Affect Mortgage Rates?

High inflation often leads to higher mortgage rates by pushing up interest rates, reducing purchasing power and influencing housing demand, ultimately making home loans more expensive overall.

Inflation can affect mortgage rates in a few different ways, both directly and indirectly. When inflation is high, borrowing money becomes more expensive, and that can influence not only the cost of buying a home but also whether it's the right time to do it.

Understanding the relationship between inflation and mortgage rates can help you make informed decisions about homeownership.

What Is Inflation?

Inflation refers to the general increase in prices of goods and services over time, which leads to a decrease in purchasing power. In other words, when inflation rises, each dollar you have buys a little bit less.

The most commonly used measure of inflation is the consumer price index (CPI), which tracks the average change in prices paid by consumers for a basket of goods and services.

How Does Inflation Affect Mortgage Rates?

When inflation rises, mortgage rates tend to follow suit. Here are a few key ways inflation can influence mortgage rates.

Higher Interest Rates

The Federal Reserve often raises the federal funds rate to combat inflation, the idea being that higher rates can help curb consumer and business spending and help bring high inflation down.

While the Fed doesn't set mortgage rates directly, its actions influence them indirectly. More specifically, the Fed's monetary policy decisions play a major role in shaping investor expectations. In turn, those expectations directly influence the yield on the 10-year Treasury note.

Because the 10-year Treasury yield serves as a key benchmark for mortgage rates, changes in Fed policy often ripple into the housing market, pushing mortgage rates up or down accordingly.

Reduced Purchasing Power

When inflation is high, it erodes the value of money. For lenders, this means that the money they get back in the future will be worth less than it is today. To compensate, they may increase mortgage rates to protect their profit margins.

Market Sentiment

When inflation is high, rising prices for everyday goods and services can erode consumer confidence and make potential buyers more hesitant to take on a large, long-term financial commitment like a mortgage loan.

If enough buyers pull back, housing demand drops, which can put downward pressure on home prices and, in some cases, mortgage rates. Additionally, individual lenders may lower rates to attract new borrowers and keep loan volume steady.

Does Inflation Affect Fixed-Rate Mortgages?

Once you lock in a fixed-rate mortgage, your interest rate won't change for the life of the loan, even if inflation continues to rise. However, inflation can affect fixed-rate loans in several indirect ways:

• Higher rates: When inflation is high, fixed mortgage rates are likely to be higher than they would be in a low-inflation environment.
• Reduced affordability: With inflation driving up prices, including interest rates, your monthly payments may be higher than if you had locked in your mortgage during a period of low inflation.
• Opportunity costs: On the flip side, if you already have a fixed-rate mortgage at a lower rate, you're protected from rising rates and your loan becomes more valuable compared to new mortgages.

Source

Mortgage Contingency

Mortgage contingencies are important clauses in a purchase and sale agreement that can help protect buyers and sellers during the process of buying/selling a home. These contingencies can release either party from the contract if certain criteria aren’t met.

A typical mortgage contingency clause may specify that the buyer is required to secure financing of a certain amount by a certain date before closing.

In other words, the buyer’s commitment to purchase the home depends on securing financing that meets agreed-upon terms. In this example, if the buyer is unable to get approved for said financing, they can walk away without losing their earnest money deposit.

Why It Matters:

• For Buyers: It’s a safety net so they’re not stuck with a mortgage they can’t afford.
• For Sellers: It sets expectations and keeps financing on track with deadlines.

Types of Mortgage Contingency

1. Financing Mortgage Contingency

Financial contingency clauses will vary from contract to contract, but their general format is this: They typically allow the purchase and sale agreement to be canceled if financing cannot be secured in a specific timeframe. This contingency sets a window—perhaps 20 days, perhaps 60—for the buyer to lock in financing.

This contingency also usually states a minimum loan amount needed to complete the purchase. If the lender approves less, the buyer can be released from the agreement without penalty. But if the buyer fails to secure financing at all within the deadline, they may lose their deposit.

