Financing a Home – The Benefits of Pre-Approval
by beconrad
For most people, shopping for a home means shopping for a mortgage – a process that can be intimidating even for the financially savvy. When you shop for a home, you can choose to find the property first and then nail down the financing, but there is another, and potentially better, way to approach the financing puzzle.
Pre-approval allows you to qualify for a mortgage and determine exactly how much home you can afford to buy. Getting pre-approved for a mortgage has a number of important advantages, some of which are outlined below.
It Gives You Additional Negotiating Power
Shopping with a pre-approval letter in your hand gives you additional negotiating power, especially with a motivated seller or an owner who has been burned before. Nothing is more frustrating to a seller than accepting an offer only to find the buyer cannot obtain the proper financing. By getting pre-approved, you reassure the seller that you have the financing needed to back up your offer.
It Helps You Set a Realistic Budget
Setting a realistic housing budget is important when buying a home. Buying more home than you can afford is a recipe for disaster, but it can be hard to know what that limit really is.
When you go through the pre-approval process, the bank or mortgage broker will carefully examine all aspects of your finances, from reviewing your past tax returns to verifying your current income. They will then use that information to determine how much you qualify for, and give you a pre-approval letter to help you get started.
It Simplifies the Buying Process
Few things about buying a home are simple, but pre-approval gives you one less thing to worry about. Instead of fretting over the mortgage application process and worrying about whether or not you will qualify, you can focus on choosing the right home.
Getting pre-approved will also make working with the real estate agent a lot easier. If you are pre-approved for a $150,000 mortgage, the real estate agent will not waste his or her time (or yours) showing you a $300,000 home. Focusing on houses in your price range will make shopping easier – and faster.
The process of qualifying for a mortgage can be a difficult and intimidating one, but it doesn’t have to be. Getting pre-approved for a mortgage will make every aspect of the home buying process, from negotiating with the seller to establishing a realistic housing budget, a lot easier.
Shopping for a Home Loan – What Every Buyer Needs to Know
Buying a home is a difficult and sometimes intimidating process, and finding the right loan can be one of the hardest aspects. Shopping for a home loan is quite different from financing a car or other short-term purchase. After all, you will be living with the consequences of the decision you make today for the next 15 to 30 years.
Whether you are in the market for your first home or looking for a larger property for your growing family, there are some things you need to know when shopping for a loan. Here are some practical tips you can use to get the best financing for your new home.
Know Where You Stand
If you do not yet know your credit score, getting it should be your first step. Until you know your credit score, you have no way of knowing where you stand or what kind of rate you may qualify for.
Getting access to your credit report and credit score is easier than ever before. Many credit card issuers now print the score right on their statements, so the information may be closer than you think. If your credit card company does not provide that information, you can get it easily, and inexpensively, by contacting the three major credit reporting bureaus – Equifax, Experian and TransUnion.
Check the Financial Press
Even if you are not a regular reader of the Wall Street Journal or Barron’s, it is a good idea to check a recent issue. The financial press can provide a host of useful information, from the current level of interest rates to future trends.
Knowing the current state of the economy and interest rates can help you find the right financing for your new home. If interest rates are expected to rise shortly, locking in a low rate today could save you a lot of money. If rates are expected to fall or stay the same, you can afford to wait as you ferret out the best deal.
Shop Around
As with any type of financial decision, shopping around is likely to yield the best results when it comes to getting a mortgage. Expanding your search to a wide variety of financial institutions, from independent mortgage brokers and large money-center banks to local credit unions, is essential if you want to get the lowest interest rate and best terms possible.
Shopping around is important, but you can still start with your own bank. If you have a long history with the institution, you may be able to get a great rate based on your past history of financial responsibility. You can then use that mortgage rate as a benchmark, comparing it to other competing offers as you shop around.
Financing a home is not an easy process, but doing your homework and knowing how to prepare can make it simpler. The tips above can help you get the best mortgage for your money and the best deal on the home of your dreams.
The Advantages of Owning a Home: More Than Just a Place to Live
When the day comes to purchase a home, there are bound to be many emotions – excited, nervous, even a bit stressed, but homeownership is an important investment for many different reasons.
