Mortgage Pre-Approvals and Buying a Home

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Finding the right home to buy is not easy as it may seem. Most prospective home buyers get frustrated when they are asked for the pre-approval letter. Mortgage pre-approval is one of the home buying processes that let the buyers determine if you are a serious buyer. In fact, this is the most crucial step that will help you get a mortgage loan for buying a home. During the mortgage pre-approval process you will be required to submit documents such as bank statements, tax returns, and employment verification. Moreover, your credit report is very vital in this process.

Once you get mortgage pre-approval from the lender, you will be more trustworthy in the eyes of the sellers or a real estate agents. Also, you can show this letter to the sellers when bidding for a property. It demonstrates your ability to purchase the property and makes you more attractive to the sellers.

Importance of mortgage pre-approvals in the home buying process

#1. Shows your capability to buy a home

Unless you are planning to purchase a house for cash, you have to arrange for some financing. It can be very frustrated to search for a home for several days only to find that you cannot afford it. However, with the mortgage pre-approval letter, the realtors and sellers will have more confidence in you.

#2. Refine your search

The mortgage pre-approval letter will help you know how much you can spend. In fact, this will save you time from searching for homes that you cannot afford. It can be very hurting to find your dream house only to be denied because you cannot afford it. In this case, the mortgage pre-approval will help the realtors find a home that is within your price range.

#3. Allow easier negotiations with the seller

In most cases, sellers are more willing to negotiate with buyers who are pre-approved that those who don’t have a pre-approval letter. Moreover, the seller will give you preference for the offers that might be in the house.

#4. Better results from the Realtors

Usually, realtors will prefer to work with buyers who have a pre-approval letter. In this case, the realtor will know the deal is less likely to collapse. Moreover, the realtor can easily find your dream house because they know what you can afford.

Conclusion

Finding your dream home can be challenging if you have the right mortgage financing. However, mortgage pre-approval letter will make the sellers have trust in you. Moreover, the realtors will be more willing to work with you.

Home Appraisals: What They Are and Why They’re Important

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A home appraisal is basically an in-depth report on a house, created by an expert, known as the appraiser. This appraisal’s primary function is to determine the fair market value of the house being assessed. This market value is reached by taking into consideration several important factors about the property including:

  1. The floor area or size of the living space.
  2. The market value of comparable nearby homes.
  3. The features and facilities of the neighborhood.
  4. The year of construction of the property.

An appraisal is generally performed for the execution of most home loans, and also sometimes for home refinancing transactions and almost done in case somebody is planning to purchase the house. In the real estate world, after the buyer and the seller have settled on a purchase price, the lender involved will have the appraisal done by an independent third party, the appraiser. The buyer is the one required to bear the cost of the appraisal. This cost can range from $200 up to $500.

Also, appraisals can be reviewed. Appraisers may sometimes make mistakes and an appraisal may differ significantly from expectations. In this case, a review of the appraisal may be done. It rarely happens that the appraised value exactly matches the price on offer. An appraisal usually has two different outcomes, each with a significantly different impact on the transaction.

Let us assume that the buyer and seller have mutually agreed on a purchase price of $120,000, but the value of the property according to the appraisal, comes out as say, $125,000. This is actually good news for the home buyer. Assuming that all other factors fall into place, one can then proceed to disburse the loan as planned with the added benefit of $5,000 in spontaneous, built-in equity already in the property.

However, if the negotiated price is $120,000 and the appraisal comes out with a property value lower than this amount, for instance, $110,000, then it can create a significant delay in this deal. This can result in a lot of inconvenience for both parties, the buyer as well as the seller. The buyer has in this case, offered to pay a higher amount than the home is technically worth, according to the appraiser. Due to this, the lender cannot give the buyer a loan of more than what the home’s worth is. The only possible solutions are to either increase the down payment to reduce the total loan amount or to try and negotiate a lower price with the seller. Apart from this, the home appraisal can be reviewed to modify the appraisal amount.

The Risks Associated With a Home Equity Line of Credit

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To fully understand what a home equity line of credit or a HELOC is, you need to chunk this into two terms: home equity and line of credit.
-Home equity – is the market value of your home less the total amount of debts that are associated with or registered to it.
-Line of credit – also referred to as a credit line, it is an arrangement wherein a bank or a lender extends a specified amount of credit to a borrower for a certain period of time.

Combining the two, you get the term “home equity line of credit” (obviously) which is a form of revolving credit and which takes your home equity as collateral. Anytime you need money, you can make use of – or in mortgage lingo, DRAW from – your credit line. Basically, a home equity line of credit works in the way a credit card does. As long as you don’t go beyond your credit limit, then you can continue to draw money for needs such as medical bills, tuition fees and home improvement expenses.

