These days, it sometimes feels impossible to make even small decisions – there's so much information out there! That’s why I’m here: to help you stay informed of the ins and outs of the real estate and mortgage industries, and to keep you on track throughout the occasionally complicated process.
SFR vs. Condo/Townhome
Would you be surprised to hear about a client who bought under their approved sales price limit but then almost didn’t qualify? Though it’s rare, there are certain situations in which this can happen!
When a client gets approved, the first step in the process is to go over their target sales price. Once that price is determined, I give them a preapproval letter with a TBD address. I always tell my clients, “When you’re ready to make an offer, let me know so I can confirm the house works for your loan.” The reason behind this is that preapproval isn’t really for a maximum sales price, but rather for a maximum payment.
However, since certain factors like property taxes, insurance, and HOA dues can impact that payment, it’s important to make sure everything is within budget before making an offer. In this specific case, the client used the generic letter that I gave her, was under contract, and was still under the sales price on the letter.
So, why did this happen? The problem was that the property she wanted to purchase was a townhome, not a single-family home. Townhomes and condos have monthly HOA dues which make the overall payment higher than it would be on a single-family home at the same price.
In the end, we were able to work it out and my client got her home. However, let this be a lesson to you: if you’re looking at all property types, you’ll want to have a target sales price for homes and then a second, lower target sales price for townhomes and condos–so you can account for the HOA dues.
AUS vs. Manual
Did you know you can get a fast pass on your mortgage? Here’s some insight on what’s going on behind the scenes when you apply for a mortgage.
Most loan types are analyzed by a software called Automated Underwriting Systems (AUS). These are complex algorithms that review a borrower’s financial details and calculate the likelihood of them being able to repay the loan.
If the AUS decision is favorable, then the buyer has a more forgiving set of guidelines they need to meet for approval, resulting in a more streamlined and faster process. If the AUS decision isn’t as favorable, that doesn’t necessarily mean the buyer can’t qualify for the loan; it just
means that an underwriter is more involved in evaluating the file’s risk level and the borrower’s ability to qualify.
Since a manual review is a more detailed review, there will be extra documentation and therefore a longer timeline for approval. In the end, an unfavorable AUS decision doesn’t prevent the buyer from continuing the homebuying process, but it can slow it down if a manual underwrite is required.
Hard Credit Pull vs. Soft Credit Pull
Many people looking to become first-time homebuyers are afraid that the process will tank their credit score. While this is sometimes a valid concern, it’s important to note that there are two ways that lenders can check your credit.
The first way for a lender to check your credit score is a hard credit pull. This gives the lender a complete credit report, and at maximum only drops your credit score by five points. This is nothing to be concerned about; a drop this small is unlikely to make or break your loan approval.
A hard credit pull provides a detailed credit history and score and can help identify errors/fraud. It’s also frequently required by lenders, so in the end, you may not have much of a choice in the matter. The only real cause for concern with a hard credit pull is that too many in a short period of time can hurt your credit score and therefore lender approval chances.
The second way a lender can check your credit score is a soft credit pull. This provides the lender with the information needed to give you feedback on your budget, loan type, and next steps, all with no impact on your credit score.
A soft credit pull is simple enough that you can do it yourself! However, it doesn’t provide a detailed credit history, may not be accepted by all lenders, and in some instances does still show up on your credit report.
When you work with a lender who performs a soft credit pull, you can get personalized advice from a pro so you can start planning and preparing even earlier. The earlier you get started means you’ll have a smoother process from start to finish and can even save thousands of dollars.
Don’t let fear or misinformation hold you back from accessing generational wealth! If you have any additional questions about the homebuying process, feel free to reach out to a member of my team!