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Asheville Real Estate: 10 Steps to Buying Your Home...

Step 2 - Preapproval vs. Prequalification

Now that you have your list of features you want in your new home, you are ready to start looking! Well, not just yet. You are going to need to know in what price range to look. There are two ways to go about this. You can get prequalified or preapproved for a mortgage. Either way you will need to contact a mortgage company. Go to my Mortgage Information Center to investigate rates and companies in your area.

There are some key differences between prequalification and preapproval for a loan that you need to be aware of. Loan prequalification is a simple process. It takes into account very basic information regarding your financial status and gives you an amount for which you may qualify. This can be done strictly on a verbal level or electronically over the Internet. The prequalified amount is based solely on the information you provide. In most markets, prequalified buyers usually hold little clout compared to preapproved buyers due to the fact that the information given during the prequalification process is not thoroughly investigated and therefore may be unreliable. Where a preapproved buyer is actually approved for a loan of a certain amount, a prequalified buyer is only told that they might be approved for a certain amount.

Preapproval is a much more involved process. The lender will take all pertinent information regarding your finances and perform an extensive check on your current financial status. This will ultimately give you the exact amount that you will be eligible for (depending on what type of loan you decide to go with). Being preapproved lets the seller know that you have gone through an extensive financial background check and there should be no unexpected obstacles to buying the home. You can see how being preapproved would be more attractive to a seller than just being prequalified.

The type of mortgage you apply for will depend on many factors, but the majority of that decision will be based on your ability to pay a monthly installment. If you can only afford a $1000 dollar a month payment, you are not going to go out and buy a $250,000 home, unless you have a large sum of money set aside to make a sizable down payment! Financial planners say that you shouldn't pay more than 28% of your gross income for housing (that includes principal, interest, taxes, and insurance). Depending on your debt to income ratio, that percentage may change.

Once you have determined what you can afford, the next step is to choose a mortgage plan. There are many different mortgages out there, so take some time and explore all of the possible plans for which you qualify. You could save yourself thousands of dollars in the long run!



Things Not to Do Before Purchasing a Home

No Major Purchase of Any Kind
Don't load up on anything that will affect your outstanding debt and credit score," and apply it to any major purchase that would create debt of any kind. This includes furniture, appliances, electronic equipment, jewelry, vacations, expensive weddings…and automobiles, of course.
Don’t Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.

If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.  The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.

Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document.  So leave your money where it is until you talk to a loan officer.  Oh…don’t change banks, either.

How Much Home Can You Afford?

Purchasing a home is an amazing decision and one that should not be made too easily.  It can help you considerably to learn how much of a home you can afford before you go home shopping.  The fact is simple.  Get the best loan that you can but do not get so much of a loan that you struggle to make the payments each month.  When you can find the best loan for your needs, you will be able to make the payments comfortably and you do not have to worry about making ends meet. 

For many people, though, it is hard to imagine what amount they can afford.  Can you afford to purchase a $250,000 home or should you stick with a $150,000 range?  Before calling on your real estate agent, take the time to consider how much of a home you can afford.  A good place to start is with a mortgage calculator that helps you to calculate the monthly payment of the loan you are getting. 

Getting The Information Down 

Before you can use a mortgage calculator to really give you answers, you have to know a few things.  First, know your budget.  Here are some questions to get answers to. 

  1. What are your monthly, reliable incomes?  If you are paid different amounts each month, find the average for your monthly income.
  2. What are you stable monthly bills?  Things like your car payments, your cell phone bills and other bills that you may have.  Total this.
  3. What are the projected costs of things like your utilities for the home that you are considering purchasing? 

This gives you an idea of what your budget should be.  Don't forget to calculate gas and food costs as well.  You should budget for entertainment, credit cards and savings as well.  Once you have this information down, you can begin to look for answers about your ability to pay on a mortgage. 

Using Your Mortgage Calculator

Now that you have a basic idea of how much money you have to pay on a mortgage, you can work with a mortgage calculator to help you to find the best monthly payment for your needs. A mortgage calculator will help you to gauge the approximate cost of the loan that you are looking for on a monthly basis.  Here are a few examples. 

Let's say that the current rate for mortgage loans for your credit range is 7 percent.  You know that you will want to consider a 30 year mortgage loan, one of the most popular choices available today.  Later, you can change these terms to see how they affect your ability to purchase a home as well.  For now, here are some examples for you.  When you use a mortgage calculator, you can enter in this information. 

