Preapproved Vs. Prequalified: Which Is Better?

When you prepare to apply for a mortgage, you will come across financing terms like “prequalification” and “preapproval.” It’s important to understand the meaning of these terms, as this will guide your home search by allowing you to understand your buying power and show the seller that you’re a serious and qualified buyer.

At the fundamental level, preapproval and prequalification are types of mortgage approvals, and they refer to the steps a lender has taken to verify that a borrower can afford a mortgage. Here are a couple of points to keep in mind:

1. Many lenders use prequalification and preapproval interchangeably. Every lender handles mortgage approvals differently and the steps involved change from lender to lender.

2. No matter matter the type of mortgage you apply for, it’s not a guarantee that you’ll close the loan.

We’ll also explain how our preferred lender handles approvals, so you can know what to expect when you apply for a mortgage.

WHAT IS MORTGAGE PREQUALIFICATION?

A prequalification generally means that the lender collects some basic financial information from you to estimate how much house you can afford.

A prequalification is a ballpark estimate and is less reliable than a preapproval, which usually involves your lender checking your credit score and reviewing bank statements along with other financial documents.

As you begin searching for a home, realtors and sellers want to see you’ve been working with a mortgage lender so they know you can afford to buy a home. You’ll need a qualified real estate agent that can negotiate the best price and terms for you along with a solid preapproval letter.

VERIFIED APPROVAL

After you’ve been approved, you can level up to a verified approval by providing some documentation so your lender can verify your income and assets.

Verifying your income and assets along with your credit history is a more accurate estimate of what you can afford. It also carries more weight with a real estate agent and the seller, because they’ll know we verified that you can afford the home you wish to buy. You can provide your approval letter to your real estate agent and the sellers as proof that you can obtain a large enough mortgage to purchase the home.

SUMMARY

Getting approved early in your home search is a great way to know what you can afford, so you can narrow in on your dream house. To get started, apply for a mortgage and get premium pricing on your interest rate.

What Is A VA Loan?

What is a VA home loan?

The US Government's VA loans program helps veterans, active-duty service members and their families qualify for a home loan. Though they are issued by private lenders like Guaranteed Rate, VA home loans are backed by the US Department of Veterans Affairs. Created during World War II to help returning service men and women purchase homes, this program has guaranteed over 22 million VA loans since 1944.

VA home loans feature no down payment or private mortgage insurance (PMI) requirements, making them a great choice for any veteran or active service member looking to purchase a home. Since the housing market collapse of the 2000s, VA home loans have become even more critical in the wake of stricter lending requirements. For this reason, a guaranteed VA loan is often the best and easiest way for veterans to purchase a home of their own.

What are VA home loan requirements?

A VA loan is a no-brainer for qualified homebuyers and refinancers. The intended candidate is a service member or surviving spouse with a clean financial record. Ask yourself these four questions to determine if you meet the minimum VA home loan requirements:

• Are you a current or ex-military personnel?

• Are you the surviving spouse of a current or ex-military personnel?

• Have you defaulted on a home loan within the last 12 months?

• Have you declared bankruptcy within the last two years?

If you answered "YES" to either of the first two questions and a resounding "NO" to questions three and four, you most likely meet the basic VA home loan requirements.

Other VA home loan requirements have to do with military service time. Specifically, you must have serve for 90 or more days in wartime or 181 or more days in peacetime. In both cases, the stipulation is waived if you are discharged due to a service-related disability. Reserves and National Guard soldiers must serve for at least 6 years to be eligible.

Spouses of deceased service members are eligible for VA loan benefits, provided they have not remarried and that the deceased either:

• Died in service or from a service-related disability.

• Was missing in action or a prisoner of war for at least 90 days.

• Was rated totally disabled and was eligible for disability compensation at the time of death.

Children of deceased veterans are not eligible for VA loan benefits.

The VA loan home advantage

VA loans are fully backed by the government and offer a myriad of advantages for your home purchase or mortgage refinance. Here are the six biggest:

No money down

While conventional loans generally require down payments that can reach up to 20%, no such thing is required with a VA home loan at or under the local conforming limit. Down payments are still an option, of course, but they are not a requirement. The VA allows you to purchase jumbo loans, but requires you to supply 25% of the difference between the loan amount and the loan limit.

No PMI

Private Mortgage Insurance (PMI) is a requirement when you put less than 20% down on the purchase of a home and typically adds 0.2-0.9% of expenses to your monthly mortgage. With a VA loan, you can wave goodbye to PMI!

Competitive interest rates

Since VA loans are guaranteed by the federal government this can provide lenders with a greater sense of safety and flexibility. This can ultimately lead to a more competitive interest rate than you may otherwise receive.

Easier to Qualify

Similarly to the interest rates, the VA loan being backed by the government also lets the banks assume far less of the risk. This can lead to less stringent qualification standards, once the aforementioned qualifications are met.

Fewer credit restrictions

Reduced restrictions mean easier qualification. With a VA loan, you’re allowed a higher debt-to-income ratio and afforded more leniency with your credit score.

Seller assistance

The VA allows sellers to assist with up to 4% of closing costs.

Easy refinance

Borrowers can refinance their homes with a VA streamline or cash-out loan. The streamlined version lowers the mortgage rate of an already existing VA loan, usually for less than the current principal and interest. This means it doesn't require a credit check or appraisal. The cash-out option involves a credit check and appraisal, since the home’s value represents the maximum loan amount and the new loan will be larger than the existing loan.

What Is An FHA Loan?

FHA home loans are mortgages insured by the federal government through the Federal Housing Administration (FHA), a branch of the Department of Housing and Urban Development. FHA home loans reduce the barrier to entry for homebuyers and refinancers by featuring low down payments, flexible credit requirements and more purchase power. If funds are limited, an FHA home loan can help you finance more than 80% of your home value.

