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MORTGAGE MARKET

Multiple Offers on a House? Here’s How to Choose the Best One

Buying a new home often involves selling your current one. And in this market, that likely means you’ll receive multiple offers from potential buyers. So, if you receive multiple offers on a house, shouldn’t you just choose the highest one? Not necessarily. Mortgages can never take the easy way, can they? That’s where we come in. Let’s dive into all the key factors to consider when choosing the best offer on a house.

7 factors to consider when you receive multiple offers on a house.

  • How many contingency clauses are there?
  • How is the buyer planning to pay for it?
  • If the buyer is paying via mortgage, what type?
  • Is the buyer pre-approved?
  • Can the buyer cover the difference if the appraisal comes back low?
  • Can the buyer accommodate your move-out schedule?
  • How much earnest money did the buyer put down?

How many contingency clauses are there?

Contingency clauses are conditions that let buyers back out of the deal if they aren’t met. Since these conditions are intended to lower the buyer’s risk, as a seller you’ll generally want to favor offers with fewer contingencies. Some common contingency clauses to look for include:

  • Buyer has to sell their current home before buying yours
  • Buyer can walk away if the appraisal comes back lower than expected
  • Buyer can request necessary home repairs to be taken care of before purchasing

How is the buyer planning to pay for it?

If your buyer is offering to pay in cash, this could be an incentive for you to favor that offer over one that hinges on a mortgage. Cash offers save you (and the buyer) a lot of time and paperwork. On the other hand, cash offers typically won’t be the highest you receive. If security is a priority for you though, it might still be the best fit. Keep in mind that you may not receive any cash offers, as the average buyer simply doesn’t have that much money readily available.

If the buyer is paying via mortgage, what type?

While cash is great, most offers on your home will likely entail a mortgage. The heavy lifting for their home loan falls largely on the buyer, but some loan types may be easier for you to deal with than others. For example, government-backed mortgages like FHA and USDA loans could potentially take longer to process than Conventional loans. Not ideal if you’re in a hurry to move out.

Pro-Tip: Learn more about the different types of mortgages your buyers may have here.

Is the buyer pre-approved?

In a competitive market, a pre-approval letter from your buyer is more of a need than a want. Pre-approval essentially lets you know that if you accept their offer, the buyer has financing lined up. But if everyone is pre-approved, how does it help you make your decision? This is where your own research comes in. In addition to how much the buyer is pre-approved for, you should also look into who they’re pre-approved with. Not all mortgage lenders are created equal (we would know).

Can the buyer cover the difference if the appraisal comes back low?

Gap happens. If the appraisal (an objective estimate of the home’s value in the current market) comes back lower than the offer you’re considering, that difference typically won’t be covered by the buyer’s mortgage. In other words, before you accept an offer with an appraisal gap, make sure the buyer can make up the difference.

Pro-Tip: If you find yourself on the other side of an appraisal gap, try these strategies to close it.

Can the buyer accommodate your move-out schedule?

Whether you’re looking to move out ASAP or you need more time before handing over the keys, an offer that works with your schedule will make the process that much easier. Just remember that, like most decisions in life, the date you and your buyer both agree on will probably entail some compromise. After all, your schedule isn’t the only one in flux.

How much earnest money did the buyer put down?

A buyer’s earnest money deposit is typically 1-3% of the purchase price. In a competitive market, you might receive offers with higher deposits to sweeten the deal. The purpose of earnest money is to give you, the seller, confidence in the buyer’s ability to meet the conditions of the purchase agreement. This generally means that more earnest money is better, as you get to walk away with that amount even if the deal doesn’t go through.

Any other tips for handling multiple offers on a house?

This isn’t an exhaustive list of factors to consider when selling your home, but it should help you narrow down your priorities to choose the offer that best meets your needs. In some cases, you may also want to ask:

  • Is the buyer willing to pay for/handle repair requests?
  • Is the buyer willing to pay your closing costs?
  • Why is the buyer interested in your house? If your home has a lot of sentimental value, it may be important to know it’s being passed on to someone who will care for it as much as you do. Just be prepared for most honest answers to be “I need a place to live” and “it’s in my budget.”

