Mortgages: Pre-Qualified vs Pre-Approved

When you are pre-qualified for a mortgage of some amount, this is simply a quick measure of what you probably can borrow. It is based on a few answers you give to things like how much income you have and the amounts of any debts you have. It does not, however, mean the bank or lender who pre-qualifies you has agreed to lend you anything. Your income still needs to be verified, and your credit report will need to be looked at.

Loan pre-approval is different. Once the lender has verified any important facts and seen your credit score, you can be approved for a loan up to a certain amount. You should get a letter showing what they will lend you and at what interest rate.

This still does not guarantee you a loan. If interest rates change much prior to you finding a home and making an offer that is accepted, the lender may lower the amount they are willing to lend to you, since the total payment amount is important to whether you can afford the loan or not, and higher interest rates could change this amount. Also, changes in your credit score could affect the final loan commitment. Keep this in mind, and make all offers subject to an actual loan commitment.

Make a few copies of your loan pre-approval letter. Presenting it with an offer on a home is a good way to show the seller you are serious and prepared to close. If the seller has ever had an offer fall apart due to a buyer who couldn't get financing, he will be very happy to see your pre-approval letter. If you are looking for more than six months, you may want to get a new pre-approval letter, to show that you are still able to buy at the current interest rates and with your current credit score.

If you have any questions about the difference in being pre-qualified vs. being pre-approved, just use the "comment" link below and post your question here. We'll reply with an answer to your question. Remember, your email address will never be published here to protect your privacy.

FICO Scores: Who Have The Best Overall?

Who have better credit scores on average - home buyers with higher or lower incomes?

Many might guess home buyers with higher incomes. The surprising answer is: People with lower incomes have slightly higher FICO scores. That finding, which emerged from a statistical analysis of all approved mortgages insured by the Federal Housing Administration (FHA) during fiscal 2007, is now supporting a forthcoming major policy switch that could affect thousands of buyers and refinancers.

FHA, which for decades has used a one-size-fits-all approach to pricing its insurance on home loans, plans to shift to a "risk-based" system keyed to FICO scores and down payments, beginning as early as mid-July. Private sector lenders and insurers have priced interest rates and premiums using sliding scales of FICO scores and down-payment amounts since the mid-1990s.

Under the new system, according to FHA's outline of its plan, "a larger number of low-income borrowers (will) benefit from premium reductions than . . . moderate-, middle- and upper-income borrowers combined."

To set premium rates by credit standing, FHA plans to use the middle score of an applicant's three FICOs generated by the national credit bureaus - Equifax, Experian and TransUnion. If only two scores are available, it will use the lower. For applicants with thin or "non-traditional" credit histories on file at the bureaus, FHA will underwrite and price the loans without reference to FICOs, with heavier emphasis on rent and utility payments among other measures of creditworthiness.

Comments about this move on the part of FHA? Sound off by using the "comment" link below.

Election 08: How Might Your Tax Bill Change?

In our last report on the Election 08 thread, we touched on how the two likely candidates might affect the real estate industry. Perhaps an even more widespread question among a majority of folks would be, "What will they do to my tax bill?"

John McCain and Barack Obama have starkly different philosophies about tax policy - how to raise the revenue needed to support government programs, spur growth and ensure economic fairness.

According to a report released recently by a nonpartisan policy group in Washington, D.C., the common assumptions most people make about the plans of McCain, the presumptive Republican nominee, and Obama, the Democrats' pick, are not wildly off-base.

McCain: The average taxpayer in every income group would see a lower tax bill, but high-income taxpayers would benefit more than everyone else.

Obama: High-income taxpayers would pay more in taxes, while everyone else's tax bill would be reduced. Those who benefit the most - in terms of reducing their taxes as a percentage of after-tax income - are in the lowest income groups.

This one report estimates that over 10 years, McCain's tax proposals could increase the national debt by as much as $4.5 trillion with interest, while Obama's could add as much as $3.3 trillion.

What do you think? Which candidate do you think will have the most jarring effect on our overall tax situation? We'd love to hear your comments. Just use the "comment" link below to sound off and tell us what you think. As the election draws nearer, we'll continue to post more questions here about the two candidates, and welcome your input and feedback.

Saving Big on Food

Is your grocery bill eating you alive? With soaring gas prices everywhere, here are some tips that may shave your bill by 20 percent or more and give you more at the end of the month for other things, hopefully not just pumping those food savings into your gas tank.  (Video run 1:15) 

We'll have more money saving tips for you throughout the next few weeks.

Jumbo Loans for Larger Home Loans

In some real estate markets, a house in the $400,000 range may be considered a starter home. So the million dollar question is, "Why is it that a home loan in the mid $400's is considered a Jumbo Mortgage Loan?"

While most of us see the term "jumbo" as relative, Fannie Mae and Freddie Mac, two government sponsored mortgage entities, have their own opinions. Each year, a new "conforming loan limit" is published by these organizations.

The conforming loan limit is the maximum loan size eligible for purchase by either Fannie Mae or Freddie Mac, who purchase the underlying securities from mortgage originators. Those funds are then reinvested in new mortgages, and the flow-of-funds cycle continues.

The conforming loan limit, or "Jumbo Loan amount" is set every January. The current conforming loan limit is $417,000.

When a loan amount is higher than the conforming limit, it becomes a Jumbo Loan, or non-conforming loan, with slightly higher interest rates.

Jumbo Loans, compared with historically low mortgage rates, can bring greater flexibility for some home buyers to purchase the house they want and make the payment they want.

With interest rates so low, consumer interest in Jumbo Loans is very high. If you are looking at homes that wouild cause you to secure one of these "jumbo loans", talk to a mortgage expert to see if you qualify to get your jumbo loan with a low or no down payment. There are more options out there than most people understand, so it's important to talk with a professional in the industry before you start your home search.

If you have questions about jumbo loans, or any area pertaining to home loans, mortgages, or home buying, contact us. If we don't have the answers you're looking for, we'll find them for you, guaranteed. Just use the "comment" link below to send us your questions.