Posted in Home Buying

What is a Mortgage Pre-Approval? Get an Edge When Home Shopping

If you want to stand out from the sea of other home buyers in a competitive housing market, one surefire way to do that is to get pre-approved for a mortgage. That means a lender has guaranteed to give you a loan before you’ve even made an offer—or even before you’ve seen a home you like! Granted, this may seem like a whole lot of prep work, but here’s why mortgage pre-approval matters, and how it can give you an edge whenshopping for a home.

What is a mortgage pre-approval?

Mortgage pre-approval is a commitment from a lender to provide you with home financing up to a certain loan amount—basically the stamp of approval that you have the money, credit history, and other credentials to buy a home up to that price.

“Lenders will do a full review of income, assets, and credit in order to issue a pre-approval,” says Sarah Valentini, president and co-founder of Radius Financial Group.

How to get pre-approved: The paperwork you need

Be prepared to offer up a pile of paperwork to earn your pre-approval. In general, the paperwork you’ll need to assemble for your lender includes the following:

  • Pay stubs from the past 30 days showing your year-to-date income
  • Two years of federal tax returns
  • Two years of W2 forms from your employer
  • 60 days or a quarterly statement of all of your asset accounts, which include your checking and savings, as well as any investment accounts such as CDs, IRAs, and other stocks or bonds
  • Any other current real estate holdings
  • Residential history for the past two years, including landlord contact information if you rented

Pre-approval vs. pre-qualification: What’s the difference?

Mortgage pre-qualification should not be confused with pre-approval. Pre-qualification is based solely on verbal information you tell a lender about your income and savings, says Valentini. So, it shows how much you could theoretically borrow, but it’s no guarantee—which means these buyers will have to get officially approved for a loan later on and cross their fingers it works out.

Pre-approval, on the other hand, means the lender has already done its due diligence and is willing to loan you the money. Plus, you’ve got an official letter from your lender saying so that will speak volumes to a seller.

How pre-approval helps you buy a home

When sellers accept an offer, they want the deal to go through. However, if the buyer isn’t pre-approved for a loan, this can put the whole deal in jeopardy—because if the loan doesn’t get approved, the buyer will likely be unable to follow through, says Chantay Bridges with TruLine Realty in Los Angeles.

A pre-approval provides that extra measure of security to a seller that you are both willing and able to buy the house. As a result, sellers will likely pick you as a buyer over someone without pre-approval since you’re a sure thing, and they won’t have to hold their breath that the deal might not go through.

Bottom line: While pre-approval is a pain, you’ll have to pony up all that paperwork sooner or later anyway. Why not do it on the early side and get a head start on the competition and shop for your dream home with confidence?


Posted in Uncategorized

Leap Day Should Be a Financial Day Planning

FEB 29There’s a holiday for virtually everything these days, but Leap Day — the February 29 that shows up on the calendar once every four years — should be a national holiday of long-term financial chores.

It’s not as much fun as International Talk Like a Pirate Day (Sept. 19) or National Donut Day (June 3), but Leap Day is perfect for financial planning because most investors are taking a leap of faith when it comes to everything being all right with their financial life, and because most of these chores don’t need to be done more than once every four years.

Revisiting your financial documents and accounts with a special eye on updating information that has changed or become outdated may not help you immediately — which is why people let it drag for years or decades — but it pays off in avoiding headaches and much worse later.

1. Review and update insurance policies: Make sure beneficiary information is current, review and update appropriate coverage, and more.

For example, if your car was old the last time you checked coverage and now is four years older, it may no longer be worth paying for collision coverage, since the premium is high but the benefit has shrunk. If your teenaged kids have matured into college graduate students and are still on your policy, make sure their status has been upgraded so that you aren’t stuck paying new-driver rates.

Schedule an insurance review if you work with an agent, just to know the ins and outs of all of your coverages, because they change over time and most people don’t review the fine print.

2. Review and update your estate plan: Time passes, life moves on, laws are altered, circumstances change. Look at your will and estate plan to make sure it is current on the laws and your family situations; make sure your choice for an executor is up-to-date and appropriate.

Contact your attorney/estate planner to ask what would be different if they were doing the work for you today from when they set things up originally. If the state-of-the-art in planning represents a big improvement, upgrade your plan.

3. Check beneficiary information on retirement plans and workplace insurance coverage: Most people fill out the papers when they start a job and never change it. If you’ve been married, divorced, re-married or had other life changes, your beneficiaries may be out of date, especially your secondary or contingent beneficiaries. In a worst-case scenario, that means your benefits go directly to the wrong people, no matter what it says in your will.

4. Update your financial and health-care declarations: Talking to a lot of folks who have been through divorce — and having been through one myself in 2015 — it’s clear that most people forget to update durable powers of attorney, health-care proxies and more.

You don’t need a divorce for this to be a problem; many people make their parents the emergency decision-makers, which is fine in your 20s but not good in your 50s when your parents are much older and there’s a spouse and/or children in the picture.

5. Reconsider your asset allocation: Unless all of your money is in target-date funds or issues that change allocations as an investor ages, an asset-allocation plan is not “set it and forget it.”

“You’re four years closer to reaching retirement age, and a top-down review of your investment strategy is in order,” explained Barry Zischang of RBC Wealth Management. “This would start with an analysis of your asset allocation. Has market volatility, up or down, caused your allocation to drift from where we originally set it? As a result, are we now taking too much risk, or not enough? Is it now time to rethink the allocation all together, perhaps beginning to focus more on income and safety, and less on growth?”

6. Evaluate your financial adviser: Most people consider their portfolio and how they are doing when they have an annual review with their financial planner or money manager, but don’t really consider the relationship with the adviser itself.

This is not about portfolio performance, but rather about getting what you want. If the adviser hasn’t provided the level of assistance you think is necessary or warranted — and it’s their fault because you have given them sufficient information — it’s time for a sit-down. Explain what you are looking for, and take steps to improve the relationship.

Include a review of your tax expert in your Leap Day chores too. Ask about any different approaches you might take to help reduce or delay your tax burden.

Some people stay in bad advisory relationships for years. This kind of review will help make sure you are not one of them.

These six basic chores — some of which take several steps plus a meeting with a professional — may seem a bit steep to complete on Leap Day itself, but don’t let that stop you. Treat Leap Day as a starting point — with the intent of finishing in time for another once-every-four-years occurrence, the presidential election in November.