Some mortgage terms can be confusing, none more so than the similarities and differences between prequalification and preapproval. The two terms are often used interchangeably, but they mean very different things to lenders, real estate professionals and home sellers.
Prequalifying is a rough-idea process that tells you how much money you’ll likely be able to borrow to buy a home. You can prequalify yourself on any banking or real estate-related website simply by putting your salary, type of loan you want, down payment amount and a ballpark home price into a mortgage calculator. You can talk with a lender, who will also give you a ballpark amount without a credit check.
When you apply for a mortgage loan, you’ll share your income records, the source and amount of your down payment, and your social security number so the lender can pull your credit. This is the key difference between prequalification and preapproval – when the lender is able to review your application and verify your credit standing to make a lending decision.
The lender will get back to you within three days or less with a preapproval letter stating the maximum amount of money you’re approved to borrow.
Preapproval gives you the real numbers so you know exactly how much you can spend on a home. It lends you credibility with real estate professionals and with sellers who will take you seriously as a buyer.
Prequalification becomes preapproval once you have a purchase contract on a home. Then, the preapproval is real.
You’re almost done! All that’s left to do is to pack up and move in to your first real home. Here are a few tips that will make your first day as a new homeowner easier.
Sort your belongings. Moving can be more expensive when you cart along items you don’t really want or need. A great way to do it is to sort and pack at the same time. Think in terms of three piles – keep, donate, trash. Trash the trash and drop the donations off at the first opportunity. Put your “keep” pile into moving boxes labeled by room.
Plan your storage options. Closets, attics and cabinets can fill up quickly, especially if you’re downsizing. Where will the out-of-season sports gear go? What about holiday decorations? What goes in the garage?
Plan your trip. Pack your car with necessities, including first aid, drinks, and snacks. Let each family member choose their favorite items to bring, like blankets, pillows, games, books, and a change of clothes, just in case.
Meet your neighbors. If possible, introduce yourselves to your neighbors before you move. You’ll have a greater sense of belonging on moving day.
With home prices rising, you may be wondering if now is the best time to buy a home. The answer is always yes but there are ways to buy wisely and safely.
Save for a down payment. The more money you can put down, the better borrowing terms you’ll get on your mortgage. Establish a firm budget. Limit credit card spending and pay down your debts. Put your next raise into savings.
Choose wisely. Your home should improve your lifestyle, but not cripple you with debt. It should serve your household’s needs for at least five to ten years, so consider location, neighborhood, commute times, size, number of bedrooms, amenities and condition.
Buy within your means. Your payment, including interest and taxes, should be no more than 28-30 percent of your gross income or 40-42 percent of your income including existing debt. As your income improves, you’ll be able to meet other life goals, such as growing your family, starting a business, or buying more property.
Buy for the long term. The longer you own your home, the more equity, or ownership, you have and the less you owe the bank. Think of equity like savings you’ll get back when you sell or rent the property some day.
Take care of your property. Keeping your home repaired and updated is the best thing you can do to protect your investment. A home in top condition always sells for more money than homes in less desirable condition.
Great Britain’s Tudor reign spanned 1485 and 1603 and was unprecedented in terms of prosperity. International trade led to a great expansion in free-thinking and in home design concepts, including new ideas like the decorative indoor fireplace with a mantle, hand-made rugs from the Orient as table coverings, and built-in cabinets and seating.
Tudor style is down-to-earth and charming, and many urban homebuyers are enchanted by their asymmetrical designs, distinctive half-timber accents, deeply pitched roofs, leaded glass windows, gables, turrets, and brick or stone exteriors, accented by one or more large brick-patterned chimneys. The entry is typically a plank style door with a rounded arch and iron hardware.
Tudor interiors feature lots of wood – wide plank wood floors, wood beams on the ceiling, wood mantles and more. Timber beams on cathedral-style ceilings are usually stained dark in color. Interior walls are textured and painted off-white to mimic plaster. Due to their solid construction, these homes can be easy to update.
Lighten the interior with candlelight bulbs, natural stone floors, colorful rugs and minimal furniture bedecked in plush velvets, tapestries and brocades.
If you believe your home is your castle, the Tudor style will bring you years of comfort and delight.
Do you know what to do when a disaster strikes? Do your children? By creating and practicing an emergency safety plan, you can protect your family when natural disasters happen.
Fires. The National Fire Protection Association advises you to have at least two ways to escape the home in case of fire. Practice fire drills with your children at least twice a year.
Tornadoes. Tornadoes are fast and destructive. The Red Cross recommends the safest shelter for the family as interior rooms, closets, hallways or a storm shelter/basement.
Hurricanes. The Insurance Information Institute suggests learning where the nearest public shelters and evacuation routes are before hurricane season begins.
Earthquakes. Ready.gov says to practice drop, cover and hold-on drills, like getting under a sturdy desk or table, against an interior wall, or in the jamb of a door on a load-bearing wall.
Before disaster strikes, review your homeowner’s insurance and make sure you’re covered for flooding and wind damage. Document your belongings. Keep valuables, important files, priceless photographs in a safety deposit box. Prepare an emergency kit with food, water, first aid and blankets.
You may lose some material objects, but you’ll keep what matters most – your family.
All housing reflects the culture and the economics of their day, and the ranch-style home of the ‘50s, ‘60s and ‘70s is a symbol of post-World War II prosperity and an icon of the space age.
The mid-century saw the first real sprawl in communities away from town centers, made accessible by the increasingly affordable family car aided by President Eisenhower’s new highways. Land was plentiful, so most of these single story or split-level homes are situated on comparatively large lots, with kid-friendly front and back yards.
