What's the Difference Between Pre-qualifying and Qualifying for a Loan?

When you start searching for a home, your real estate broker may ask you about potential financing options. Before you start discussing your financing, there are some terms you should be aware of. It is important to understand these terms could be used interchangeably but they are very different. These terms are prequalifying, qualifying or preapproval.  Here’s what each of these terms mean for you as a home shopper.

What does prequalifying mean?

If you are considering getting prequalified before shopping for a home, you will provide to a mortgage lender or broker certain information. This information will include your monthly income, monthly credit card expenses, and information about other bills such as a car payment, or insurance which are paid on a monthly basis. Your mortgage lender or broker will ask you specific questions regarding your credit including whether or not you have had any late payments during the last 12 – 24 months. None of this information will be verified by your broker or lender.

Once your mortgage professional has obtained this information, they will help you determine how much of a mortgage you may be qualified to obtain towards purchasing your new home.  This information is helpful because it will give you the flexibility of knowing approximately the price range at which you can purchase your home.

What does preapproval/qualifying mean?

While preapproval and prequalifying often are confused as the same process, there are very significant differences. During the preapproval phase, a lender will have you fill out a mortgage application, run a credit report, and verify the information they request from you. This process allows you to know how much money you actually can get approved for, versus an estimate of how much of a mortgage you qualify for.
In most cases, a lender will issue you a preapproval letter with certain caveats including that information provided on your initial application does not materially change between the preapproval or qualifying process. For example, if you maxed out a credit card which had a zero balance when you applied, that could impact your final qualifying. The same is true if you missed payments, changed jobs, or other financial circumstances which materially changes your initial application.

The advantage of a preapproval when shopping for a home is clear: When you are negotiating with a seller, you know exactly how much of a loan you will be eligible for, and you also know that unless something materially changes, you will be approved for that loan.

What happens after prequalification?

Once you obtain a prequalification, you can start searching for your home with the confidence that you know what range you can qualify for a mortgage. Once you identify your dream home, you will fill out a mortgage application, provide documents to your lender, and your credit will be checked. Assuming there are no material changes from the original information you provided to the lender, you may then receive a mortgage approval.

What happens after preapproval?

Preapprovals will significantly shorten your process of finalizing your home purchase. Your mortgage lender will verify your pay for the period between your original preapproval, ask you about any changes in your finances, and pull your credit report again to make sure there are no material changes since the preapproval. Assuming there are no material changes, your mortgage will be ready for the final step.

The homebuying process is exciting and you will likely hear several terms you are unfamiliar with. Never hesitate to ask questions of your realtor or your mortgage professional during this process so you understand what steps to take next.


Nine Great Options for Using Your Home Equity Today

Most people who have equity in their home think about using that equity using one of two methods. First, there are those who opt to refinance their home and get the equity in cash — a cash-out refinance. Others opt to take out a home equity loan which has a similar result, you get the cash value of the usable equity in your home. Another option to consider however is the home equity line of credit. Like the other two options, a home equity line of credit — a HELOC — allows you to access the equity in your home. However, unlike the other two options, you decide how much of the funds you want to use, and when you want to access them.

Home equity lines of credit give you more options because if you are not ready to use the funds, you need not take the funds. Only when you draw funds down from the line of credit are you obligated to make any payment. Depending on the terms, you may also have the option of using the same funds repeatedly, much like you would a credit card. As you make a payment and reduce the amount of principal owed, you have the option of reusing the line of credit. Here are nine ways millennials, and others, can take advantage of the equity in their homes.

1. HELOC For Debt Consolidation

According to a study conducted by Experian, millennials have an average amount of $4,712 each in credit card debt as calculated during Q1 2019. Credit cards have notoriously high interest rates when compared to a home equity loan. On the lowest end, credit card issuers charge about 14 percent interest while a HELOC rate can be as low as six percent. This is a significant difference and can save you a lot of money over the repayment period.