Please note that using money from your home equity line of credit should be done sparingly. This should only be used for really important payments or purchases. Drawing money from your home equity line of credit to pay for everyday expenses is not a wise idea. This is because of the ultimate risk that’s associated with this financial option – as outlined below:

The Ultimate Risk: Foreclosure

In this kind of financial option, non-payment of your dues could result to the foreclosure of your home, as is the case with other mortgages – Toronto or elsewhere. Therefore, you should make sure that you attend to your dues in a timely manner. Although you can only pay the “minimum,” it’s always a wiser idea to pay more than that. This will ensure that the amount for repayment will considerably get lower – and to assure that your monthly payments are not only used to cover for the interest rate.

Other Risks

Note that with a home equity line of credit, the “health” of your credit limit largely, if not entirely, depends on the market value of your home. If you lender senses that the value of your home significantly decreases or if they have sufficient reason to believe that you cannot keep up with your monthly payments, they may either freeze your account or reduce your credit limit.

In both cases, you should talk with your lender. Ask them how you can restore your account. You should be able to prove to them that the value of your home has not considerably decreased. You should also show to them that you are still well in the way of being able to make the necessary payments on a regular basis. Your argument would bear more weight if you can show some proof. So provide documentation if you must.

When talking doesn’t seem to solve the problem, then you may consider shopping for another line of credit. Of course, look for the best mortgage rate – Richmond Hill or elsewhere. With any luck, you can get an arrangement that allows you to pay off your original home equity line of credit with another one. Mortgage and credit professionals run aplenty and they’d be more than happy to be of service to you.

What Can Hurt Your Credit Score

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Your credit score, a three-digit number that is ranging from 300 to 850 points, assumes a significant part in our everyday life It gives potential loan specialists how well we a chance to can deal with our finances. The following are what hurts your credit score, Please give careful consideration to it.

Asking for Too Many Loan Rate Quotes Online 

Getting a credit rate cite online is quite simple. You can get a quote on your auto credit, individual advance, understudy advance, or mortgage advance in seconds.

Missed payments 

Assuming your bills is much worse than paying late. Decide not to put your head in the sand and exacerbated things than it as of now is. After around six missed payments moneylenders, typically charge your record off. This record status is one of the worst items on your credit report.

Late payments 

Your installment history has a tendency to be important in the calculation of your credit score. If you don’t fulfill your financial obligations on time, you may lose 100-200 points. It is important to make timely payments to maintain a positive rating.

Overwhelming debt 

Credit authorities figure the ratio between your equalization and available credit. If you borrow a ton of assets, the rate of debt/available credit (additionally called utilization ratio) goes up. It will hurt your credit score. Continuously attempt to keep your debt lower than 30% of your spending limit.

Collection agencies 

If you don’t eliminate your debt, moneylenders can hire third-party agencies to gather installment from you. The name of the collection office and the measure of cash you owe will be listed in the report. Avoid these call at whatever point you can.

It will show that you are a high-risk client.

Timid away from loans or debts 

While it is great to have no debts, it likewise implies you don’t have a credit history. This will bring about a lower score for you. The thing is that loan specialists need to see that you can handle credit and the only way they can tell is you exhibit this ability by having some form of credit previously.

Canceling old accounts 

15% of your credit score is determined by the length of your credit history. If you close your old accounts, you shorten your credit history.

Closing cards with available credit 

When you scratch off your card, the measure of available credit lessens, however your debt remains the same. Along these lines you increase your utilization ratio. That is bad for your credit score.

Declaring bankruptcy

Bankruptcy can put your credit score down into the least ranking. You will need to work hard to re-establish great rating. Search for alternative solutions to eliminate your debt. You can counsel with a credit counselor or a debt relief office.

Various inquiries 

Applying a few credit card applications within a short period will harm your credit score. The creditors can recommend that you are in a serious financial inconvenience. Try not to apply for any plastic that catches your attention!

Having credit cards only 

Your credit report reflects what sorts of credit you have had: credit cards, charge cards, retail accounts, and installment loans. It is advisable to have a sound mix of credit to make your credit score higher.

Reverse Mortgage Scams: What They Are and How to Avoid Them

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A reverse mortgage scam occurs when perpetrators blatantly mislead a senior to take out a lump sum payment on a home’s equity to pay for a bunch of fictional items, costly repairs they don’t need, reverse mortgage counseling fees, attractive insurance policies and investments and feeder fee annuities from their fraudulent company and later these fraudsters disappear with the money and the senior is left with no cash or equity in their home. This results to various challenges such as eviction and poverty due to unpaid loan recovery and much more.

The two most common reverse mortgage scams are the equity theft and foreclosure rescue. In an equity scam , the fraudster purchases a house that is in a foreclosure or distressed/abandoned, sells it to a senior citizen who takes out a reverse mortgage after occupying the property for sixty days and once the transaction goes through perpetrator disappears with the proceeds. In the foreclosure rescue scam, the perpetrator identifies seniors who are at a risk of losing their homes due to foreclosure, convince them to obtain a reverse mortgage to save the property but will then inform the senior that he /she does not qualify. They encourage him to take a traditional mortgage at which point the property and its equity will be transferred to the fraudster.