In the midst of answering all these questions, don’t forget to pause, breathe, and remind yourself that out of multiple offers on a house, the best is ultimately the one you feel most comfortable with. You’ve got this!

Choosing the best offer on your house might be more complicated than you think. We’re here to uncomplicate it.

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MORTGAGE MARKET

Pre-Qualification vs. Pre-Approval: Which is Better?

You know those eye-catching envelopes you find stuffed in your mailbox? The ones that claim you’ve been “pre-qualified” or “pre-approved” for a new credit card or car loan? If you’ve been shopping for home loans, you’ve likely noticed those same terms floating around.

As if buying a home wasn’t daunting enough without needing a dictionary to define the differences between the two, some mortgage professionals use the terms interchangeably. We’re here to help eliminate as much confusion as possible. So, let’s break down pre-qualification vs. pre-approval so you can bid on that dream home with confidence.

The basics of pre-qualification vs. pre-approval.

Think of pre-qualification vs. pre-approval as circles in a Venn diagram. The two terms are closely related, but represent separate steps in the home buying process.

According to the Consumer Financial Protection Bureau (CFPB), both options are statements from a lender estimating how much you might be able to borrow.

Fast Facts:

  • Pre-qualification: When you submit basic information to get a rough budget for your home purchase.
  • Pre-approval: When a lender completes a full review of your information (credit score, income, assets, etc.) and extends a preliminary loan offer. In a competitive housing market, a pre-approval can really give you an edge over other buyers.

Prepping for Pre-Qualification

Pre-qualification is a solid first step in your home buying process. It’s ideal for establishing a general budget and price range for homes, and typically requires answers to questions about income, employment, and debts.

Pre-Qualification Pro-Tip: Your pre-qualification isn’t an official loan offer and is only as accurate as the information you provide. Artificially inflating your income won’t help much when it’s time to apply for your loan. Estimate your mortgage amount and monthly payments with our free mortgage calculator.

Pursuing Pre-Approvals

Think of pre-qualification as a surface-level look at your information. Pre-approval, on the other hand, requires actual documentation and a deeper review by an underwriter before generating a conditional* offer that’s (usually) good for 60 days.

For a pre-approval, your lender reviews your W-2s, pay stubs, tax returns, and more to estimate a loan amount. Pre-approval is ideal if you’ve started your home search, partnered with a real estate agent, and are actively searching for a loan.

*The lender will confirm your financial documents, loan terms, and other conditions before the final approval.

Pre-Approval Pro-Tip: You may be pre-approved to borrow more money than you need or more than you’re comfortable spending on a home. Be mindful of your budget and don’t feel pressured to take the full amount. We recommend limiting your search to homes within a comfortable price range—something only you can decide.

Which One Is Right for You?

Now that you know the key differences between pre-qualification and pre-approval, it’s time to start thinking about which option best suits your needs. Ask yourself: How far along are you in the journey of homeownership? Are you just looking around, or are you ready to talk numbers? Our handy table below can point you in the right direction.

 Pre-qualificationPre-approval
Where are you in the process?Searching around to find out how much you might be able to borrow.You’ve found your dream 
house and you’re ready to 
make an offer.
What are you willing to provide?Basic details 
(i.e. income and employment)
Proof of income, assets and other financial details.

How to handle a pre-qual curveball

While you may receive pre-qualification from a lender, that doesn’t mean you’re approved to borrow that loan amount. Pre-qualifications are a general estimate of your home loan eligibility. Pre-approvals dig a lot deeper, but neither are final home loan approvals.

In some cases, lenders may provide pre-qualifications and pre-approvals for less than what you expected. Alternatively, lenders may not extend either of those options at all. If that happens, don’t panic. These decisions aren’t made lightly, but there are steps you can take to prepare for next time.