2. Real Estate - Investing for Your Future

While there is no guarantee that real estate values will always remain high, another practical and creative way to use a HELOC is to fund the purchase of an investment property. When you apply for a mortgage for a second home which you do not intend to occupy, there are different down payment requirements. In nearly all cases, you should be prepared to make a down payment of 25 percent of the purchase price. A home equity line of credit could offer you the cash you need. Additionally, investment property can add a new stream of revenue to your monthly income when you rent out the property. Remember, when you make a significant down payment, you are also creating additional equity which may give you the option of obtaining another home equity line of credit later.

3. Educational Expenses — Reduce or Prepare

Whether you have several student loans and you are considering consolidating the loans, or your children are currently thinking about college, education is expensive. A HELOC can help you prepare for college, or help you reduce your current student loan debt. According to a recent release by the Bureau of Labor Statistics (BLS) millennials have the highest levels of student loan debt.  If you are planning to use a HELOC for reducing existing student loans, be sure to review your current payments and interest rates carefully so you are not paying more using your HELOC.

4. Investing in Your Current Residence

Regardless of how long you have lived in your home, the chances are high there is something you would like to change. Whether you are considering upgrading your roof, going solar, or you are considering landscaping your property, a home equity line of credit can provide you the funds you need to invest in your current home.

5. Fulfilling a Dream

Destination weddings, a dream vacation, or a cruise for the entire family — these are some of the more exciting ways of using the equity in your home. Make sure before you decide to use your HELOC in this manner you are not going to regret later. After all, using the funds from a home equity line of credit to splurge may not fit your overall financial goals.

6. Making Self-Employment a Reality

For millennials who have the entrepreneurial spirit but are having problems securing business loans, a home equity line of credit can provide the funding you need to launch a new business. Many studies over the last several years have shown that millennials are more likely to forgo traditional business models and go to work for high-tech start-ups or opt to work for themselves. Using a HELOC to fund a new business can be rewarding in the long run.

7. Saving for a Rainy Day

There is no doubt many of us are poor savers. However, a HELOC can help you get a leg up on some of your savings needs. If you have no current emergency fund and you are concerned that a sudden problem with your car, furnace, or other big-ticket item could wipe you out financially, a home equity line of credit could be a great fallback. Remember, if you have not drawn any funds down from the HELOC, you are not making any payments. If you do take a draw of funds, you are only making payments on the amount drawn, not the entire balance.

8. Creating a Nest Egg and Taxes

Millennials may feel retirement is years away, and for most it is at least a couple of decades in the future. However, this time gap does not mean you should avoid planning for retirement. In addition to the earnings on your retirement savings, there may be tax benefits available which could help offset the cost of using your home equity line of credit to fund your annual retirement account or start your retirement account for the first time. Before using a HELOC in this manner, make sure you explore the pros and cons.

9. Caring for Family

Millennials are often faced with the challenge of caring for an aging parent or grandparent. Having some financial flexibility can be very helpful in this situation which is when a HELOC can be very beneficial. You may also be expecting a new family member either through birth or adoption and having access to additional funds could prove helpful.

While a home equity line of credit is not right for everyone, these are some simple idea to make use of the equity you have worked so hard to build up in your home.


Best strategies for refinancing your home

Chances are that your local newspaper has advertisements from home mortgage lenders advertising new, lower interest rates.  You log onto your computer and all over the internet you see ads for lower interest rates.  You might be wondering if it is time to consider refinancing your home.  Let us look at the best strategies for refinancing your home since interest rates are lower.

  • Calculate the difference - the first thing you should do is determine how refinancing your home is going to affect your monthly payments.  Not only should you consider how much your mortgage payment will change but, you should also look at how it will impact your homeowner’s insurance and your income tax.  Since your mortgage interest can be deducted on your taxes, determine the impact.
  • Can you consolidate? - if you have credit card debt or other debt that you can pay off by refinancing your home, you should also calculate the amount that you may be saving. There are mortgage calculators that are available on-line that will help you determine (based on set rates) how much your mortgage payment will be.  Gather all of your credit cards together, and sort them by interest rate.  Write down the current balances and use a credit card calculator to determine how long it will take to pay them off if you do not include them when refinancing your home.
  • Contact a Realtor - get an approximate market value of your property.  Once you have obtained a market valuation (not to be confused with an appraisal) you can determine if you are eligible for a refinancing of your home.
  • Obtain your Credit Report - before you take any further steps towards refinancing your home, contact all three credit reporting agencies and request a copy of your credit report.  Remember, you may request one free copy of your credit report every twelve months.  Verify that all the information on your credit report is accurate.