These homes are machines for living, easy and quick to build, and a snap to remodel, with most load-bearing walls located on the outside perimeter. Kitchens always adjoined the garage, convenient for unloading groceries out of the rain.
Mid-century ranch-style homes are ideal for today’s two-income, time-starved families. The only thing they need is a little 21st century flair. Just replace those linoleum floors and Jetson-era Formica countertops with contemporary stone. Install elegant French doors in place of sliding glass patio doors. Raise the eight-foot ceilings to nine or 10 feet. Hang your flat-screen TV in place of the starburst clock, and buy some stylish retro furnishings and you’re cool, man.
Cabinets set the style for any kitchen, and with advances in functionality as well as beauty, your new cabinets should transform your food prep workspace.
All kitchens have trouble spots that can be fixed with the right design. Hire a certified kitchen designer, who’s adept at space planning, traffic control and up to date on the newest products.
The most popular cabinet doors today are flat fronted with hidden hardware for a modern esthetic. Look for “quiet closing” cabinets that close softly to prevent slamming. Storage that pulls down, rotates or lifts up can save your back and the need for a stepladder. Drawers that pull out under countertops are easier to use than shelves because you can see everything that’s stored. Cabinets that reach the ceiling can accommodate items you don’t use daily, like holiday dinnerware.
Many new kitchen cabinets come in various wood grains and stains, factory-painted wood, and porcelain or laminate fronts. Island cabinets often feature a contrasting color to the wall cabinets.
Be open to new products that can save you valuable time, such as built-in drink stations, refrigerated drawers and large trough sinks. Visit kitchen showrooms with your designer for more inspiration.
Congratulations, new homeowner! You’ve overcome the biggest
hurdle – buying your first home – and now it’s time to switch your attention to
maintaining and protecting your investment. Your electrical, water, gas and A/C
systems may be working fine for now, but sooner or later, you can expect a
major repair or replacement expense. All you need to do is be prepared.
Plan ahead. The International Association of Certified Home
Inspectors offers a handy reference called The Standard Estimated Life
Expectancy Chart for Homes. Compare the chart to your inspection report and
you’ll be able to gauge how much life is left in your appliances and systems.
If you know that your A/C unit is 10 years old and the life expectancy is seven
to 15 years, you have the heads up to prepare for a major repair or replacement
Review your homeowner’s insurance. How much is your
deductible? That’s the amount you’re responsible for when you use your
insurance for an expense like a hail-damaged roof. The higher the deductible,
the more money you should set aside, just in case.
Build reserves. Many repairs or replacement costs won’t be
covered by hazard insurance, so reserves are your rainy day fund. This money
you’ve saved or set aside should be quickly and easily accessible through a
savings account or a short-term certificate of deposit.
Set aside an emergency-only credit card. Keep one credit
card at zero or a low balance so you’ll have a back-up source for payments.
According to StudentLoanHero.com, high outstanding student
loans can keep you from qualifying for a mortgage loan, but here are two quick
ways you can improve your chances of getting approved.
Refinance Your Student Loan. Federal loans offer benefits
such as income-driven repayment options and access to loan forgiveness or
cancellation. You can consolidate your loans into one payment, but the interest
rate won’t change. If you refinance with a private lender, you’ll lose those
benefits, but you could go from paying 8% to as low as 3.25% interest, giving
you lower monthly payments that save you thousands of dollars.
Improve Your PITI and DTI. The lender wants to know one
thing – can you afford a monthly mortgage payment? Lenders use two ratios –
gross income to monthly payment and the amount of debt- to- income. PITI is
your total monthly payment including loan principal reduction (P), homeowner’s
insurance(I), property taxes(T), and interest rate(I). Divide your target
monthly payments by your monthly gross income and PITI should be no higher than
28% to 31%. DTI is adding all your monthly debt payments, including child
support, credit card bills and student loans and dividing the total by your
monthly gross income. The percentage should be no higher than 36% to 43%.
The results will tell your lender which loan programs will
best fit your needs and keep your monthly payments within the correct ratios.
Meanwhile, retool your budget to save more and spend less and use the
difference to pay off credit cards.
The U.S. Department of Housing and Urban Development
recently revised its condominium loan policies to allow consumers greater
access to mortgage loans that are federally guaranteed through the Federal
Housing Administration(FHA). After Oct. 15, 2019, as many as 60,000 additional
condo units will meet FHA-certification, making them eligible for buyers to
purchase with an FHA loan.
The new guidelines will extend project certifications from
two years to three, allow for single-unit mortgage approvals, allow a higher
owner-occupant vs. renter occupancy ratio, and increase the number of units
eligible to be purchased with FHA loans in a single project.
The FHA certifies eligibility for both condo projects and
individual units, but according to the National Association of REALTORS, only
17,792 FHA condo loans were originated in the past year, out of approximately
8.7 million condo units nationwide.
The new relaxed guidelines are a significant improvement as
condos are often more suitable and affordable to many singles, couples and
small families who wish to take advantage of easier qualification,
low-down-payment FHA loans – particularly first-time buyers.
Any impediment to buying a property can impact its
desirability and market value. With approximately 84% of homebuyers
purchasing a condo for the first time, the relaxed rules will promote more
“affordable and sustainable homeownership, especially for credit-worthy
first-time buyers.” The result should also make condos more marketable and
easier to resell since the pool of available buyers and loans will be
Contact your Berkshire Hathaway HomeServices Select Realty professional for more information.