This contingency may also specify a maximum interest rate and loan type, such as an FHA or VA loan. If the buyer is unable to get approved for the target rate or below, the buyer can leave the contract.

2. Inspection Contingency

In this instance, the contingency clause could specify that the purchase of the home hinges on the property passing inspection. If the home doesn’t pass, the seller might have to make repairs or bring down the sale price. Otherwise, the buyer might walk away.

3. Appraisal Contingency

This contingency states that the property must be appraised at a certain value or higher. If the appraisal falls below that, the buyer may negotiate the price or leave the agreement. Appraisal contingencies can also include a time limit within which the property must be appraised.

4. Sale of Previous Home Contingency

This contingency could protect buyers who need to sell their current home to finance the new purchase, enabling the buyer to leave the contract if their existing home doesn’t sell within a certain timeframe.

How Mortgage Contingencies Can Protect Buyers and Sellers

Buyers:

• Financial Safety Net: If financing falls through, buyers aren’t forced into a purchase they can’t afford.
• Earnest Money Protection: Buyers usually can keep their deposit if they cancel for valid financing reasons within the contingency period.
• Minimized Property Surprises: Appraisal and inspection contingencies can help ensure the buyer knows exactly what they’re getting for their financing.

Sellers:

• Structured Progress Tracking: Sellers can be assured of financing deadlines, helping them to plan next steps.
• Ability to Terminate if Financing Falls Through: If buyers miss deadlines or are unable to lock in a loan, the contract can be canceled.

What Happens if the Mortgage Contingency Expires?

If a purchase and sale agreement contains a mortgage contingency that specifies a deadline for the buyer to find financing, for instance, and the buyer misses that deadline, the buyer could lose their deposit.

Why It Matters:

• Buyers risk losing deposits or facing legal consequences if financing fails.
• Sellers gain full leverage to enforce the contract or move on to other offers.

Best Practices for a Smooth Financing Process

For Buyers:

• Contact us to get pre-approved* before making an offer. A pre-approval letter shows sellers you’re a serious buyer, and also helps you get a clear idea of how much house you can afford.
• Monitor interest rates and lock in when favorable.
• You have the option to ask for an inspection contingency to help ensure the property is up to par.
• Ask for extensions early if delays arise so you don’t lose your deposit.

For Sellers:

• Verify the buyer has a pre-approval.
• Set realistic contingency deadlines.
• Request regular updates on financing progress and keep open lines of communication.
• Keep backup offers in play just in case.

Source

How Power of Attorney Applies to Mortgage Borrowers

In times when a homeowner becomes unable to handle tasks related to their mortgage, a Power of Attorney (POA) may come into play. POA is a legal instrument that allows an authorized person to act on behalf of the borrower to manage the home loan.

Understanding Power of Attorney

Power of Attorney allows an authorized individual (the “agent”) to handle mortgage matters for the original borrower (the “principal”). This is especially relevant when the borrower is unavailable, incapacitated, or otherwise unable to handle loan servicing tasks directly.

POA Requirements

In order for someone to assume POA on behalf of a borrower:

• A valid, notarized POA document with clear authority to act on mortgage matters.
• The POA must be specific enough to cover the intended actions (e.g., “authority to manage mortgage obligations”).
• In some cases, a durable POA is required. In contrast to a regular POA, a durable POA retains the power to act on the borrower’s behalf even if the borrower becomes incapacitated.
• We may request verification of the principal’s (borrower’s) status (for instance, proof of incapacity or a death certificate).

Common Uses in Mortgage Servicing

Once someone takes up POA for a borrower and becomes their “agent,” they’re typically able to make decisions related to the mortgage that might include:

• Loan modification requests: Negotiating or submitting documents on behalf of the borrower.
• Payment management: Making payments, setting up auto-pay or resolving any delinquency issues.
• Loss mitigation: In cases of hardship, the agent may initiate forbearance or repayment plans.
• Foreclosure prevention: The agent can respond to notices, request reinstatement quotes or pursue alternatives like short sales.