  • Contact the lender to find out why you weren’t approved for a certain loan amount or why you were denied an offer outright. Was your credit score too low? Have certain accounts gone delinquent? Is your debt-to-income ratio too high? Knowledge is power, and the right lending partner will help you identify areas of improvement.
  • Ask the lender for a copy of the credit score they used or take the time to request your own report. If your pre-approval was denied, lenders are required to provide a notice containing the credit score they used to make the decision and instructions on how to obtain a free copy of your credit report.

So, ready to get pre-approved for your mortgage?

That wraps up today’s lesson! Now that you know the ins-and-outs of pre-qualification vs. pre-approval, it’s time to make the next move. Are you ready to start looking at homes? Do you already have one in mind? No matter where you are in the process, our team can help.

Now that you know the key differences between pre-qualifications and pre-approvals, it’s time to start thinking about which option best suits your needs.

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MORTGAGE MARKET

How Do I Get a First-Time Home Buyer Grant?

Saving up for a down payment or closing costs can be a struggle, especially if you’re a first-time home buyer. But, if you know where to look, there are plenty of grants and programs available to help bridge the gap. For many first-time home buyers, saving up to cover all the purchase payments can be a headache. Between the down payment, closing costs, taxes, and insurance, it can feel a little overwhelming.

But, if you do a little digging (and read the right blogs), you can discover plenty of state and federal grants or programs that can help offset the expenses. Here’s a quick overview of what you need to know about first-time home buyer grants, a few of the most popular options, and how you can qualify.

First off, am I a first-time home buyer?

If you’re buying a house for the first time, yes. That’s obvious. But according to the U.S. Department of Housing and Urban Development (HUD), you’re also considered a first-time home buyer if:

  • You haven’t owned a home in the past three years.
  • You never owned a home, even if your spouse was a homeowner.
  • You’re a single parent who owned a home with their ex-spouse.
  • The only home you’ve owned didn’t have a permanent foundation, like a mobile home.

What is a first-time home buyer grant?

Simply put, first-time home buyer grants help make homeownership more affordable for the everyday borrower, because every dollar counts. Closing costs alone, like title insurance, attorney’s fees, appraisals, and more, can run between 2-5% of a home’s value.

Grants help make it easier for new home buyers to absorb that cost, and first-time home buyer programs make it easier for borrowers to secure lower interest rates.

If you haven’t owned a home in the past three years, you can also qualify as a first-time homebuyer. Take advantage of generous grants and programs if you can!

Where can I find first-time home buyer grants?

Think local. Most states, and many counties and cities, offer grants to first-time home buyers.

Ask your real estate agent or lender if they have connections with local programs, or reach out to the local housing authority where you want to buy a home. Work in the public sector? Some nonprofits and employers have grant programs that focus on helping “local heroes,” like law enforcement officers, teachers, or emergency medical personnel.

You can also check out this HUD database of down payment assistance programs run by non-profit organizations across the nation.

How do I qualify for first-time home buyer grants?

Every state has different first-time home buyer grants, so the qualifications will vary by where you live. To qualify for any first-time home buyer grants, you’ll need to qualify for a mortgage first. Get pre-approved with your lender before you start filling out grant applications.

Some grants may have income limits. Many programs are geared toward low- and moderate-income residents. You might also need to complete a home buyer education course, either at a physical location or online.

What does first-time home buyer assistance look like?

Typically, homebuyer assistance comes in two forms: Grants and low-interest loans.

  • First-time home buyer grants: This is money awarded to you that you can put towards your down payment and/or closing costs. The money doesn’t have to be repaid, as long as you follow the rules of that grant program.
  • First-time home buyer loans: This is money towards your down payment and/or closing costs that you either have to repay at a lower interest rate, or you don’t have to repay until you sell the home or refinance. The best part? Some of these loans get forgiven if you live in the home for a certain amount of time.

What about government funding?