 

However it is possible for a person to be able to avoid being a victim of reverse mortgage scams and misfortunes. This is possible through a number of ways listed below .these are:

 

  1. Every person should not wait until they are desperate for a mortgage that means you should avoid making financial decisions under stress as this limits the options that you would have to choose from.
  2. Always compare the offers in the market to be on the safer side and check the reputation of those offering them with the Better business bureau.
  3. Avoid those lenders who offer both a mortgage and investments too but rather choose a financial planner, financial officer or an asset manager for investments and in every uncertain investment apply the rule of thumb.
  4. Always consult more than one lender to clarify if a repair suggested by any one lender really exist or it’s just a fraud.
  5. Always consult a third party before signing papers offered to you if you do not know why you are signing them.
  6. Attend the closing of any deal in person to avoid any unknown changes to you on the terms and conditions.
  7. Always be suspicious of anyone telling you that you can own a house without a down payment.
  8. Do not accept payment from individuals for home you did not purchase.
  9. Do not respond to unsolicited advertisements.

 

In case it has happened or happens to you it’s always good to come out and report to the authorities who may help you recover the personal loses and you may be in a position to save other seniors from suffering the same fate and help them avoid reverse mortgage scams.

 

What to Do After Your Mortgage Application Has Been Denied

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When you make a mortgage application and it is denied, you should know the procedure to follow when you want to fix it. However, this is always a simple process that you can do yourself. Here is a guide on what to do if mortgage declined:

  1. Read the rejection reason

When a financial institution rejects your mortgage application, they often give reasons why they think you are not suitable for the given mortgage. You should ensure that you read the reasons why your application has rejected to enable you learn on what you need to fix before they can adjust it for approval. In addition, when you lack ability to comprehend on what might be the problem, you can get help from financial experts who will guide you on the reasons for rejection thus helping you make corrections for approval.

  1. Fix the Problem

Once you know the set of problems that you need to fix before getting a mortgage loan, you should go ahead and do it. By contacting your creditors, you will explain to you the conditions to meet such as having a poor credit history as well as things that you must fulfill if you were to get your loan to be approved. In addition, they will suggest a set of financial changes you have to make in your mortgage application before it is approved.

After you have fulfilled the given conditions, you can reapply again from the financial institution to see whether they will approve your loan. If you do them right, you will always be certain that you will get the mortgage loan that you will need.

  1. Apply with Other Lenders

Just because one financial institution or lender refuse your loan request doesn’t mean that the next lender will. How do you do this? You can go ahead by checking with other lenders within your area. From your research, you will always have online companies or institutions who are ready to give you loans from the available credit history. However, you must do your research well in the market before deciding on what will actually work for you especially when looking for mortgage loans from the financial market. In the end, you will get a financial institution or lender who will be ready to approve your mortgage.

In conclusion, the above is a guide on what to do if mortgage declined if you need to get the best rates when looking for the mortgage loans.

Your Mortgage Payments: Are They About to Increase?

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Finding the right kind of mortgage in this market can be a really difficult job. Most people try to avoid adjustable rate mortgages, because in that case your payment may increase from time to time. But even if you succeed in finding a fixed rate mortgage, there is a high chance that the fixed monthly payment may increase. The main reason behind such hike is your escrow account.

Escrow Account: In case your borrowings exceed 80 percent of the total value of the property, then you will be asked to open an escrow account by your lender for your own benefit. Apart from the fixed payment every month, you also have to pay your lender property taxes, insurance and other expenses that are necessary. All these expenses are deposited into your escrow account and gets broken down into monthly payments. Thus, it becomes much easier for you to pay. You don’t have to pay a lump sum amount of money at once.
The reasons behind the increase in mortgage payment are:

1. Property taxes: Property tax is the main reason behind the increase in the fixed monthly mortgage. They can fluctuate very frequently, especially if you live in a posh location. Increase in the property value, change in the tax structure of the government or home improvements can end up increasing your monthly payment.

2. When these rates increase, lenders are also forced to collect more money in your escrow account to cover up all the additional costs. As a result, your monthly mortgage increases. You have the option to file an appeal against the increase in property taxes. But there is no guarantee that the ruling will be in your favor.

3. Homeowners insurance: Just like property taxes, homeowners insurance can also end up increasing your monthly mortgage. If you are investing in a large remodel project, then there are many extra costs like repairing expenses or some additional constructions. As a result, the homeowners insurance cost will rise, which in turn will result in the increase of your monthly mortgage.

Lender error: Sometimes, your lender may by mistake make some wrong calculations in calculating the property tax or insurance amount. This means that you will have to pay more in your escrow account to cover up the costs. Although such mistakes are completely unintentional, but you are the one who will suffer. You will have to end up paying an increased monthly mortgage. Hence, it is your responsibility to make sure that all the costs are properly calculated.

Hence, it is very important that you shop for your mortgage very carefully. Jerry Stiles, mortgage broker can help you out in this regard.