Source

Common Mortgage Mistakes to Avoid

Securing a mortgage for your home is a major financial milestone. You want to ensure you choose the right mortgage and experience a smooth application and approval process. 

Mistake #1: Ignoring the Full Financial Picture

It’s critically important to understand what your monthly budget will look like as a homeowner. Your mortgage shouldn’t be a big burden on your finances. Follow these tips to maintain a comfortable budget:    

• Reference the 28% rule: Some experts suggest that your mortgage payment should account for no more than 28% of your income.1 You can use this as a benchmark to see what you can afford.
• Use a Mortgage Calculator: Have a price range in mind for a new home? 
• Factor in All Parts of Your Monthly Mortgage Payment: Mortgage payments typically aren’t limited to principal and interest – they usually also include homeowner’s insurance and property taxes, which will vary depending on the property’s location. 
• Add Up the Rest of Your Budget: Account for typical monthly expenses (groceries, gas, cell phone bill, etc.) and then add in planned future costs like childcare, education or retirement plans. Here’s a more detailed guide to budget setting.
• Leave Room for Emergencies: Don’t let unexpected costs knock your budget off balance. Budget some wiggle room for home repairs or other needs that arise.

Mistake #2: Getting Scared Off by the Down Payment

If you don’t have enough money saved for a 20% down payment, homeownership may seem out of reach. But you should know that there are loan programs that allow you to get a mortgage while making a smaller down payment, if you qualify.

• A Federal Housing Administration® (FHA) loan may enable you to qualify with as little as 3.5% down. It also offers flexibility on your debt-to-income (DTI) ratio, and you may qualify with less-than-perfect credit. Learn more.
• HomeReady® and Home Possible® loans are designed to grant homeownership to those with low-to-moderate income for as little as 3% down.
• Veterans Affairs (VA) loans are available to active-duty Military, Veterans and their families. Eligible borrowers may be able to put as little as zero money down. Learn more.
• U.S. Department of Agriculture (USDA) loans are available to those with low-to-moderate incomes living in less populated areas, and may enable borrowers to put no money down.

Mistake #3: Not Getting Pre-Approved**

If you’re putting an offer on a great home, there’s a good chance you’re not the only potential buyer vying for a seller’s attention. Don’t get lost in the buying crowd – make your offer stand out by adding a pre-approval letter from your lender.

• Give Your Offer Weight: Pre-approval shows sellers and real estate agents that you’re serious about buying and you’ve got the finances to back it up.
• Have a Clear Financial Benchmark: Pre-approval sets a clear financial limit on how much home you can afford so you don’t waste time during your search.

Pre-approval requires you to verify your financial situation to a lender with documentation. Your lender will also perform a detailed check of your credit history.

Mistake #4: Making Big Financial Changes During the Approval Process

Once your mortgage application is submitted, sudden financial changes may raise concerns for lenders, and might affect their approval determination.

• Notify Your Lender of Job Changes: Switching employers or changing to a new pay structure is material to your ability to repay a loan. Be sure to notify your lender as soon as possible if any details regarding your income change.
• Delay Large Purchases: Getting a new line of credit or buying big-ticket items like a car, furniture sets or large appliances may alter your debt-to-income ratio.
• Thoroughly Document Large Deposits: Any significant bank transfers – even between your own accounts – have to be documented to comply with underwriting guidelines.
• Delay Credit Inquiries: If you pull your credit or another party makes a credit inquiry, your lender will likely need to verify that no new debt has been incurred, which could delay or impact your loan approval process.

Mistake #5: Neglecting to Plan for Closing Costs

First-time homebuyers may forget about these costs until they’re committed to a new home, which could lead to stressful surprises at closing.

Closing costs are typically between 2-5% of the home’s purchase price and include things like appraisal fees, loan origination fees, discount points, real estate agent commissions, attorney’s fees, the title search, title insurance and more.

