Is your Home loan Pre-Approval Reliable?

Your approval may be withdrawn!

Has your home loan been pre-approved? Did you understand that a bank has the right to decline your application when you find a property to buy? This is because pre-approvals are “indicative” only, they aren’t a formal commitment to approve your loan.

Unfortunately, it’s quite common for people to get a pre-approval from their bank, win a property and find at auction, only to have their loan approval withdrawn when they request an unconditional approval.

The person buying the property then goes into a mad rush to find another lender to approve their loan or to get a family member to help them before they lose their 10 % deposit.

What are the conditions.

Pre-approvals have conditions that must be fulfilled, before the loan becomes formally approved.

Below is an example of a pre-approval letter that lists the conditions that need to be met.

This conditional approval is valid for a period of 90 days from 01/01/2010. Subject to the following details being confirmed, we’ll send the applicant a loan offer:

 

That all information supplied to us for assessing your client’s eligibility is true and correct.

That we have received all documentation necessary to verify your client’s deposit, security, assets, liabilities and income.

Verification of your client’s financial and personal details.

Our satisfactory assessment (including a valuation) of any property offered as security for your client’s loan(s).

Whether Lenders Mortgage Insurance is required. If it is required (generally when the loan amount is for more than 80 % of the value of the security property) the loan(s) will be provided only if the insurer agrees to provide the insurance. Your client will also need to pay the Lenders Mortgage Insurance premium.

Please note that this response doesn’t constitute a Loan Offer that your client can accept.

No further processing is provided at this stage– please retain all supporting documentation until you’re ready to convert to an unconditional approval.

As you can see, the lender hasn’t actually assessed the home loan application! The details have been entered in their system and the loan appears acceptable.

A reliable pre-approval has far fewer conditions and has been assessed by a credit officer that works for the lender.

Has your home loan been pre-approved? This is because pre-approvals are “indicative” only, they aren’t a formal commitment to approve your loan.

If it is required (generally when the loan amount is for more than 80 % of the value of the security property) the loan(s) will be provided only if the insurer agrees to provide the insurance. Your client will also need to pay the Lenders Mortgage Insurance premium.

When to refinance your mortgage?

When doing so will save money or give you financial flexibility, home loan refinancing.

Here’s how to determine whether you will benefit by refinancing your mortgage.

2 major types of refinances are:

– Rate-and-term refinancing to save money. Generally, you refinance your remaining balance for a lower interest rate and a term you can afford. (The term is the number of years it will take to repay the loan.).

– Cash-out refinancing, in which you take out a new mortgage for more than you owed. You take the difference in cash or you use it to pay off existing debt.

Other factors people refinance: to replace an adjustable-rate mortgage with a fixed-rate loan, to settle a divorce or to eliminate FHA mortgage insurance.

Check today’s low rates on a mortgage refinance.

Breaking even.

Mortgage closing costs can total thousands of dollars. To decide whether a refinance makes sense, calculate the break-even point– the time it will take for the mortgage refinance to pay for itself.

You probably should stay in your current mortgage if you plan to keep the house for less than the break-even time.

Mind the term in rate-and-term.

The formula above doesn’t measure your total savings over the life of the new mortgage. If you start your new loan with a 30-year term, a refinance can cost more money in the long run.

In the example above, Kris borrowed $186,000 at 5 %. 10 years later, Kris had a remaining balance of $146,000, and refinanced at 4 %.

Use Bankrate’s mortgage calculator to compare your own loan scenarios:.

When you input different mortgage terms (in months or years), – See what happens.

– Reveal the amortization schedule to see how much total interest you would pay.

Good credit can save you thousands on your mortgage. Check your credit score for free at myBankrate.

Cash-out refinances.

Cash-out refinances often are used to pay down debt. They have cons and pros.

Imagine that you use a cash-out refinance to pay off credit card debt. On the pro side, you’re reducing the interest rate on the credit card debt. On the con side, you may pay thousands more in interest because you’re taking up to 30 years to pay off the balance you transferred from your credit card to your mortgage.

But the biggest risk in this scenario is in converting an unsecured debt into a secured debt. Miss your credit card payments, and you get nasty calls from debt collectors and a lower credit score.

Miss mortgage payments, and you can lose your home to foreclosure. Home equity debt that’s added to the refinanced mortgage always was secured debt.

 

– Rate-and-term refinancing to save money. Typically, you refinance your remaining balance for a lower interest rate and a term you can afford. Imagine that you use a cash-out refinance to pay off credit card debt. On the pro side, you’re reducing the interest rate on the credit card debt. On the con side, you may pay thousands more in interest because you’re taking up to 30 years to pay off the balance you transferred from your credit card to your mortgage.

Things to consider when House Hunting

If you’re thinking about buying a new (or old!) home, for the first home buyers here our list of the “Top Things to Look for When Buying a Home” can help to get your search off to the right start. While the number of rooms, condition of the kitchen, and size of the yard are important, there are other things to consider before you make an offer.

– Location, Location, Location

They say that the 3 most important things to think about when buying are home are location, location, location. You can live with almost any imperfection in a home if you love the neighborhood and your neighbors. You can change almost everything else. But, once bought, you can not change your home’s location. When you go house hunting, consider any potential home’s proximity to your work, the charm of the neighborhood, how the home is situated on the lot, ease of access, noise from neighbors, traffic, or pets, and access to parks, shopping, schools, and public transportation.

– Situation Factors

Beyond location, look at the particular site of the home. If the home is on a hill does it have a view, a walkout basement, or lots of stairs to climb? Do neighbors’ windows look directly into the home? Is the yard suitable for kids, pets, gardening, or other uses? Is access to the property safe regarding driveway elevation, stairs up to (or down to) the front door?

– Check Out the Neighborhood

Be sure the neighborhood, and not just the house, meets your expectations. They say that you should own the smallest home in the nicest neighborhood that you can afford. You’ll have a great view! Drive around on week days and weekends, during the day and in the evening. Are homes in the neighborhood consistent in size and features? Do the neighbors keep the yards tidy and clean or are there old cars and trash around? Is the neighborhood safe enough for people to walk, run, or bike and are there children playing in the yards?

– Consider a Home’s Curb Appeal

Your home should reflect your lifestyle. Do you live a laid-back life? Then you might not want a formal Victorian or Tudor style home. Something simpler and more contemporary might be in order. Look at the exterior features. A brick home is easier to maintain, unless you live in an earthquake-prone area! Is the roof in good condition? Is the landscaping attractive and are the sidewalks leading to the home safe?

Read here about choosing, buying, and applying Exterior Paint.

Size and Floor Plan

You may be thinking about buying your dream home. Is your dream home impractical? Do you really need 4 bedrooms and 4 baths when you live alone? A large home can give you the extra space you’ve always wanted for a home office or crafts or art projects. You’ll pay higher heating bills and have higher taxes. It will take more furniture to furnish and money to decorate. Think about how the new home space will be used and whether it will fit your lifestyle now and in the future.

 

They say that the 3 most important things to think about when buying are home are location, location, location. You can live with almost any imperfection in a home if you love the neighborhood and your neighbors. Once bought, you can not change your home’s location. When you go house hunting, consider any potential home’s proximity to your work, the charm of the neighborhood, how the home is situated on the lot, ease of access, noise from neighbors, traffic, or pets, and access to parks, shopping, schools, and public transportation.

A large home can give you the extra space you’ve always wanted for a home office or crafts or art projects.