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Wondering how much house you can afford?

As a first-time homebuyer, you may be wondering how to save money on your mortgage. The best and smartest way to go is by getting pre-approved for a mortgage before you start looking at homes. If you get approved beforehand, it can save time because when selecting homes for purchase, the potential buyer will only need to see houses within their price range or loan limit. Below is more information about pre-approval and its advantages.

What is the difference between Pre-approval and Pre-qualification?

When you are first getting started with the loan application process, two steps need to be completed. The first step is pre-qualification. Pre-qualification is a rough estimation of how much money a lender is willing to give you based only on the data they have at hand. This includes your income, credit score, and debts or liabilities.

However, this information may not be complete or up to date. You can continue with the second step which is pre-approval. Pre-approval means that your lender has more access to your financial data and is willing to give you a final number on how much money they will lend you for the house purchase. This is based on the information you provide to the lender.

Advantages of Pre-approval

Disadvantages of Pre-approval

Advantages of Pre-qualification

Disadvantages of Pre-qualification

When to Request for Pre-approval?

If you were already pre-qualified with a lender and had been looking at homes from a real estate agent, it is best to request a pre-approval. It can definitely help when you're purchasing a home.

Who Avails a Pre-approval?

Almost all lenders offer this service today, but it can vary depending on which company you choose. You also have the option of applying with a broker who may find a lender who offers pre-approval with lower interest rates and fees.

How to get Pre-approval or Pre-qualification?

The very first step you need to take is to check your credit score. This can be done on a free website. If your credit score falls below the minimum threshold set by the lender, you will have to improve it before applying for a pre-approval.

If you are already meeting the floor price set by the lender, you may proceed to apply. Fill out all required paperwork honestly and completely if you want to improve your chances of being approved.

Requirements for getting Pre-approval

If you want to get pre-approval for a loan, you need to have decent credit. Many lenders will require a FICO score of 640 or higher before they can approve your request.

Also, to be considered for pre-approval, you'll need to prove that you can repay the loan that you apply for. This can include having a steady income or access to funds through another source. The lender may also ask about what your total debt is compared to how much you make monthly.

Pre-approval for a home loan can help you get the best rates, but it also requires more effort than simply applying for prequalification. You will have to prove that you are serious about purchasing by showing steady income and access to funds. This can be difficult for some people to prove, but your chances of being pre-approved increase dramatically if you do it right.

If you are looking forward to getting a loan preapproval or prequalification so that you can buy a home, reach out to us. We are a team of experienced realtors and we will give you professional advice from preapproval to moving into your new home.

 

Owning a home is a huge investment but the upkeep can be costly without a home warranty.

Homeownership has many advantages. It's key to building wealth. That's why for most people, their home is their most valuable asset and represents the majority of their net worth. But owning a home comes with some maintenance costs.

Not only does a home cost a great deal to acquire, but it also costs quite a bit to maintain. Some estimates place the ongoing yearly costs of owning a home at around 5% of its value. For the average home in the US, that works out to over $13,000 per year. There is plenty of uncertainty built into that number. For example, having a major appliance break could add thousands of dollars to that total. And there's no way to know when an unexpected expense will overwhelm your budget.

That's where home warranties come into play.

Home warranties are a popular way for homeowners to try to contain the costs of homeownership and eliminate unexpected expenses. Here's an overview of what they are, how they work, and when they're worth investing in. Let's dive in.

What is a Home Warranty?

Unlike insurance, it's a service contract designed to cover the cost of the repair or replacement of major household items. In most cases, they cover things like large kitchen appliances and the home's major systems. But home warranties aren't insurance. They only cover costs associated with the normal wear and tear of covered items. So, if, for example, your refrigerator got damaged due to flood – it wouldn't pay to replace it.