Make sure you’re prepared for these expenses, and know that closing costs typically vary depending on the price of the home, the property’s location and your lender, among other factors.

Mistake #6: Not Consulting with A Mortgage Professional

Sometimes, getting a mortgage can feel like a very impersonal transaction. At Newrez, we want to give our borrowers top-tier guidance so they truly feel they’ve found the right mortgage for their lifestyle and financial circumstances. Source

Happy Independence Day!

 

Happy Independence Day from us at Work and Associates Home Loans!

We hope you have a safe holiday weekend!

Phone: 916-847-3090

1350 Old Bayshore Hwy Ste. 520

Burlingame,  CA  94010

margeate@workhomeloans.com

NMLS ID 394275 | DRE ID 01769353

What To Look For When Buying A House

Buying a house is a major decision. It’s critical to know what to look for when buying a house so you enter the process with clarity and purpose. Having criteria for your dream home and neighborhood could mean the difference between finding the right fit—or making a mistake. 

Here are some key criteria to consider when buying a home: 

•  Price. What can you afford to spend on a property? The pre-approval letter from your lender will include the maximum loan amount you qualify for. Consider your down payment amount and what you can afford in monthly mortgage payments coupled with recurring debts and household expenses (like daycare, groceries, utilities, tuition, etc.). You’ll also want to have savings set aside for home maintenance and major repairs. 

• Location. The neighborhood, city, town or state you want to live in is almost as important as a home’s amenities. Do you care about peace and quiet, or proximity to recreation or entertainment? What about being close to shopping, dining, grocery stores, schools and job hubs? 

• Commute time. How long would your commute to and from work and/or school be? Will you have easy access to public transportation and how important is that for your day-to-day needs? 

• Schools. If you have or plan to have children, you’ll want to research the quality of the schools a home is zoned for. Pay attention to school ratings, test scores, teacher-to-student ratios and other success metrics to evaluate schools and school districts in the areas where you’re looking for a home. 

• Home type. Owning a single-family home tends to come with higher upfront costs and maintenance responsibilities than buying a condo or townhome. Condos and townhomes tend to be smaller and less expensive. However, you’ll likely pay higher monthly homeowners association or condo fees for shared amenities, services and maintenance. 

• Design and upgrades. A new construction home is brand new, energy-efficient and can be tailored to your design tastes. The same goes for a flipped home, which is a property that is bought, fixed up and resold in a short timeframe. With a flipped home, you won’t have a say in design elements, but you’ll likely pay more than an existing home because it’s been upgraded. Or you can buy an existing home that may need to be updated but the price might be lower. 

• Condition. Some properties may need minor cosmetic repairs like new paint and carpet, while others need significant renovations or require you to replace major costly systems. Do you have the extra cash, time and energy to account for a house that’s not move-in ready? 

• Space. Consider how many bedrooms, bathrooms, offices and other spaces you may need. Do you want a large kitchen or a specific number of bedrooms to accommodate a growing family? Does the property check off all of the boxes right now—or does it have the potential to add those spaces in the future? 

• Energy efficiency. Utility bills can impact your monthly budget. How’s the property’s energy performance? What would need to be done to improve it? Are the appliances, windows and other structures energy-efficient? What direction does the home face and how does that impact energy usage? 

• Square footage. How big does the home need to be to match your lifestyle, family and storage needs? Keep in mind the larger the home/property acreage, the higher your costs to maintain it. A larger home also means you’ll pay a higher purchase price. 

• Parking. Do you want a garage/off-street parking, or are you okay with parking your vehicle on the street? Do you need other outdoor storage spaces for a boat or RV? 

• Property additions. Do you want a property with the interior or exterior space to extend the property or convert the loft or garage into an additional room? Is there a basement space you could finish down the road to add to your livable square footage? 

• Outside space. Do you want a garden, patio or back deck? How much maintenance are you able and willing to do? If you’re buying a townhome or condo, will you have access to any private outdoor spaces, or are they shared with other residents? 

