1. What is the difference between pre-approval and pre-qualification?

The main difference between pre-approval and pre-qualification is credit.  With a standard pre-qualification, a lender will manually review income and the debts disclosed by the borrower.  While the pre-qualification allows a lender to get a good idea of whether or not a borrower would be able to get a loan, it is missing one of the main ingredients….the credit report.  Once a lender has the credit report and credit score, estimates and definitive qualifying numbers can be determined.  Having a credit report also allows a lender to run a scenario through their automated underwriting system to get a more secure answer on levels of approval.  You will need the actual pre-approval to write an offer on a property, and most agents will want this before they start showing you properties. 

2. When should I get pre-approved? Should I get pre-approved before I find the home I want to purchase?

You should get approved prior to viewing houses in person with an agent.  There is no harm looking on the internet at homes at the beginning of your search, but before you spend your time as well as your agent’s time, you should have a clear idea of the price range to look.  The pre-approval will allow you and your lender to establish the price range you are most comfortable looking.  The last thing you want to do is view a group of homes out of your price range and then compare everything else to what you first viewed.  It will make for a frustrating home search moving forward because you will want everything you saw in the home that was over the price you should have been looking.  You may also find after talking with your lender that with tax breaks and other programs available you could search in a higher range than you originally were thinking.  Lastly, with inventory at all-time lows, if you find the place of your dreams you need to be ready to act.  You may not be able to get a letter within a few hours if that is when offers are due.

3. What information & paperwork will I need to provide?

Most lending institutions need the same information.  We will want to obtain your personal information such as full legal name, date of birth and Social Security numbers of all borrowers.  In addition to that, we will need to know the addresses for all residences lived for at least the previous 2 years in addition to where you have worked for the previous 2 years.  You will also need to provide paperwork to support this.  If you follow the 2-2-2 rule, that should cover everything.  2 years of tax returns with w2s, most recent 2 pay stubs, and most recent 2 months’ worth of bank statements.  Keep in mind that lending institutions will require the entire bank statement with all pages.  You will also be required to document and explain any large deposit within the statements.  Lending institutions are extremely picky when it comes to documenting the source of money used for down payment and closing costs.

4. Is there a fee for obtaining a pre-approval?  

There should be no fee for pre-approval.  If you are being charged a fee, you should talk to another institution.  This is your lenders time to win your business.  It is an interview for your lender as much as it is for you.  You are giving a lot of personal information out in order to do this.  Make sure you are comfortable with whom you are talking to.

5. How much time does it take?

A standard pre-approval should only take 20-30 minutes.  This can be done over the phone or in person.  Most institutions also allow you to fill out an application online if that is more convenient with your schedule.  This is probably the most important 20-30 minutes of your entire home buying process.  Answer all questions honestly and being forthcoming with any information you feel is important will help ensure a smooth process down the road.  If there is anything you think may have an impact on your approval, now is the time to get it out there.  

6. What are some of the factors that determine how much I will qualify to borrow?

There are quite a few factors, but the main 3 are credit, income and assets.  Credit is probably the most important factor.  This is the only factor that can’t be overcome with a co-signer or gift.  The credit report will determine if you are eligible for certain programs and a loan in general. Income would be the next important factor.  The level of income you earn will be used in conjunction with your credit to determine the maximum amount per month you are able to spend. The next important factor would be your assets.  There are many different loan programs available.  Some are meant for large down payments and others are set up for those with little or no down payment.  Having larger down payments can help offset credit issues, or lower income.  All three of these factors go hand in hand with your ability to borrow money. Make sure to inform your lender what payment you are comfortable with.  Don’t necessarily have the lender tell you this is how much you should buy.  Many times, the amount one qualifies for is well above the amount one believes they can afford.  You need to take into consideration how much you want to save, how often you like to vacation and go out to dinner, as well as if you are going to send your kids to private school.  Those factors typically do not play into the approval process.

If you have additional questions about the loan qualification process or other questions related  to any aspect of the mortgage process, post them here and we’ll get them answered.  For more information about Caliber Funding check out their website.  Please feel free to contact Greg Kingsbury directly at greg.kingsbury@caliberfunding.com or 202-709-5681.

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Near 2nd and U Street NE

Each week WAMU 88.5′s Metro Connection reaches across DC, Maryland and Virginia to gather the sounds and stories that capture the current events, culture and personalities driving the Washington region.Real people… real lives… real communities. That’s what Door to Doorcaptures weekly around the National Capital Region. You will hear residents talk – in their own words – about the history, culture and flavor of the places they call home.