Interest rate: 7 percent
Term:  30 years
Borrowed amount (Sale price for home):  $250,000
Estimated monthly payment: $1663 per month 

Then, do another calculation such as this to see the difference in purchasing a different valued home: 

Interest rate: 7 percent
Term:  30 years
Borrowed amount (Sale price for home):  $200,000
Estimated monthly payment:  $1330 per month 

You should do this several times with your mortgage calculator to help you to see the difference in the cost of the loans you can obtain.  For many, the goal will be to find the right range for their budget.  You can clearly see just how much of a home you can afford by seeing where your monthly budget puts you and how the loan works out for you. 

Base Your Decisions Carefully:  Play With The Numbers

With the help of a mortgage calculator, you can find out just how much of a home you can afford.  Can you make a payment of only $1100?  If so, then based on the same information listed about in terms and interest rates, you'll want to start looking for a home in the range of $160,000 to $170,000.  You may also want to consider changing other factors in your home loan estimates.  Here are a few other things to take into consideration.  Use a mortgage calculator to help you get more answers. 

Use the mortgage calculator to help you to calculate the cost of a loan per month when it is a 20 year term or a 40 year term in comparison to the 30 years.  This will show you the difference per month and help you to determine the right cost of a home if you lengthened or shortened the term.  (Remember that the longer you hold the loan, the more you will pay in interest on the home in total even if the monthly payment is lower.) 

Use the mortgage calculator to look at different interest rates and how that effects your ability to make a payment on the mortgage every month.  For example, just a few percentage points can make a considerable different.  The 7 percent listed may be a bit higher for those that have a lower credit score.  You may qualify for a lower cost too if your credit score is better.  Of course, interest rates change all of the time so this number needs to move to accommodate this difference.

When you use a mortgage calculator to help you, you can see just how much purchasing a home will cost you.  For many people, the benefit here is being able to afford more home than they thought.  For others, this can pay off and keep you from dreaming of a home that is too far out of your reach.  Use a mortgage calculator to help you to find the right affordability in terms of your budget.  Help yourself to be an educated home buyer but using these facts to help you to get the best loan on a home that you can completely afford.  It will make buying a home much simpler for you.

5 smart moves to get the best rate

If you're in the market for a home, there are five smart things you can do right now that will help you qualify for the cheapest possible mortgage. The tantalizing rates lenders put in their ads are for borrowers with the best credit history, substantial down payments and the biggest gap between how much they earn and how much they owe each month. Many homebuyers will have to pay more. The only issue is how much more. You can't undo the damage a bunch of missed payments have done to your credit report, or save another $20,000 overnight. But every tenth-of-a-point is worth fighting for.

Smart move 1.
Pay every bill as soon as you get it.

More than anything else, lenders want to know that you'll make your payments on time, month after month after month. If your credit history shows you've skipped a payment, or just been a few days late with your check to a credit card or utility company, they'll consider you a bigger risk. And bigger risks pay higher rates. But a late check only weeks or even a few months before applying for a mortgage, will be taken particularly seriously.

Smart move 2. Make a larger down payment.
Lenders have learned that the more money you put down on a home, the less likely you are to default. So ask if you're near a cutoff point. If adding a few thousand dollars would lower your rate by a quarter-point or more, consider dipping a little further into your savings.

Smart move 3. Reduce your debt.
 Lenders look at the total amount you owe and your monthly payments. They want to be sure that you can afford to make all of your current payments and the new mortgage payment they are about to pile on top of that. Reducing your debt load will also improve your credit score, especially if your credit card debt is bouncing up against your credit limits. Your goal should be to reduce those balances to less than 35% of your available credit.

Smart move 4.
Don't apply for new credit cards or other consumer loans.
That prompts those potential lenders to check your credit report. When they do, those inquiries are noted on your history and they can lower your credit score by up to 12 points.

Smart move 5.
Shop around.
Get realistic quotes from at least three lenders. It's particularly important that you don't limit yourself to your bank, existing lender, or the mortgage broker in a nearby mall. Here's an extensive database of
mortgage rates is a great place to start looking for the best deals. If a lender won't honor the rates quoted in our comparison charts, we want to hear about it.

Mistakes to Avoid:

A home loan is the biggest debt, and most costly monthly bill, most of us ever have.  That's why the seven biggest mistakes borrowers make when shopping for a mortgage can cost so much money and aggravation. Avoid them and you're a much happier and smarter homebuyer.

Mistake Number One is to not aggressively look for the best deal. Check the interest rates and fees dozens of lenders are offering. Obtain bids from local banks, mortgage lenders or mortgage brokers. Getting the right loan, at the right interest rate with reasonable fees, can save hundreds of dollars a month and tens of thousands of dollars over the life of the mortgage.

Mistake Number Two is applying for a loan without checking your credit history for mistakes that make it more difficult to qualify for a loan, or require a higher mortgage interest rate. To get a free credit report from each of the three major credit reporting bureaus go to www.annualcreditreport.com. Each credit report shows how to correct mistakes or submit an explanation for legitimate black marks that appear on the report.