What are FHA loan requirements?

In order to ensure that you meet the minimum FHA loan requirements, you need to consider the following factors.

• Are you over the age of 18?

• Do you have a valid Social Security number and lawful residency in the United States?

• Do you have a steady employment history? If not, have you at least worked for the same employer for the past two years?

• Can you afford the minimum down payment of 3.5% or 10% (depending on credit score)?

• Do you have a credit score above 620?

• Have you been out of bankruptcy for at least the past two years?

• Will this home be your primary residence?

You’ll likely need to be able to answer all of these questions with a hearty ‘YES’ in order to meet FHA home loan requirements.

The FHA home loan advantage

FHA home loans are backed by the federal government and offer you a myriad of advantages for your home purchase or mortgage refinance.

Minimum down payment option of 3.5% for qualified buyers

For those with credit scores of 620 and above, the down payment for an FHA loan is 3.5%. (For those with credit scores below 620, a 10% down payment is required.)

Easier to qualify

FHA requirements are, typically, less strict than typical loans. Although a credit score below 620 does not allow you to take advantage of the 3.5% down payment option, conventional lenders require a minimum credit score of 620 or higher.

No maximum income restrictions

Seller assistance with up to 6% of closing costs

FHA home loans allows the seller to pay up to 6% of the closing costs, including any costs of the appraisal, title expenses and a credit report.

203k renovation loans with a minimum 620 FICO score.

If you need extra cash to repair or renovate your home, FHA offers 203(k) loans that offer you loans based not on the current appraised value of the home, but the projected value after these renovations would take place. The extra money you receive from the loan after the purchase of the home can then go towards these renovations. This can be used to cover painting, roofing, plumbing, heating and air-conditioning and full room remodels. This is generally only eligible for those with a credit score of 620, more along the lines of a minimum credit score for a conventional loan.

Loan limits adjusted annually

FHA home loans have a maximum loan amount (or “ceiling”) that is regularly adjusted every year and vary according to the cost of living in a given area. This annual adjustment increases your likelihood of getting an FHA home loan that meets your current needs.

With an FHA loan, you can use borrowed money and other gifts from family members to cover down payments and closing costs. And don’t worry about prepayment penalties! An FHA loan lets you refinance or pay off your home early without having to deal with extra fees or other sticking points. As long as you meet FHA requirements, an FHA home loan may be within your future!

The Benefits of Buying A Home

Tax Savings

The government rewards homeowners by providing excellent tax benefits. The interest paid on your mortgage and other home related expenses can generally be deducted from your income.

Appreciation

Home values have well documented history of going up over time. This increase becomes equity you can benefit from when you refinance or sell your home.

Equity

Renting has often been compared to paying 100% interest, but when you own a home and a mortgage is in place, a portion of your payment goes toward the principal balance on your loan. This builds your equity and acts as a savings account.

Roots

People who own rather than rent stay in their homes four times longer. This provides an opportunity to get to know your neighbors and connect with your local community.

Happiness

The feeling of owing your home is unmatched. You can fix it up, make it your own, get a dog or plant a tree if you want. Doesn’t that sound exciting?!

Education

Research shows children of homeowners earn higher test scores and graduate at a higher percentage than renters.

7 Ways To Save Money When Buying A Home In Colorado

When you’re looking for  homes for sale, in Colorado you probably have a budget in mind. You know what you can reasonably afford and how much of a mortgage you qualify for. But what if you could save money on your next home purchase and help your budget go a little bit further? You can with Fixed Rate Real Estate along with getting 50% Cash Back at closing, here are a few easy ways to save money and get the best house possible without breaking the bank.

Tips to Save Up for a New Home

Buying a home is the American dream. Follow these tips to save up and make your dream a reality. 

1. Save Up Ahead of Time

It should come as no surprise that you’ll need to make a down payment before you can get into the house of your dreams. But the more cash you have up-front, the less money you’ll end up borrowing from your mortgage lender. Remember, every mortgage has an interest rate that’s based on your credit score, your debt-to-income ratio, and your overall credit history. The higher that interest rate is, the more money you’ll pay to the lender. If you borrow less because your down payment is larger, you’ll save thousands on interest over the life of your loan.

1. Hire a Professional Realtor

Unfortunately, some home buyers believe they can save a lot of money by trying to buy a house on their own. While it seems true in theory, it often adds thousands to the overall cost in reality. The best way to save money when choosing  homes for sale in Colorado is to hire an experienced Realtor. They understand the buying process and can help you avoid costly mistakes that could blow your budget after you close on the property.

1. Get the Property Inspected

Inspections are part and parcel of the home buying process. Without them, you have no way of knowing what’s going on inside a house. If that property has a bunch of hidden damage, you’ll have to pay to fix the issues yourself. The easiest way to save money on a home is to find out what’s wrong with the property before you close on it. If you find any issues, you can negotiate with the seller before you finalize the deal.

1. Negotiate with the Seller

Speaking of negotiating, you need to plan on doing it throughout the buying process. Negotiate the asking price, repairs, closing costs, and anything else that pops up. Remember, the asking price is rarely ever a firm amount. The seller wants to get out of their house and will often take a lower price, but you have to ask for it.

 When you’re negotiating with the seller, the main focus is making reasonable offers and requests while under contract.. The more reasonable you are about it, the more likely they are to accept your counteroffers.

1. Shop Around for Homeowners Insurance

You probably already have an insurance provider that you’ve worked with for years. That makes it tempting to buy your homeowners insurance policy from them right off the bat, especially if you’ve had a policy on your previous house. But this can cost you every month.

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