• Historical district. Check if the home is located within a historic district. This might impact your ability to extend the property or make changes to its exterior. 

• Potential drawbacks. Is the property on a busy road, next to a highway or railway track, in a food desert or in a high-crime area? Decide what issues you are willing to live with before you buy. These properties may also take longer to resell and be harder to rent out. Source

Contact us with any questions regarding buying a home, we would love to assist you! 

Phone Number: 916-847-3090

DRE ID # 01769353

NMLS ID # 394275

What is an FHA loan?

An FHA loan is a type of mortgage insured by the Federal Housing Administration (FHA), which is overseen by the U.S. Department of Housing and Urban Development (HUD). While the government insures these loans, they’re underwritten and funded by FHA mortgage lenders. Many big banks and other types of lenders offer them.

FHA loans have a low minimum credit score and down payment requirement, which makes them especially popular with first-time homebuyers. You can get an FHA loan with a credit score as low as 580 if you have 3.5 percent of the home’s purchase price to put down, or as low as 500 with 10 percent down. These flexible underwriting standards are designed to help more borrowers become homeowners.

You can’t buy just any home with an FHA loan, however. You can’t use this loan to buy an investment property or vacation home. Based on your credit and finances, the lender determines how much mortgage you’d qualify for within the FHA loan limits for your area.

Who are FHA loans best for?

FHA loans are generally best for borrowers with lower credit scores, limited down payment savings or both. This might include first-time or younger homebuyers, or those with smaller incomes.

How do FHA loans work?

FHA loans work like most other mortgages, with either a fixed or adjustable interest rate and a loan term for a set number of years. There are two term options: 15 years or 30.

You’ll also pay closing costs for an FHA loan, such as appraisal and origination fees. The FHA allows home sellers, a home builder or a mortgage lender to cover up to 6 percent of these costs.

To insure these loans against default — that is, if you were to stop repaying your loan — the FHA requires borrowers to pay mortgage insurance premiums, or MIP. These go into the Mutual Mortgage Insurance Fund (MMIF), which helps cover loss claims. Although you’ll pay the premiums as the borrower, FHA mortgage insurance protects the lender — not you.

FHA loan requirements

Here’s an overview of the requirements for an FHA loan:

• FHA credit score: As low as 580 with a 3.5 percent down payment or as low as 500 with a 10 percent down payment
• FHA down payment: At least 3.5 percent down if your credit score is at least 580, or at least 10 percent down if your credit score is between 500 and 579
• FHA debt-to-income (DTI) ratio: At most 43 percent (up to 50 percent in some cases)
• FHA occupancy rules: Primary residences between one and four units
• FHA mortgage insurance premiums (MIP): An upfront premium of 1.75 percent of the loan principal, typically paid at closing; plus annual premiums between 0.15 percent and 0.75 percent depending on down payment and loan amount and term, typically paid monthly

FHA minimum credit score

If you put just 3.5 percent down, the minimum credit score for an FHA loan is 580. You can qualify with a score as low as 500, but you’ll need to make at least a 10 percent down payment. Keep in mind that the FHA sets this limit, but individual lenders might require a higher score.

FHA down payment

For an FHA loan, you’ll need a down payment of at least 3.5 percent. This minimum increases to 10 percent if your credit score is between 500 and 579.

FHA loans allow borrowers to use down payment funds from sources other than their savings, such as a gift from family. Borrowers might also be eligible for down payment assistance to help cover the cost.

FHA debt-to-income (DTI) ratio

To meet the DTI ratio requirements for an FHA loan, your combined monthly debt payments, including your mortgage, shouldn’t exceed 43 percent. No more than 31 percent of your income should go toward your mortgage payments.

That said, your lender could make exceptions for your overall DTI up to 45 percent, 50 percent or even 57 percent with an FHA loan, assuming you have mitigating factors like a lot of liquid assets or can make a sizable down payment.