Great question. Chances are, you can qualify for government-sponsored financial assistance, even if your credit has had a few bumps in the road or your income is tight. You might even be able to buy a home with no down payment at all.

While the following programs aren’t only for first-time buyers, these government-backed loan options are often popular choices too:

  • FHA loans: A Federal Housing Administration (FHA) loan can help you buy a home for as little as 3.5% down on fixed-rate loans. Bonus: You may qualify for down payment assistance programs with a Cardinal Financial-approved program.
  • USDA loans: United States Department of Agriculture (USDA) loans are perfect for anyone looking to buy a home in a rural area. You don’t have to pay a down payment, although you’ll need to pay some closing costs.
  • VA loans: United States Department of Veterans Affairs (VA) loans can help veterans, active-duty service members, and eligible surviving spouses buy a home for 0% down, and you won’t have to pay mortgage insurance.

If you’ve got great credit and a reliable paycheck, but only a little saved up for a down payment, a Conventional loan might be for you. You only need a minimum of 3% for a down payment.

Are there other home buyer programs that offer financial assistance?

Absolutely! Here are a couple popular programs that can offer significant savings.

  • The Good Neighbor Next Door program, sponsored by HUD, covers 50% of a home’s list price.
    A good fit for: Public servants like law enforcement officers, firefighters, emergency medical technicians, and pre-K-12th grade teachers.
    What you should know: You must choose from select HUD-owned properties, and commit to live in the home for at least three years.
  • The National Homebuyers Fund (NHF) provides down payment or closing cost assistance, up to 5% of the total loan amount.
    A good fit for: Just about anyone who can qualify for a home loan. As long as you use a participating lender, you can use it with FHA, VA, USDA or Fannie Mae loans.
    What you should know: NHF down payment assistance is provided either as a gift or a 0%-interest rate second mortgage, and can be used to buy or refinance a primary residence. The loan is forgiven if you live in the home for at least three years.

Do all lenders work with grant programs?

Good question: Not all lenders participate in all grant programs, so it’s crucial to find a lender that will work with you. If you find a grant you’re interested in, visit the program’s website to get a list of approved lenders.

So, what next?

Worried you might not qualify for these grants or programs? So many would-be home buyers can, and there’s no harm in asking. Expand your buying power and start on your path to home equity by reaching out to a knowledgeable Cardinal Financial loan originator. They’ll go over your situation and help point you in the right direction.

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MORTGAGE MARKET

7 Mortgage Facts Every Baby Boomer Should Know

Attention: Baby Boomers. Here are seven mortgage facts you may not have been aware of.

If you’re a Baby Boomer (born between 1946 and 1964), chances are you’ve gone through the home buying process at least once before. You’ve probably helped friends or family members purchase their own homes. You may even consider yourself a mortgage industry veteran or an expert. But in a field as deep and detailed as this one, there’s always something new to learn. Here are seven mortgage facts that every Baby Boomer should know.

You may even consider yourself a mortgage industry veteran or an expert. But in a field as deep and detailed as this one, there’s always something new to learn.

1. You don’t need to pay 20% down

While a 20% down payment is standard practice and a general rule of thumb for many home buyers, it’s not required! With most Conventional loans you can pay as little as 3% down, though if you pay less than 20% you’ll have to buy private mortgage insurance. It doesn’t sound great, but in some cases, paying less than 20% can make more sense. Say you’ve found the perfect house. If you have sufficient income to pay your monthly mortgage payments but don’t have 20% saved up for a down payment, your best bet may be to put down what you have right then and there to secure the home of your dreams.

2. It’s harder for self-employed borrowers to get mortgages

If you’re your own boss, you’ll probably have to jump through a few more hoops when you’re applying for a mortgage. The extra steps shouldn’t be too much of a problem if you go about them the right way, but it’s often easier for someone with a standard, salaried job to secure a loan. If you’re self-employed, you’ll need to supply several years’ worth of tax returns to prove your income is consistent and sustainable into the future. For a more in-depth look at the self-employed mortgage process, check out the blog post linked below!