Owning your own home is a way to build long-term wealth and financial security. Unlike other investments such as stocks or bonds, owning a home provides the benefits of both a place to live and a tangible asset that can appreciate in value over time. Unlike renting, where your money is not going toward building a future for yourself, homeownership allows you to invest in your future.
As a homeowner, you’ll have a sense of stability and control over how you want to customize and improve your living space. You can decorate your home to your taste without having to worry that the landlord may not approve of the changes (no matter how minor they may be).
When you own, it also provides the opportunity to build equity, which is the difference between the home’s value and the remaining mortgage balance.
As the mortgage loan is paid, not only are you reducing your amount of debt owed, you’ll be building that equity and increasing your ownership stake in the property.
To help you get an overall picture, we’ve broken down the benefits to homeownership below. Along with the more obvious reasons as to why owning a home has its advantages, there may be some that surprise you.
Building Equity:
As homeowners make mortgage payments, they build equity, which is a form of forced savings that can grow over time and provide a source of wealth.
Home equity can be a valuable asset homeowners can tap into if needed.Some of the more common reasons people may choose to use their home equity include home improvements, debt consolidation, education, and even emergency expenses.
Appreciation:
Historically, real estate has appreciated in value over time, providing homeowners with potential financial gains. When your property value is worth more than what you paid for, this can provide potential gains, either through selling for a profit or using the equity built up to obtain a loan or home equity line of credit.
It’s important to keep in mind, appreciation is not a guarantee as the value of real estate can also go down. In addition, appreciation can take time to occur.
Tax Benefits:
Homeowners can benefit from tax deductions for mortgage interest and property taxes, which can lower their taxable income and reduce the overall cost of homeownership. Having these types of deductions, especially during the early years when mortgage payments primarily go towards the interest.
Stability:
Homeownership provides a sense of stability and belonging to a community, as well as control over one’s living environment. Owning your own home allows you to customize it to your taste, both inside and out. Whether it’s repainting, planting a garden, installing a swimming pool, the decisions are up to you..
Owning a home can also give you a sense of security, knowing that you have a long-term place to live, should you choose. It allows you to put down roots in your community, becoming more invested in your neighborhood. From local schools, to small business, your ties to these types of establishments help give you a sense of belonging.
As a homeowner, you have the sense of freedom and independence that comes with having control over your living space and financial stability.
Forced Savings:
Paying a mortgage is a form of forced savings that can help homeowners build wealth over time. Each mortgage payment made goes toward principal and interest, which means that part of each payment goes towards building up equity in the home, which can serve as a form of savings.
In addition, making monthly mortgage payments allows homeowners to budget accordingly, creating good financial habits. This can help build a sense of financial responsibility and accountability.
Inflation Hedge:
Real estate can be considered an inflation hedge as property values tend to increase with inflation. Because real estate is something you can touch and see, when the cost of things go up like food, gas, etc. the value of real estate usually follows. This is because people still need a place to live since there is only so much land and housing available. When more people want to buy a home than there are available, the prices increase thus creating a sellers market.
Potential Rental Income:
One of the benefits to homeownership is the potential to earn income by renting out the property and earning passive income if you decide to move.This can help offset mortgage payments or provide additional income.
Keep in mind, there are several factors to consider when renting, including the rental market in your area, the costs associated with property management and maintenance, and the potential rental income that can be generated.
While renting out a property can provide a source of passive income, it’s important for homeowners to carefully consider the financial and practical aspects of becoming a landlord.
Pride of Ownership:
Owning a home can provide a sense of pride and accomplishment. For many people,owning their own home is a lifelong dream, and achieving that dream brings a feeling of accomplishment.
You’ve invested your time, energy, and resources into acquiring the property, and you can take pride in knowing that you’ve accomplished something significant.
Legacy:
When you own a home, you now have a tangible asset that provides stability and security for your family, both now and for future generations.
One of the most significant advantages to homeownership is the legacy it can provide for children, grandchildren, and beyond. Your home may also become a central location for gatherings with family and friends, and where traditions are passed down through generations..
Becoming a homeowner provides many benefits but there are certain factors to consider before making such a big financial commitment. Like most things, there are pros and cons and it’s important to carefully weigh those to determine if homeownership is right for you.