FHA mortgage insurance

All FHA loans require you to pay mortgage insurance, which is split into two components:

• Upfront premium: 1.75 percent of the loan amount, which is paid either at closing or incorporated into the final loan amount
• Annual premiums: Amount varies based on down payment, loan amount and loan term

For example, if you’re an FHA borrower who opts for a 30-year term and a 3.5 percent down payment, you’ll pay 0.55 percent of the loan amount, divided by 12 and added to your monthly payment. That means if you borrow $300,000, you’ll pay $1,650 a year — or $137.50 monthly — for MIP. Source

DRE ID # 01769353

NMLS ID # 394275

What Is Mortgage Refinancing?

Mortgage refinancing can help homeowners save money by reducing their interest rate and improving the terms of their mortgage. If interest rates have dropped since you first took out your mortgage, refinancing may lead to significant savings.

However, refinancing may not pay off in every situation. Learn what mortgage refinancing is, how it works and when it might save you money.

How does a mortgage refinance work?

Mortgage refinancing allows you to replace your existing mortgage with a new one, ideally with a lower interest rate and more favorable terms. When you refinance, you'll receive money up front to pay off your old mortgage. Then, you'll begin paying the balance of the new loan.

If you're considering a refinance, you have a few options:

• A traditional refinance covers only the amount you still owe your lender, known as the principal.
• A cash-out refinance, on the other hand, replaces your old mortgage with a larger one that allows you access the difference between the two loans in cash, which can be used to fund major expenses, such as a college education, or renovations that might increase the overall value of your home.

Common reasons for mortgage refinancing

You might refinance your mortgage for a number of reasons:

• Lower your interest rate. If market conditions or other circumstances have changed over the life of your loan, you may qualify for a new mortgage with a lower interest rate. For example, interest rates may drop if the economy has improved since you first took out your mortgage. Alternatively, an increase in your credit scores may boost your creditworthiness in the eyes of your lenders, which may help you qualify for a better interest rate. Your credit scores are among the factors that lenders consider when setting the interest rate and other terms of your mortgage.

• Change the mortgage length. Refinancing may allow you to shorten the length of your loan. This means you'll pay off the mortgage faster, leading to fewer interest payments over time. Depending on your new loan's interest rate, however, a shorter term may mean you owe higher mortgage payments each month.

• Change the mortgage type. If you have an adjustable-rate mortgage (ARM), your interest rate may change in response to market conditions. Fluctuations in your interest rate can get expensive, especially if you took out your loan when rates were low. To help stabilize or lower your interest rate, you might refinance to a fixed-rate loan.

• Access cash. A cash-out refinance allows you to borrow against your home equity with a new loan that's worth more than what you owe on your current mortgage. You'll then receive a lump sum in cash you can use to pay for major purchases. Cash-out refinance loans typically have lower interest rates than personal loans or credit cards.

How to know when to refinance your mortgage

Should you refinance or not? Unfortunately, there's no definitive answer to this question. Whether a refinance is right for you depends on your unique circumstances.

If you're considering a mortgage refinance, evaluate whether your financial situation has meaningfully changed since taking out your original loan. Have your credit scores improved? Have you increased your income significantly? If either applies to you, you may now qualify for a better offer from your lender.

Next, determine if market interest rates have dipped in the intervening years. Consider refinancing only if your lender offers a new interest rate that is at least 2% lower than your current rate. You'll also need to consider the current length of your mortgage. If you only have five years of payments left, it's likely best to stick with your current loan. If your mortgage is new, be aware that most lenders have a waiting period of zero to 210 days before you'll be able to refinance. Attempting to refinance before this period is up could result in a significant penalty fee.

Finally, don't forget to factor in closing costs — a collection of fees and other expenses you'll pay on closing day. These generally total between 2% and 6% of the loan amount, adding a high cost to your refinanced loan. Before you sign on the dotted line, make sure that your closing costs don't exceed any potential savings. Source

DRE ID # 01769353

NMLS ID # 394275