WAMU 88.5 is the leading public radio station for NPR news and information in the greater Washington, DC area.

According to Urban Turf,  Congresswoman Eleanor Holmes Norton is working diligently towards getting the credit re-instated.  In addition, through March 12th, there is an opportunity to sign the current White House Petition.  This petition asks the White House to support and promote the retroactive restoration of the first time home buyer’s credit.

Sign the Petition

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Snow Day in LeDroit Park

Each week WAMU 88.5′s Metro Connection reaches across DC, Maryland and Virginia to gather the sounds and stories that capture the current events, culture and personalities driving the Washington region.Real people… real lives… real communities. That’s what Door to Door captures weekly around the National Capital Region. You will hear residents talk – in their own words – about the history, culture and flavor of the places they call home.

WAMU 88.5 is the leading public radio station for NPR news and information in the greater Washington, DC area.

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DC Homestead Deduction
This is the most popular & well known property tax deduction. This benefit reduces your home’s assessed value by $67,500 prior to computing your yearly tax liability. The Homestead benefit applies only to your primary residence.
For more information click here. 

Senior Citizen or Disabled Property Owner Tax Relief
If you are 65 years of age or older, or are disabled, you may file an application immediately for disabled or senior citizen property tax relief. This benefit reduces your property tax by 50 percent. You must own 50 percent or more of the property or cooperative unit and the total federal adjusted gross income of everyone living in the property must be less than $100,000.
For more information click here. 

Employer Assisted Housing Program (EAHP) Tax Incentives
Homebuyers who use the Employer Assisted Housing Program (EAHP) to purchase their home can also apply and qualify to receive an additional property tax credit. This property tax credit is based on a sliding scale. 80% credit for the first year, 60% credit for the second year, 40% credit for the third year and 20% credit for the fourth and fifth years of ownership.
For more information click here.

Metropolitan Police Housing Assistance Program
DC Metropolitan Police Department officers who are first time homeowners may be eligible for a sliding-scale property tax credit on their primary residence. For more information call Housing Counseling Services, Inc. at (202) 667-7006. 

DC Property Tax Abatement
Eligible homeowners may receive a five-year property tax abatement. The home must be owner-occupied and  the property must be less than $356,000 in value. Income level restrictions apply.
For more information click here.

For more information about these and other opportunities to reduce your property tax liability contact us directly or you may call or visit the DC Office of Tax and Revenue (OTR) Customer Service Center.

Marty Stanton

We continue to bring you expert information directly from the professionals typically involved in a real estate transaction. Next in our Ask the Expert series of blog posts is an interview with Marty Stanton, a Partner at KVS Title.  Here are the answers, direct from an expert, to the questions you most frequently ask us.

1. What is a title?

A title in real property transactions (buying and selling residential homes and commercial property) is the manner in which a person or entity wishes to transfer and hold these assets.  Titles must be sold “free and clear” of liens and encumbrances which may be secured against the property.  An example of such a lien is a  mortgage loan used to finance the property.  In order to convey title the seller would need to pay the mortgage loans off.  Title to property may be held in a variety of ways depending on the State laws where the property is located.  In Maryland, Virginia and the District of Columbia most people take title in the following way: sole ownership, tenants in common, joint tenants and tenants by the entirety.  Check our future posts for a detailed analysis of each type of tenancy.

2. What is title insurance? And what does it cost? Do homeowners have to pay an annual premium?

Title insurance is a safeguard against loss due to unknown defects found in the title to your property.  The cost of title insurance is different based on the jurisdiction where the property is located.  The great thing about title insurance for buyers is you pay for your policy only once and it covers you over the life of your ownership.

3. Why buy a title insurance policy if a title company has carefully searched the records and title is found to be good?

The insurance is protection from the hidden risks that could threaten a title even after the most careful title search is completed.  Examples of such risks include fraud, false impersonation, forgery, undisclosed or missing heirs, and mistakes in recorded legal documents.  Buying a home is the single largest purchase many people make in their lifetime and to not purchase insurance against potential loss is a very risky endeavor.