Is Getting a Mortgage Out of Reach for the Self-Employed?

3. Some kinds of mortgages may fit your situation better than others

There are plenty of ways you can customize a mortgage loan, and you’d be wise to take advantage of them. When you’re shopping for a loan, you’ll want to weigh the pros and cons of fixed-rate and adjustable-rate mortgages as they relate to your financial situation. A fixed-rate loan can be great when interest rates are low and you’re planning on staying in the home for a long time, but an ARM can make more sense if rates are likely to drop and you’re planning on moving in a few years. You should do the same thing with the length of the loan term. A shorter term will give you higher monthly payments and lower interest, but a longer term will do the opposite. It’s all about what works best for you!

Exploring the Different Types of Mortgages

4. Paying $100 more per month can shave five years off your loan

It’s common sense to think that making extra mortgage payments can increase your equity and reduce your debt more quickly, but it’s easy to sleep on just how powerful it can be. Paying just $100 extra than your minimum payment can knock five years off your loan and save you more than $30,000 in interest payments! An extra $200 a month takes eight and a half years off your mortgage and saves you more than $50,000 in total interest. Sounds like it may be in your best interest to try and pay a little extra where you can.

5. A good credit score can save you thousands of dollars

While we’re on the topic of saving money, do you know just how much power a credit score has over your interest rate? A low credit score can keep you from getting offered some great interest rates, which could save you tens of thousands of dollars in the long run. The difference in total interest paid between a 760 credit score and a 620 score on a 30-year fixed mortgage is upward of $80,000! It’s probably a good idea to get that credit score up as high as you can before you apply for a mortgage.

6. Income over assets

When it comes to getting a mortgage, income is king. You could have a million dollars sitting in the bank, but if your income is deemed insufficient, you could still have trouble getting pre-approved for a mortgage. Lenders care more about your income than your assets because they want to be sure that you’ll be able to make your monthly payments. They’ll look at your debt-to-income ratio and compare everything you owe with what you’re bringing in. And they don’t want to see the former overshadow the latter.

When it comes to getting a mortgage, income is king.

7. It’s best to enter retirement mortgage-free

If you’re thinking about retiring soon, it’s a good idea to try and pay as much of your mortgage, if not all of it, off before you stop working. During retirement, you’ll probably be living off less income than you were while you were working, so those mortgage payments might hit a little harder. Having your home paid off can help you feel more at ease as you journey into the next chapter of your life with mainly property taxes, home insurance, and maintenance to worry about. It may even be worth it to work a part-time job just to be done with your mortgage for good!

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MORTGAGE MARKET

Top 12 Confusing Mortgage Terms, Explained

When you start your home loan search, there are a lot of mortgage terms to sort through. Get some clarity the easy way with our roundup of 12 confusing mortgage terms, explained. After all, knowledge is (borrowing) power.

12 Confusing Mortgage Terms Explained

  • Adjustable-Rate Mortgage
  • Amortization
  • Annual Percentage Rate
  • Buydown
  • Default
  • Discount Points
  • Due Diligence
  • Easement
  • Eminent Domain
  • Escrow
  • Lien
  • Loan Estimate

1. Adjustable-Rate Mortgage

Sometimes abbreviated ARM, this type of home loan offers the mortgage interest rates that could go up or down. You’ll probably pay less in the short term and maybe more over time compared to a fixed-rate mortgage.

2. Amortization

Amortization is a fancy name for paying off your mortgage in planned, incremental payments. It’s often displayed in a table, called an amortization schedule. The amortization schedule shows your estimated monthly payment, interest, principal, remaining balance, and more.

Amortization is a great way to estimate how much you’ll pay over the course of your loan and helps you clearly see how much you’re paying at any given time. Try our amortization calculator to see amortization in action.

