What’s the difference between pre-qualified, pre-approved and pre-underwritten?
These terms refer to your status in the loan approval process.
Prequalification is a determination of your probable ability to obtain a loan. To become prequalified, meet with a loan officer or mortgage company. They will help you determine the price you can afford, based on your monthly income and your current debts, as well as the cash you have for a down payment.
Preapproval means that the mortgage lender has already verified and approved your credit and income. Obtaining preapproval early in the process will make your offer more attractive to the seller.
Pre-underwritten means that the lender has sent your loan application through underwriting. This usually takes longer than pre-approval. It will make your offer even more attractive to the Seller because there’s less of a chance of your financing falling through. It also means you may be able to close more quickly.
What is Earnest Money?
Earnest money is a “good faith” deposit submitted with your offer to show the sellers that you are serious about purchasing their home. Earnest money is a required part of an offer. There is no set amount that is required, but the amount sometimes makes a difference in the negotiation process. Earnest money eventually becomes part of the purchase, and will show as a credit to the buyers on the settlement statement drawn up by the escrow company.
What are closing costs?
Closing costs are charges paid to various entities during the real estate transaction. They can include escrow fees, document preparation fees, title insurance, and lender fees.
What is a point?
A point is equal to one percent of the loan principal. Some lenders charge points, in addition to interest and fees, at closing.
What is Title Insurance?
Title insurance protects against loss from any defects in the legal title, liens against the property or other adverse claims. The lender usually requires title insurance.
What does having a low appraisal mean?
Your lender will require that your new home be appraised. An appraiser will come and look at your new home and then compare at other comparable homes. The appraiser will then determine an appraised value of your home. The lender will not lend more than the appraised amount.
If the appraisal is less than the purchase price, then the transaction is in a low appraisal situation. Since the lender will not lend more than the appraised amount which is less than the agreed to purchase price, the difference will need to be made up or the transaction can be terminated. There are multiple ways to make up the difference which we will review when writing an offer.
What is Escrow?
Escrow is a neutral third party to ensure that everyone’s interests are met. It is a process through which property is transferred from one party to another. It is where the conditions in the Purchase and Sale Agreement, Loan Commitment and other written instructions are satisfied. The costs for the escrow company are generally split between the buyer and the seller equally and are included in the “Closing Costs”.
Who pays for what?
There are costs to buying and selling a home. Both buyers and sellers are responsible for the various costs such as escrow, title insurance, real estate commission, etc. Although these costs can vary in general the costs involved are:
Buyers – Property tax going forward (paid in advance), recording fees and half the escrow fee, If there’s a loan involved the costs also include Appraisal fee, Title insurance for the lender, and any points or costs associated directly with the loan. Since each transaction is different, there may be additional fees involved.
Sellers – Title insurance for the buyer, real estate commission and half the escrow fee. Since each transaction is different, there may be additional fees involved.
How fast will my home sell?
How fast a home will sell is dependent on many factors. What kind of market are we in – buyer or seller. Homes in a seller’s market tend to sell faster and homes in a buyer’s market tend to sell slower. The price of a home will also affect the length of time on market. If priced low, the home will tend to sell faster, if priced higher than market price it may take longer to sell. Of course the condition of the home can have an influence as well
Do I sell first and then buy, or the other way around?
To answer this question, it depends on your financial situation (such as amount of down payment or if don’t qualify for both mortgages), or your willingness to move twice. Below are some options but you will need to discuss with your lender in any event.
If you don’t have enough down payment for the new house
- Take out a home equity loan against your current house and use it for the down payment. When your current house sells, the loan is paid off.
- If you have 5% down for the new house, go ahead and buy and pay mortgage insurance until your current house is sold. You can then “re-cast” the mortgage adding your proceeds in. This will keep all the terms of the loan the same (rate, length) but the monthly payment changes because your loan is lower
- You could refinance. This would be a good option if the interest rates have dropped.
- Consider other sources of Down Payment: A gift from a family member or withdraw from a 401k or IRA. (There may be a 60 day pay back requirement. Something to check on if you want to go this route.)
Don’t qualify to carry both mortgages at the same time
- Lease your current house for a year. Fannie Mae just changed the rules this year (2016) to allow this option. You would need a 12 month lease agreement, all the associated deposits (first, last, damage) and the amount would need to cover, or nearly cover your current mortgage
- A Pending Sale. Another Fannie Mae change this year (2016). If you’ve sold your home and the buyers financing contingency (if there is one) has been satisfied, then the mortgage is not included in your calculations (Only the new house instead of both
- Ask for a rent back from your buyers. The rent back period can be up to 60 days (the max days for a rent back). Then house hunt like crazy and find a house to buy. If you don’t close on the new house by the time the rent back is up, you would need to find a place to move to (find a rental, move in with family). What can help is being pre-underwritten so you can close in about 15 days instead of 30
Another option is to sell your home and move into a rental while you are looking for your new home. There are things to consider with this option such as the cost of moving twice and the length of the rental agreement.