Mistake Number Three is spending too much and saddling yourself with payments you can't afford. Avoid that by looking at all of your bills and deciding how much you can comfortably spend. Include a realistic estimate for taxes, insurance and condo or association fees. From that, calculate the amount that could be borrowed at prevailing mortgage interest rates. Add the size of the down payment and that should be the limit. Don't let real estate agents repeatedly show you homes outside this price range. Don't work with mortgage brokers who push you to borrow more than you can afford. 

Mistake Number Four is not getting preapproved for a loan. This is an important reality check and it's free. A lender will look at your credit history, income, savings and debts, and decide on a loan cap. The entire amount doesn't have to be borrowed. But if you can't get preapproved, or can't get preapproved for as much as you want to borrow, that's a big red flag.

Mistake Number Five is using a dangerous loan to buy a more expensive home than you can afford. Hundreds of thousands of buyers took out interest-only loans or option ARMs because they promised lower monthly payments than other types of mortgages. They were shocked when those payments began going up -- sometimes only a month or two after they'd moved in. Now many of those buyers are facing foreclosure. If you can't afford the payments on a 30-year fixed-rate loan, that's a good sign you're borrowing too much.

Mistake Number Six is agreeing to a prepayment penalty. More than seven out of every 10 subprime mortgages -- those given to borrowers with poor credit -- charge thousands of dollars if the loan is paid off in the first several years. That prevents many borrowers from refinancing or selling their homes when they can't keep up with the ever-rising payments on their adjustable-rate loans. Congress and the Federal Reserve are considering whether prepayment penalties should be banned or restricted in some way. Until then, just tell lenders you don't want a prepayment penalty in your mortgage.

Mistake Number Seven is taking out "piggyback" loans instead of paying for private mortgage insurance. If you put less than 20% down you'll have to buy PMI, which protects your lender against default. To get around that Realtors and mortgage brokers often recommend two loans -- a primary mortgage for 80% of the debt and a home equity loan for the remaining 20%. The home equity loan acts as the down payment and negates the need for PMI. That made sense when home equity loans cost less than 5%. But with interest rates now averaging around 8%, most buyers will save by getting a single loan and buying PMI. Expect the premiums to be about 0.5% of the outstanding principal, but those payments are tax deductible if home is purchased in 2007.

I can save you time and money by being your professional guide through the entire loan process. I will be able to counsel you on the advantages and disadvantages of certain types of loans and help you understand the "real" cost of a mortgage. I will also act as your personal advocate and liaison between you and the lender as you proceed through the approval process and closing by working with your lender on a regular basis.

Remember: Buying and selling a luxury home or finding that special piece of Asheville Real Estate with Kathleen Blanchette, a fully licensed Asheville Real Estate Broker and Realtor, is a comprehensive and thoroughly professional experience in buying and selling Asheville Real Estate throughout the Blueridge and Smokey Mountains, where efficiency, personal regard and concierge services are guaranteed every step of the way.  Keeping the Tradition of Integrity..., and a Reputation for Results! 

Whether its a North Carolina luxury homes on your own Private Mountain Estate in one of our uniquely designed plush Golfing Communities, Exclusive Gated Communities, Active Adult Communities, surrounding Lake Communities, or a great Condominium, Loft or Townhome, all of Greater Asheville and Hendersonville Luxury Homes are within reach with Kathleen Blanchette.  Feel Free to browse the entire website of all available Greater Asheville Real Estate MLS and Western North Carolina MLS, for all Asheville Real Estate Properties, Land Acreage, Horse farms, Investment Properties, Commercial Real Estate, New Home Plans, as well as handy relocation and moving calculators, tips for buying and selling a house, city and school reports, and more.  Just call us when you're ready to move ahead!  

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Disclaimer: All Multiple Listing Service (MLS) data relating to real estate for sale on this web site comes in part from the Broker Reciprocity Program of Western North Carolina Regional MLS, and respectfully includes the Asheville Board of Realtors, the Hendersonville Board of Realtors, the Brevard Board of Realtors among other professional boards which together govern, maintain and update all listed Real Estate in Western North Carolina and the surrounding 13 geographical counties. So governed, the accuracy of all information, regardless of source, including but not limited to square footages and lot sizes, is deemed reliable but is not guaranteed and should be independently verified through personal inspection by and/or with the appropriate professionals. All information presented on this website may change as data is updated on a 24 hour basis.  Users are directed to refresh pages from their own browser to ensure the most accurate information published is made available to them.  For all your Real Estate needs go to:  Asheville Real Estate  For more information and accuracy, contact Kathleen Blanchette directly.

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