Home Warranties vs. Home Insurance

That is, in fact, the primary difference between home warranties and a homeowner's insurance policy. The former covers the costs associated with routine maintenance and care for a home's major systems, while a homeowner's insurance policy pays for unexpected damage to property in the home. It protects against losses connected to things like fires, floods, and theft. Together, the two provide comprehensive protection for both the routine and extraordinary costs associated with owning a home.

What Do Home Warranties Cover?

Although different providers offer warranty plans that cover various items in a home, there are some covered items most of them share. These include:

Major Systems

• Plumbing
• Electrical
• Heating / Ductwork
• Hot water systems

Major Appliances

• Central or split-unit air conditioning systems
• Dishwashers
• Refrigerators
• Ovens, ranges, and cooktops
• Garbage disposal units
• Garage door openers

Depending on the provider, it's often possible to add warranty coverage for other household items like:

• Roofs
• Well pumps
• Septic tanks
• Pool and spa equipment

What Don't Home Warranties Cover?

In most cases, home warranties don't cover the structural components of a home. That means they don't cover things like walls, windows, foundations, and doors. They also won't cover solar panels because they're considered a structural item.

And home warranties also won't cover commercial appliances. That means they don't cover many high-end kitchen items from major brands like Sub-Zero and Thermador. And they also don't cover duplicate items by default. That means homes with a second kitchen would need to purchase additional coverage for all of the items in it – even if they're the same items in their primary kitchen.

But even covered items are subject to certain restrictions, such as a home warranty won't cover pre-existing damage to a covered item. Every item must go through a visual and operational examination before it's eligible for coverage. At that time, a representative of the warranty provider will check for obvious damage to each item and conduct a basic test to see that it's functioning normally.

Even then, most home warranties feature a 30-day waiting period before they go into effect. That way, the company can rule out most undetectable pre-existing problems with covered items. It is designed to prevent a homeowner from purchasing a policy to cover an appliance they know is about to fail.

There are also limits to what home warranties will pay to repair or to replace covered items. Some impose limits on a per-item basis. For example, a policy might specify a maximum of $1,000 for microwave or $3,000 for an HVAC system. Others set a maximum limit that applies to all covered items, which usually represents the maximum replacement cost of the most expensive covered item.

When to Buy Home Warranty Coverage and What it Costs

In most cases, home warranties are worth purchasing for anyone buying a secondhand home. This is because it's often impossible to know the true condition of a home's major systems or if they've been put through excessive wear and tear. And because purchasing a home is a significant investment, the last thing a new homeowner would want is a string of unexpected expenses right after they move in.

For the same reason, people selling their homes might purchase coverage to convince would-be buyers that everything in the house is in reasonable working order. Doing so serves as a guarantee to the home's new owners that they're not going to end up paying for the damage done by its previous owners. In that way, homeowners' warranties make an attractive addition to a home that's listed for sale.

The costs of a home warranty are reasonable enough that either party would be well-served by purchasing a policy. The average cost comes in at between $25 and $50 per month, which works out to between $300 and $600 per year. After that, the only other cost is a reasonable service call fee between $75 and $125 when something breaks. So, the first time that a major covered appliance needs replacing, the policy will more than pay for itself.

Buyers of newly-built homes typically don't need home warranty coverage. This is because most homebuilders offer similar coverage for at least a year after a home's completion, and it comes standard with the purchase of the home. Plus, new major appliances come with their own warranties that cover major problems for a year or more after purchase. It wouldn't make sense to purchase coverage until several years into the home's existence in those cases.

The Bottom Line

Any way you look at it, home warranties are a smart way to manage some of the ongoing costs of homeownership. But they're not for everyone, and anyone buying a policy should do their homework and read all of the fine print before buying coverage. Like insurance, a home warranty can seem costly when you don't end up using it – but it can be a lifesaver when bad luck strikes and multiple appliances break in quick succession.

Get in touch with us for professional help on your real estate investment journey, call 650 550 8646.

Are you ready to buy a house?

