Interest Rates Rise, Time to Update Your Loan Preapproval

There will be plenty of buyers attending open houses this weekend, despite a predicted lack of new inventory as we head into a holiday week. Some of you may have been recently preapproved for a loan. Others may have completed the process a month or two ago.

The big news this past week is that interest rates have increased significantly. If you’re about to write an offer, I recommend you contact your lender to revisit what your monthly payments will look like in conjunction with the latest interest rates. You may have been quoted 3.5% for a 30-year fixed loan a while back, but now you may be looking at upwards of 5% in today’s market.

And while that news may not make you happy, you may be pleased to know that the rise in interest rates may level the playing field where overbidding on properties is concerned. Yes, there are many cash buyers floating around. But a majority of buyers will be obtaining loans and may be concerned about not taking on more mortgage debt than they can handle.

Bottom line? Check out the details with your lender before you commit to a purchase price on a property.

The Facts Behind Credit Reports & Loans

This time of year often sees prospective home buyers start to lay some groundwork for a home purchase in the following year. And based on many such individuals contacting me about potential house hunts this month, I’m guessing it wouldn’t hurt to put up a few posts about the many aspects behind getting your loan preapproval.

I recently ran a post about the reasons lenders need to pull credit reports when completing loan preapprovals. In keeping with that reality, I thought I’d share some tips from my colleagues at Guarantee Mortgage about how credit report details factor in to your loan preapproval. Because the more buyers understand about the process, the more confident they can be about making decisions along the way.

Each of the credit bureaus report address history, number of credit inquiries in the last 120 days and discrepancies related to social security numbers or name variations. Lenders then review what the bureaus report and compare them to the info you provide in your loan application. So it’s important to know what’s important to a lender, and you won’t get tripped up:

Note your address history. If an address is reported within the last two years that isn’t listed on your loan application, then an underwriter may request a written explanation to connect the address to your living history. Be prepared to provide that documentation if need be.

Be aware of your credit inquiries. When there are credit inquiries reported, lenders ask that a borrower explain the details behind the inquiry, as well as whether any new credit was obtained. If there were new accounts opened, but not listed on the credit report, then the report needs to be updated so the new account is shown. Your credit score could be impacted by this process.

Name variations will need to be clarified. This is common to see for married couples or for those who have moved to the United States from another country. Lenders will typically ask a borrower to sign an “also known as” statement at closing to address this.

Have your credit checked early in the preapproval process. The bottom line is that you should allow a lender to run a credit check as one of the first steps in your loan preapproval process. It’s key to understand what issues may exist, how you can resolve them, and ultimately, how you can avoid a lot of stress in your house hunt.

[Above tips provided courtesy of Guarantee Mortgage.]

Don’t Push Back on Pulling Credit

If you’re interested in figuring out what you can afford in the San Francisco real estate market, the first step is getting fully preapproved for a loan. And part of that process involves a lender pulling your credit so it can verify the type of loan for which you’ll qualify.

My colleagues at Guarantee Mortgage report that some buyers are resistant to having their credit pulled. Indeed, I’ve had clients question why such activity is necessary. The upshot is that pulling credit has more of a purpose than just determining the buyer’s credit score.

Lenders in the current market—especially jumbo lenders—are equally as interested in the “depth” of borrowers, says Guarantee Mortgage. For example, they want to see that a buyer has used credit in the past 24 months, and believe that if the buyer doesn’t have debt, the credit score may be compromised. As a result, the lender may not be getting an accurate read on the borrower’s ability to pay.

Additionally, lenders want to make sure a buyer’s credit line still actually exists. Guarantee also reports a recent situation wherein a borrower who had credit in the past closed it all down. He had no active trade lines over the past 24 months, and his loan options became significantly limited. He had wanted a 30-year fixed, jumbo loan, but was unable to get it. As a result, the buyer had to go with an adjustable rate mortgage with a lender that was willing to overlook his lack of current credit.

I strongly recommend consulting with a lender or mortgage broker when you believe you may be getting serious about buying. They can alert you to these sorts of issues early on, so you can potentially rectify them and take advantage of the best loan and interest rate available.

Get Preapproved for a Loan Before You Start House Hunting

The holiday weekend is behind us, and that means many buyers will be either entering the home buying market, or may already be out there looking for their next home.

If there’s one key piece of advice I can give to all of you, it’s that you should get fully preapproved for a loan before you start seriously searching for a property. Of course, it’s a good idea to get your feet wet and go to some open houses to get a sense for pricing and value. But before you start making appointments to see homes, the very first step should be that phone call to the mortgage broker or lender. Because if you don’t have a clear understanding of the loan amount for which you can qualify, you could end up wasting a lot of time.

And by “preapproved,” I don’t mean a short phone conversation with a lender wherein you tell him or her your salary, estimated credit score and assets. I mean that you will need to assemble and submit all the required documentation (read my recent post here that outlines the details) and have someone at the bank give the package a thumbs up. Without that bonafide approval, you could run into issues that could derail the purchase of the great house on which you just went into contract.

Your lender should also outline what your mortgage payment will be, incorporating property taxes and HOA dues (for a condo). And make sure that if you’re considering a loan that will have an adjustable rate, you’ll potentially be in a position to handle a larger mortgage payment if the interest rate rises when the loan adjusts. These days, it’s all about fixed-rate products.

The market is moving very quickly, with offers due a day or two after the first open house in some cases. If you’re a serious buyer and are ready to write an offer, you’ll have sufficient time to review disclosures and comparative sales. However, there won’t be time to assemble 15 pieces of financial documentation and have them reviewed by a lender. It’s best to get your paperwork in order now so you can write that offer when the time comes.