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Preliminary Loan Approval Signing a real estate purchase contract before procuring loan approval is like, "man biting dog." The loan approval process costs $60 or less for a comprehensive credit report, and takes 30 days or less to complete. Following are a few of the advantages to obtaining loan approval, prior to contracting for a home:

Piece Of Mind - Shopping for a home without knowing the exact cost can be a major distraction. When a buyer is approved in advance, he/she can focus on finding the best home for their family.
Credibility - Sometimes a seller receives more than one purchase offer. The seller is more apt to accept a lower offer with an approved buyer, than a higher offer with uncertainty. Further, a seller is reluctant to take their home off the market when a buyer is not approved.
Increased Negotiating Power - A seller is more likely to negotiate when a buyer is approved and ready to move. Conversely, a seller is less likely to make concessions on an if come buyer.
Less Stress - Research has shown that buying a home is one of the most stressful occurrences in one's life. A majority of this stress comes from the uncertainty of loan approval. The stress increases ten fold when a purchase contract is in place. Once I worked with a borrower who said that the loan approval process was more stressful than giving birth to her first child.

Rules Of Thumb

The following rules usually apply when purchasing a home

Each $1,000 in loan amount will cost $9 per month in principal, interest, taxes, insurance & mortgage insurance. Hence, a $100,000 loan equals a $900 total monthly payment, +/- $30 per month. A $90,000 loan = $810 per month, (100 X 9 = $900) & (90 X 9 = $810).
Taxes, Insurance & Mortgage Insurance usually cost $1.50 to $2.00 in monthly mortgage payment.
The monthly payments per $1,000 in loan amount at different interest rates are: 4.5% = $5.06, 5% = $5.37, 5.5% = $5.68, 6% = $6, 6.5% = $6.32, 7% = 6.65, 7.5% = $6.99, 8% = $7.33, 8.5% = $7.69, 9% = $8.05, 9.5% = 8.41, 10% = %8.77, 10.5% = 9.15%, 11% = $9.52, 11.5% = $9.90, 12% = $10.29, 12.5% = $12.67.& 13% = $11.06.
12 or more months of positive credit should equate to an A loan program.
All unpaid collections, judgments and write offs are required to be paid off prior to closing.
Underwriters often require closing funds to be in a bank account for 90 days prior to closing.
A house payment should equal approximately 30% of one's gross monthly income before subtraction's for taxes.
25% of a mortgage payment is usually saved in reduced income taxes. The after tax effect of a $800 per month house payment is equals to a $600 per month rent payment.
Assuming a home increases 4% per year in value, a $100,000 home will increase $4,000 per year. In 5 years a $100,000 home will be worth $120,000, in 10 years, $140,000, and in 15 years, $160,000.
Historically, single family homes increase in value more quickly than Condominiums.
The old adage, "Location, Location, Location" is an extremely important factor causing a home's value to increase. If the quality of a neighborhood is declining, home values will also decline.
There is a saying, "Buy the least expensive house in the most expensive neighborhood." The reason is, the more expensive homes will pull up the value of a less expensive home.
Buyers who purchase the first homes in a new subdivision usually realize the strongest appreciation in value, because builders often increase sales prices as additional units sell.
A Resale Home often provides more land, more square footage and a better location than New Construction.
New homes usually do not include landscaping or window treatments. The result is more money out of pocket.
A "Listing Agent" has a legal responsibility to a seller. Any information a buyer provides, must be disclosed to the seller. Hence, don't tell a listing agent anything you wouldn't tell a seller directly.
A "Buyer Agent" represents a buyer free of charge. The agent is compensated thru a selling agent's fee. There is no good reason not to use the services of a professional Buyer Agent!
Credit issues are removed from a credit report after 7 years. Bankruptcies usually take 10 years before expiring.
No Income Verification loans require 2 years on the job, or in an industry. Although income is not verified, employment is.

Home Ownership Benefits

Loan decreases and equity increases as mortgage payments are made.
Home values increase with inflation and population.
Income taxes decrease because property taxes and mortgage interest are tax deductible.
Ownership provides comfort, security, and piece of mind.
The landlord can't increase a mortgage payment.

Use as tool for consolidating higher interest rate debt, or pull cash out for other purposes.

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MB 0901972