3. Annual Percentage Rate

Annual percentage rate (APR) is the yearly cost of borrowing money (usually a higher percentage than the interest rate). It includes additional costs and fees but not compound interest. APR gives you a bigger picture of what it costs to finance your loan by accounting for the interest rate and finance charges.

4. Buydown

A buydown is a way to lower the interest rate on your mortgage by paying more upfront in exchange for a lower interest rate. This means you could pay less for your mortgage over the life of your loan. For example, let’s say you’re eligible for an interest rate of 4.25%. You could pay a certain amount upfront to reduce that rate and save money in the long run. Just keep in mind there’s no guarantee you can buy down your interest rate.

5. Default

To default on your mortgage means to breach any aspect of the note, mortgage, or deed of trust. Some common reasons for defaulting include failing to pay your mortgage, not paying taxes or HOA dues, and needing more insurance.

Avoid defaulting at all costs as this can have serious financial consequences, especially for your credit. If you do default, work with your lender to see if there’s a way to create a new loan with better terms that you’re able to commit to. Talk to your financial advisor or legal counsel if you find yourself facing potential mortgage default.

6. Discount Points

Discount points are fees you pay your lender at closing if you buy down the interest rate. One discount point costs 1% of your loan amount. So, if your mortgage is $175,000, one discount point would cost $1,750. It can be expensive to buy down your interest rate but, if it means a lower payment over the course of your loan, it might be worth it.

7. Due Diligence

Due diligence is dotting all your Is and crossing all your Ts before you buy a house. It might seem like common sense, but the market moves fast and sometimes you may be tempted to rush into a purchase before someone else gets there first.

Due diligence could mean researching the neighborhood and school districts, looking up crime stats, and finding out the history of the home’s immediate area. It might also include asking the current homeowners what it’s been like living there. Taking the time and making the effort to air out as many concerns as possible beforehand will ensure you know what you’re agreeing to purchase.

8. Easement

Easement is legal permission to access property that’s owned by someone else (usually with certain restrictions). For example, say you share an alley with your neighbors. The alley doesn’t belong to any of you, but its landowner gives you and your neighbors permission to access it under certain restrictions, like prohibiting you to park there. If there’s an easement associated with your property, you may have to sign it with your closing documents to show you agree to the terms set by the property owners.

9. Eminent Domain

Eminent domain is the government’s right to take private property within its jurisdiction and repurpose it for public use. When eminent domain is exercised, the government seizing the property is required to pay fair market value for it.

Say you live near a busy highway that the state government needs to widen. Because the state deems the road necessary, they have the right to take your property and pay you the fair market value for it. Unfortunately, you can’t say no to this, but you can argue whether the price the government pays is true fair market value.

10. Escrow

Escrow is an account created by your mortgage lender that allows them to collect estimated taxes and insurance and pay those fees on your behalf. That means you don’t need to pay tax and insurance separately. It’ll all be included in the mortgage payment. You might even get an escrow refund check at the end of the year.

11. Lien

A lien (nope, that’s not a typo of alien) gives your lender the legal right to secure your home loan payment. In a nutshell, it says you promise to pay back the money you borrowed and if you break that promise, your lender can take you to court or take possession of your house.

12. Loan Estimate

A loan estimate is a breakdown of the amount of money you have to bring to the closing table. You may see numbers like principal, interest, taxes, and insurance, fees associated with your loan, and more. It’s important to review this document carefully and ask your lender and/or real estate agent about anything you’re not sure of. When you sign a loan estimate, you’re agreeing to the numbers you see. So, make sure you don’t pay for something you didn’t sign up for.

Are there any other mortgage terms I should know?

Anytime you want to brush up on your home loan vocab, our glossary’s got you covered. But the truth is, you shouldn’t need to be an expert on mortgage terms to get the financing you deserve. A good lender will explain everything in as simple, straightforward terms as possible. Lucky for you, we know just where you can connect with a lender like that.

Understanding the terms you’ll see on your home loan documents is key to getting more out of your mortgage.