Whether it’s an investment property, a place to move and build a family, or a space to grow old in, buying a home for the first time is a big step. It’s both a major financial and emotional decision.

A house is likely the most expensive purchase of your life, so it can be a bit overwhelming. It is totally understandable. To help you feel as prepared as possible and eliminate a lot of the stress, we’ve come up with these tips that should guide you through the home-buying process.

1. Check your financial health (savings and spending)

Do you have savings? Calculate your monthly expenses and debt-to-income (DTI) ratio, which should be at a maximum of 43%. It is essential to know where you stand in your finances to strengthen your credit score – this will determine if you qualify for a mortgage. Consider having an emergency fund for three to six months' worth of expenses. When you buy a home, there will be a down payment and closing costs.

2. Save for a down payment

Save enough money for a 20% down payment (or more). Your down payment will depend on the type of mortgage you choose and the lender’s terms. Some lenders allow as low as a 3% down payment for first-time homebuyers with excellent credit scores. Also, keep in mind that as a homeowner you will be responsible for all the maintenance and upkeep costs.

3. Make a list of your home must-haves and nice-to-haves

What does your dream house look like? Write down specific features and amenities that you need for your ideal home. You can also include the location, neighborhood, and size of the house and lot. You can make a separate list of the home features that are less important, that you can do without upon purchase. This is your first home; you deserve a house that grants most (if not all) of your wishes but be realistic.

4. Understand your home loan options

Don’t worry about not being able to pay cash for a home because there are a variety of mortgages with varying down payment and eligibility requirements:

By the way, you also have options when it comes to how long you are going to pay a home loan, anywhere from 15- to 30-years.

5. Get a mortgage pre-approval

A mortgage pre-approval determines how much house you can afford. Lenders will take into consideration your financial situation, including monthly income, DTI, and credit score. They will then provide you a statement that you are qualified to take a loan and how much a lender will give you to buy your first home. With a mortgage pre-approval, your home financing is already secured, and it shows the seller that you’re a serious buyer.

8. Attend open houses and home buying assistance programs

Your mortgage pre-approval will give you an idea of how much you can spend for your first home, which will help you narrow down your house requirements. Attend several open houses in the neighborhoods you want to live in to give you the chance to learn more about the area, its facilities, and community culture. Take advantage of home buying assistance programs from local government and realtors.

6. Submit a competitive offer

First of all, hire a trained professional to do an inspection of the property you’re interested in, so you’ll know the condition of your potential new home. This way, you can negotiate your offer with the seller, such as paying for the repairs. You can also ask them to lower the price to cover the cost of repairs. There are instances that the seller will pay some of the closing costs if the offer is right.

7. Work with a real estate agent

An excellent real estate agent knows the ins and outs of the market, finds you homes that match your criteria, and guides you through the entire process. Communicate with your agent regularly. Your home-buying journey will be a lot easier when you’re working with a real estate professional.

 

Always remember...

 

9. Stick to your budget (factor in the closing costs)

Don’t go over budget. As a first-time homebuyer, it is natural to get excited shopping for a perfect house that ticks everything in your checklist, forgetting what you can truly afford. Have enough money for repairs and renovations.

Remember to consider closing costs in your budget. These fees pay for important steps in the home-buying process, including:

10. Save Physical Copies of Your Paperwork

Keep the physical copy of your mortgage statements, deed, Closing Disclosure, vendor and supplier receipts, property insurance policy, and other important real estate records. Compile them all together for easier access and lock them in a fireproof cabinet, if possible.

Now back to the first question, are you ready to buy a house? Tap a highly rated real estate agent nearest you; contact us today!

 

Rose Group, with Keller Williams Realty, is comprised of licensed REALTORS® and a dynamic support staff. We’ve focused on providing trusted, expert representation to real estate buyers and sellers in Silicon Valley since 2004—and now we’re in San Diego!
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16780-A Lark Ave,
Los Gatos, CA 95032
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