Once you have completed these steps you then can decide if you will benefit from refinancing your home. The next best strategies come when you begin discussing your situation with lenders. Here are some strategies for helping ensure you get the best possible refinancing terms for your home.

  • Contact your current lender - if you currently have an adjustable rate mortgage (known as an ARM) you should discuss with them the possibility of refinancing to a fixed rate mortgage. Let them know how much work you have already done in research.  Advise them that you have done the calculations (and at what rates), if you are paying off credit card debt (known as a cash out refinance).  Also let them know what you have found out about the current market value of your home and any information that might be pertinent from your credit report.
  • Contact other lenders - contact other lending institutions after you speak with your current home lender (regardless of what they tell you) and find out if you can get a quote for a lower interest rate.  While these quotes are usually non-binding until contract, they will give you some leverage with your own lender.  Make sure you provide these lenders with the same information you provided to your lender (with the addition of your current outstanding mortgage).
  • Negotiate - there is usually room for negotiations with your lender. You may be able to get them to waive all (or some) of the closing costs, if you decide to stay with the same lender many times there are other fees they would consider waiving.   You should attempt to get the best deal possible when you are attempting to refinance your home. 
These are some of the best strategies to employ when you are considering refinancing your home. After you have thoroughly reviewed all the implications of refinancing your home, you will see that these best strategies can help you successfully close the deal.

Credit card debt reduction tips

In a study conducted by it was estimated that the average adult with a credit card maintains debt on those credit cards in excess of $5,600.  This amount is staggering, and many people are searching for opportunities to reduce their credit card debt but are uncertain as how to get started.  Here are some simple to implement credit card debt reduction tips.

  • Stop using them - all too often, having a credit card in our wallets is like having permission to purchase anything we want at any time. Rather than carrying your credit card (or cards) with you, leave them at home. If you commit to using your credit cards only for emergency purposes, this will be one way to immediately reduce your credit card debt. Avoid using your credit cards for "want-to-have" items instead of saving for them.
  • Consider consolidation - check all credit cards and determine which one has the lowest APR. Once you do that contact them and ask about transferring balances from your higher APR cards. If this is not possible, consider searching for a lower APR credit card and consolidating all your balances to that card. Some credit card companies may offer 0% APR for a specific period of time for transferred balances.
  • Contact Creditor - contact your credit card company and ask them if they would be willing to consider a reduction in your APR. This can be accomplished if you have an excellent history with the card company. Many card companies are willing to negotiate if you are not delinquent in your payments.
  • Double payments - instead of making your minimum monthly payment, try making payments that are equal to two monthly payments each month. This will help reduce the interest you are paying on your credit cards and help lower your balances faster. This is especially helpful if you are double paying your higher interest rate cards.
Instead of swimming in credit card debt, plan today to help reduce the amount you owe. If you use these simple to follow credit card debt reduction tips, you may soon find your credit card debt down to far more manageable levels. Get free of credit card debt beginning today. Remember, you did not accumulate your credit card debt in one day, and credit card debt reduction will not happen overnight. Using a sensible plan, you can free yourself of your credit card debt.

Important papers and documents you need to keep safe for future use

One challenge often faced by family members after the death of a parent, spouse or other loved one, is finding important paperwork.  Here are some of the documents that family members may need access to.  These should be considered important documents and they should be kept safely for future use.

Life insurance policies

You might be surprised to learn that life insurance policies are difficult for family members to locate after a death. In fact, nearly 20% of life insurance policies are misplaced and turned over to states according to the National Unclaimed Property Network.  All life insurance policies along with any addendum should be considered important papers and should be kept safely for future use.

Bank statements

Heirs are often in the dark about checking, savings, IRA, and other financial accounts that are held by family members. It is critical that bank statements are kept safe for future use.  Along with the stress of a death in the family, trying to find bank statements to make sure all assets are accounted for can add additional stress.  Considering bank statements important documents will help keep them safely for future use.