4. My lender has a mortgage title policy on my property. Why isn’t that enough?

There are two types of title insurance policies, one to protect the lender’s interest for the amount of the loan, the other to protect the buyer.  If there is a title claim made against the lender’s policy it does not protect the buyer.  A claim against title and the cost to defend it can be very expensive.  The cost of an Owner’s title insurance policy will be worth it’s wait in gold if a claim arises.

5. What does a title company do other than research the title and prepare the title insurance policy?

The title company has a fiduciary responsibility to all parties in the transaction: the buyer, seller and lender.  The title company in essence makes sure that the terms of the contractual agreement between the parties and the requirements made to provide the financing are met.  The title company coordinates with each party to gather the necessary information and to organize and disclose that information so the settlement process is smooth.

6. What is closing?

Closing is the event where all of the legal documents in the transaction are approved, signed and delivered by the parties.  In order for closing to take place the title company must be in receipt of all of the funds necessary to complete the transaction.  In Maryland and the District of Columbia funds are disbursed at the time of closing.  In Virginia funds are not disbursed until after the deed transferring title from seller to buyer is recorded.

7. Do I need an attorney for closing? 

In Maryland, District of Columbia and Virginia closings are completed by licensed title insurance officers and attorneys.  These individuals are to remain neutral because they do not represent any of the parties.  It is customary in other parts of the country for each party to be represented by an attorney.  A buyer and seller can bring their own representation to closing but it is not customary in this area.

8. What items do I need to bring to closing?

You will need to bring:

-Funds for closing in the form of a cashier check or wire from your bank.

-Photo identification. A valid state-issued driver’s license, passport, military or state issued identification card are acceptable.

-Any items required by the lender as a condition of closing that have not already been satisfied.

-Any items required by the title company as a condition of closing that have not already been satisfied.

-A personal check in case additional funds are needed.

If you have additional questions about title services or the settlement process, post them here and we’ll get them answered.  For more information about KVS Title check out their website.  Please feel free to contact Marty Stanton directly at marty@kvstitle.com

The Gorgeous New Kitchen

Like so many other young professionals just coming out of college or grad school, Tania didn’t have a lot of money saved for down payment and closing costs. But her salary was just enough that she didn’t qualify for most of the programs that provide down payment assistance for first time buyers.  Apart from that, even though she was not unrealistic about what she wanted – a small, 1BR in decent shape that was close to the metro since she doesn’t have a car – it was hard to find. She investigated co-ops and condos in many different neighborhoods but ran into things like short sales, large down payment requirements, condo associations with high delinquency rates or simply competing offers!But Tania didn’t lose hope. She just got creative. When we came across a larger studio for sale in Randolph Towers on 14^th Street in upper Columbia Heights, she decided to check it out with an open mind. What she discovered is that the layout and size of the unit enabled her to create a junior 1BR unit with the private bedroom space that was non-negotiable for her. Since units at Randolph Towers are newly renovated to the specs of the buyer, they were open to her installing a temporary wall in the space to create a private bedroom area.

Tania with keys to her new place.

And then another bit of good luck came her way. A new program called CityLift was announced that provides closing cost assistance of $20,000 to first time buyers in DC and MD. The income guidelines for the program were a bit more flexible than some other similar programs. Tania attended their event at the Convention Center and was qualified to receive the loan which is fully forgiven after just five years. CityLift funds were limited and once they ran out, they were gone. But Tania applied at just the right time and was able to take advantage of this rare opportunity. Tania didn’t give up and was creative and flexible and as of last week, she is proud to say that she is the new owner of a beautiful top floor junior 1BR condo with a beautiful view, parking, granite counters, stainless steel appliances and the biggest perk of all – a fancy, new Bosch washer and dryer in her unit. Congratulations Tania!!

To help homeowners deal with large assessment increases on their principal residence, state law has established the Homestead Property Tax Credit. This credit only applies to your principal residence. The Homestead Credit limits the increase in taxable assessments each year to a fixed percentage. Every county and municipality in Maryland is required to limit taxable assessment increases to 10% or less each year. Click here to view  a listing of homestead caps for each local government.

To learn more about the Homestead Property Tax Credit program click here to access the Department of Assessments & Taxation website.

Homeowners who have not filed a Homestead Eligibility Application have until have until December 31, 2012 to submit an application to continue being eligible for this credit. You can find out if you have already filed the Homestead application by looking up your property on the SDAT Real Property Database.

If you have not already filed the Homestead application click here for instructions from the Homestead Office. You may also request an application by telephone at 410-767-2165.