When property owners put their house on the market, they want to sell at the highest price in the shortest time period with the least inconvenience. Rather than chasing the promise of a few more dollars, many sellers will go for the sure thing. As long as offers are fairly close on price, sellers often choose the best-qualified buyer.
There are basically two levels of loan qualification: pre-qualified and pre-approved. To get pre-qualified, you sit down with your Realtor and do some simple calculations. Getting pre-qualified allows you to figure out what you can afford so you can narrow your search. A Realtor will ask you about your income, how much debt you carry, and whether you have any savings for a down payment. Being pre-qualified is much better than not being pre-qualified, but it’s not as good as being pre-approved.
To become pre-approved for a loan is more involved, but it’s an excellent way to increase the chances of getting the property you want. Becoming pre-approved means working with a loan broker who will review all your assets, liabilities, tax returns, W-2s, credit history, and any other relevant financial information to begin the process of applying for a loan. The main difference between being pre-approved for a loan and applying for one is that when you’re pre-approved, you simply haven’t found the property you want to buy.
The reason it’s so important to work with a loan broker is because good ones like Ginny Richards of Stearns Lending can match you with the right kind of loan based on your income, your debt-to-income ratio, your credit score, whether you have cash for a down payment, and other considerations. Big thanks to Ginny for her help on this article. Here are some common loans to consider.
Conventional – These are the loans most people think of when they think of a home loan. They require a 20-percent down payment and come with a competitive, fixed interest rate and either a 15-year or 30-year term. To get pre-approved, borrowers must prove they have stable, verifiable income, cash for the down payment, and a reasonable credit score (to prove reliability). In Ukiah, the loan limit for a conventional loan is $484,350.
Federal Housing Administration (FHA) – These are often used by first-time homebuyers. They require low down payments and offer competitive, fixed interest rates. They are easier to qualify for than conventional loans, since they require less restrictive credit scores and less savings, but they do require mortgage insurance, which increases the cost of the loan. In Ukiah, the loan limit for an FHA loan is $409,400.
Veterans Administration (VA) – These are loan guarantees available to active service members, military veterans or eligible surviving spouses. The terms are similar to FHA loans, but they do not require any down payment or any mortgage insurance. The borrower works with a lender and the VA guarantees the loan. Like conventional loans, the limit for a VA loan is $484,350.
To get pre-approved, veterans must have a certificate of eligibility or a DD Form 214 (discharge papers) proving their veteran status. The loans also have some other, somewhat quirky restrictions. For example, the seller must pay for a pest and fungus inspection, as well as whatever remediation is required to clear the property of any Section 1 and Section 2 problems. Section 1 includes evidence of pests and/or fungus. Section 2 includes issues that could (and probably will) ultimately lead to damage. Also, the income of a non-married partner is not considered in qualifying for the loan unless the partner is also a veteran.
Next week I’ll review a few more loan types and the requirements to get pre-approved.
If you have questions about getting into real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery. Dick Selzer is a real estate broker who has been in the business for more than 40 years.