Stock certificates or statements

In most cases today, stock certificates are held in "street name" by the brokerage house that maintains financial accounts.  Because of this, it may make it more difficult to track stocks and bonds that are owned.  Rather than have family members trying to determine what you own for stocks, bonds and other financial instruments, keep careful records. These can be maintained in a file on your computer or may be kept in a folder in a safe place.  A record of dividend or interest checks should also be kept safely for future use.

Real estate information

While family members may be aware you own one (or more) pieces of real estate, there are other considerations that must be paid attention to if someone dies.  Deeds, mortgage documents, tax bills, and insurance documents should be considered important documents.  These must be kept safely for future use.

Trust instruments and wills

Over the years, if you have a trust document or a will, you may have made changes to it.  Keep all documents along with changes in a safe place along with the name and telephone number of any attorney or other person who has assisted in the preparation of these documents.

There are several important papers and documents that you need to keep safely for future use. These are just a small sampling of them.  If you are in doubt as to whether a document might be important, it is better to keep it safely.

How to transfer mortgage title ownership

Transferring ownership of a mortgage title is a complicated legal process that involves numerous steps. In most cases, homeowners should consider getting legal assistance to make sure that this process is done properly. The home title and the home deed are two different items, the deed specifies who legally owns the home while the title to the home reflects who the owner is as well as who has legal rights to the property based on amounts owed (if any).

Investopedia defines title as “The right to the ownership and possession of any item that may be legally recognized as belonging to someone or something...”.  They further define deed as “A legal document that grants the bearer a right or privilege, provided that he or she meets a number of conditions...

In order to transfer mortgage title ownership, a deed is required in all cases. Deeds may be prepared by an individual provided they understand which type of deed they need. There are three common types: (a) quit claim deed, (b) grantor deed and (c) warranty deed. In most cases, a quit claim deed is used to transfer the ownership of property from one person to another. There are other types of deeds, but these are the most referenced ones.

Reasons for transfers

A homeowner who has a mortgage on their home will have the right to have the lien that is placed by the mortgage company removed from their home via a deed. This provides the homeowner a title free from a mortgage lien. The mortgage company typically completes this transfer once they have received the final mortgage payment from the homeowner. The homeowner may then be required to pay a fee to the mortgage company to pay for the filing fees needed for filing the deed to transfer mortgage title ownership.

Those who have inherited property due to the death of a parent or spouse may also need to have a deed drawn up to claim ownership of a property left to them via a will. In some cases, the property has more than one name on the title and the name of the decedent must be removed from the title. In this instance, a deed would be filed to change the ownership from two owners to the sole owner or in the case of parent to children transfers, from the parent to the child. Generally, the administrator of an estate does this. In some cases, a homeowner may have filed a beneficiary deed prior to their death which can make the process less complicated.

Complications hampering transfer

If a homeowner has a mortgage on a property, before they can transfer ownership, they must obtain the approval of their mortgage lender. Most lenders have a “pay on sale” clause or a clause that prohibits the mortgagor from transferring the ownership of the property while monies are outstanding. In some cases, this can still be done by filing a quit claim deed that goes into effect once the mortgage is paid in full.

Understanding the process

A quit claim deed must be drawn up with the current name of the property owner, the information regarding the property and the information on the person who is going to be the new owner. The information for the property often includes book and page number (found at the courthouse or other legal authorities office) and a legal description of the property including the mailing address. The legal signatures of the person transferring the property and the person accepting the property may also be required.

The deed then must be filed at the proper legal offices for the county where the property is located. In some cases, this may be the county courthouse while in other cases it may be filed with a registrar of deeds office. There is generally a filing fee that is required to complete this type of a transfer.

The reasons for transferring a title on a property are varied including divorce, paying off mortgage or a gift to a child from a parent (before or after death). Each municipality may have different rules when it comes to filing the needed documents including when and where they are to be filed, if they need a notary seal to validate them and whether fees are involved.

Those who are considering a transfer of mortgage title ownership need to be aware of all the legal ramifications of this type of transfer including assuming of property taxes on the property. Other considerations that must be taken into consideration include whether a mortgage exists on the property. While it is possible to facilitate this type of a transfer without the guidance of a lawyer, it is strongly recommended that a qualified real estate attorney be contacted for guidance.