Subscribe!Welcome! This blog tracks the real estate market in the Central Shenandoah Valley, featuring market data and analysis, an exploration of common buying and selling questions, and candid commentary on all things real estate.
If you are interested in discussing any of the topics on this blog, or the details of your specific real estate situation, call or e-mail me!
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Getting Ready To Buy -- Loan Pre-qualification |
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 In almost all circumstances, buyers should pre-qualify for a mortgage before starting to look for a home.What is pre-qualification? In short, it means providing basic financial information to a lender so they can give you a preliminary indication of how much money they are willing to lend you for the purchase of a home. What is a lender? A lender can be either a bank, a mortgage company, or a mortgage broker. A bank offers banking services and accounts as well as offering loans. A mortgage company is just in the business of making loans. A mortgage broker contacts multiple "funding sources" on behalf of a home buyer to find the best loan. How hard is it to get "pre-qualified"? It is not difficult at all --- in fact, it can be done over the phone in about 30 minutes. Alternatively, you can set up an appointment with a lender to get "pre-qualified." What is the lender doing when they pre-qualify me? They will be inquiring as to your income, expenses, assets and liabilities. How much do you make per month from your job, and any other income sources? What monthly payments do you already have, such as a car loan, or credit card payments? What other assets do you own, such as a car, boat, additional residence, etc? What other debt do you have, such as another mortgage, personal loans, etc? After having collected this information, they will look at your credit score, and your "debt ratios". What is a "debt ratio"? This is a comparison of your potential monthly housing costs and your monthly income. Some programs, for example, don't like to see more than 28% of your gross monthly income going towards housing expenses. What is the difference between "pre-qualified" and "pre-approved"? This varies from lender to lender, but my general understanding of the distinction is that a pre-approval involves submitting all of your information to an "automated underwriting program" to be able to give you a Fannie Mae or Freddie Mac pre-approval. Why should I pre-qualify first? Having been pre-qualified for a mortgage gives you a realistic idea of how much of a mortgage you can obtain, or want to obtain. This will guide us as we set your home search criteria, so that we are not considering homes that would not be possible for you to purchase. There might be a difference between what I can get, and what I want to get? Absolutely! I have frequently run into situations where a lender will tell my client that they can borrow an amount that would lead to a monthly payment that the borrower is not at all comfortable making. Sometimes the limit is set by the limit from the lender, and sometimes the limit is set by the comfort level of the borrower. How many lenders should I talk to? To start, just talk to one lender to get a general idea of how much money you can borrow for your home purchase. Then, when we have found a home for you to purchase, you can check with multiple lenders to make sure you are getting the best loan terms (interest rate, closing costs, etc). There are likely tens or hundreds of other questions that I could have addressed here. Feel free to ask other questions in the comments of this post, or by e-mailing me at scott@cbfunkhouser.com. I am not a lender myself, but I have become quite familiar with the lending process through assisting many real estate clients in analyzing mortgage options over the years. | |
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Change Is Here . . . We Must Adapt! |
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Slower Home Sales . . . Fewer Mortgage Options . . . Appreciation Remains, But . . . | |
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There are quite a few local and national changes occurring right now that greatly affect buyers and sellers. Let's contemplate how we must prepare and adjust. |
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Where, Oh Where, Has 100% Financing Gone? |
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 A few months ago, most lenders stopped offering "80/20" loans --- an 80% first mortgage combined with a 20% second mortgage.Last week, VHDA suspended their 100% loan programs! I have always sent first time buyers to lenders that offer VHDA financing programs. These programs offer below-market rates for first time home buyers, with flexible financing up to 103%. However --- as of April 1, 2008, these 100% loan programs will be suspended (i.e. not available) until further notice. The explanation, in an e-mail from Michele Watson (Director of Homeownership Programs, VHDA) was that it is "...an effort to best utilize our resources, maintain adequate long term funding for our loan programs and to mitigate the risk to our borrowers and VHDA..." There are still some 100% options, but as the number of programs dwindle, it will become increasingly harder to finance a home purchase, especially for first time buyers. Some remaining options include:
And if you're looking, below are several lenders I would recommend that you talk to, about 100% financing, or otherwise:
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Deciding To Refinance |
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Mortgage interest rates have continued to decrease over the past year (much to my surprise). Once again, some homeowners are wondering whether it might make sense for them to refinance. While there are many factors to consider when making such a decision, here's one way perspective that might help you decide whether to proceed . . . The theory: With the assumption that you are not trying to pull out equity via a refinance, you need to determine how long it will take for the monthly cost savings (with a lower interest rate) to exceed the cost of refinancing. How it works out: You bought a $300,000 house three years ago for $300,000 with a $50,000 downpayment. Thus, the original loan was for $250,000 --- but the balance is now down to $240,000. The interest rate on the loan is 6.25%, which made the principal and interest payment $1,539 per month. Today's rate of 5.625% looks good to you, but the closing costs will be $3,500 -- which you would have to finance because of your current cash flow situation. The new loan would be $243,500 (old balance + closing costs), financed at 5.625% over 30 years, which makes the new principal and interest payment $1,402 per month. When it makes sense: In the scenario above, many people would immediately jump at the opportunity to save $137 per month ($1,539 - $1,402). However, bear in mind that it will take 26 months for the monthly savings to pay off. That is to say that since you paid $3,500 of closing costs in order to refinance, it won't be until the 26th month ($3,500 / $137) that you actually see a net gain for your decision. Thus, in this scenario, if you know you were going to stay at least two years, it would make sense to refinance --- but not if you thought it was likely that you would sell sooner. Your scenario: There may be more variables in your situation than I mentioned above. Perhaps there is a second mortgage with a variable rate, for example. I'd be happy to help you with calculating when it would make sense to refinance, or you can contact a lender to get a similar analysis. Just remember --- even if you are lowering your rate, it doesn't always make sense to refinance! | |
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Scott Rogers
Coldwell Banker
Funkhouser Realtors
540-578-0102
scott@cbfunkhouser.com
Licensed in the
Commonwealth of Virginia
[...] I have a trusted friend, from out of the area that has written a great article about loan pre-qualification. You can view Scott Roger’s Article here, about Loan Pre-Qualification. [...]
May 9, 2008 9:48 pm
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