Preapproved for a Loan? Don’t Blow It With Holiday Shopping

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By Kayla Albert

After receiving the preapproval on your home loan — the anxiously awaited first big step toward homeownership — you likely breathed a sigh of relief that the official “proving yourself” part of the process was over.

Not so fast, if you’re searching for a home during the holidays.

Before you get swept up in the tide of frantic holiday shopping, it’s important to know that going overboard on gifts for friends and family can impact the total loan amount you’re ultimately approved for, and it could even kill the approval entirely.

Here are a few ways you can ensure you make it all the way from preapproval to purchase with no hiccups en route.

1. Don’t apply for new credit or rack up new debt.

When you reach the cash register with your arms full of holiday gifts, it’s easy to entertain the idea of opening a store credit card. Just fill out the application, add your John Hancock, and you could be walking away with a significant amount off your total purchase.

However, opening this line of credit requires a hard credit inquiry — one that could ding your credit in the process. In addition, you could impact your debt-to-income ratio or signal to the lender that you are a greater risk than they previously thought.

Tammi Robson, a mortgage broker at Metro Lenders in Denver, tells her clients about the importance of being debt-free or keeping debt levels stable during the home-buying process. This means avoiding major purchases such as a car or that new dining-room set until the entire home-buying process is complete.

“Most lenders do ‘debt monitoring’ during the loan process, meaning they pull internal credit reports,” Robson says. “If new debt shows up or credit scores go down, it will affect loan qualification.”

2. Don’t move around large amounts of money.

While constantly shuttling funds back and forth might be how you manage your money, it can create a huge headache for lenders, who must be able to track the movement of funds from account to account. If they cannot track the funds, the money movement could appear suspicious — a red flag signaling undocumented funds or money troubles they hadn’t seen before.

In addition, if your family is all about doling out the cash for the holidays, you could be putting yourself in a precarious position. Lenders will also be scouring your accounts for any unusual deposits — those that are 50 percent or more of your monthly income — or any unusual cash withdrawals. These will need to be thoroughly explained to maintain your approved status.

It’s all about keeping the status quo between preapproval and closing — something that can be more challenging during the holiday season.

3. Don’t ignore your bills.

A recent study by Neighborworks determined that one in three American adults has no savings on hand. Pair this with an expected holiday spending rate of $805 per person, and it’s no wonder bills become a heavy burden to bear come January.

Unfortunately, even if your holiday spending gets out of hand, loan preapproval isn’t a pass to be less diligent about maintaining a spot-free bill payment history. In fact, it’s more important than ever to make sure all bills are paid on time and in full.

Payment history makes up 30 percent of your credit score, and even one late payment can have devastating effects. How much exactly? According to Credit.com, if your payment is over 30 days late (the typical grace period given by lenders), it could lower your score anywhere from 60 to 110 points — a substantial amount even if you’re starting with a high score.

If that late payment is on an existing mortgage, a lender could opt to deny your loan altogether. Even if it’s not a complete denial, you’ll need to explain in writing why the late payment occurred.

Here’s the bottom line.

If you’ve been preapproved for a mortgage, you’ve successfully cleared one substantial hurdle — a bank or lender has looked at your overall financial health and stamped you as a qualified candidate.

But preapproval is not the same as approval, and now, as holiday sales are calling, it’s important to keep the finish line in sight. After all, you wouldn’t want a few financial missteps to make your dream of homeownership come to a crashing halt.

 

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What You’re Doing That Annoys Your Real Estate Agent

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By Devon Thorsby

Real estate agents see and hear a lot, and while shockingly few things surprise them, there’s a fine line between need-to-know and TMI. But the more transparent a client is during the buying or selling process, the better the broker can meet his or her needs.

Luis D. Ortiz, associate broker at Douglas Elliman Real Estate and star of Bravo’s “Million Dollar Listing New York,” equates the nitty-gritty details of a seller’s personal life to a doctor visit. When the doctor asks how often you drink, “everybody says ‘socially’ when really they drink every night,” Ortiz says. “The more transparent you are of a person, the more they can get to the core of the problem.”

To get the most out of your relationship with your real estate agent, avoid these red flags that can end up landing you with the wrong agent or the right one running for the hills.

Telling an Agent You’re Not Sure About Selling

Agents typically don’t collect a fee until their client either sells his or her current home or purchases a new one. Any time and money spent before then on marketing and other services is out of the agent’s pocket. Simply dipping your toes in the water to see if your house generates interest — and then pulling back — isn’t going to be very enticing for a broker.

“I’m not sure I’m going to take that seller on as a client,” says Greg Cooper, manager and broker at Berkshire Hathaway Home Services in Indianapolis. “The process costs everybody time and money, so why waste it unnecessarily?”

And as Ortiz points out, putting your house on the market experimentally can have adverse effects on other homes that are actually for sale. “It gives the buyers [a] perception that the apartment is not sellable [or] that the market may be turning into a buyer’s market,” Ortiz says.

Saying You Don’t Have a Time Frame

Not having a deadline can leave brokers unsure of your commitment. Agents understand when their clients have a strict time frame, and can appreciate a few extra days or weeks to close a deal on the right home. But being told they have no target date to sell or purchase a home will leave them wondering if they’re wasting their efforts.

Cooper says serious homebuyers will typically have a reason, such as a growing family or moving for a job, that brings about the change in living situation. A lack of deadline puts up a flag that you may also lack commitment to carrying out a deal. “My question for them would be, ‘Why do you have all the time in the world? What are you trying to accomplish?’ That goes back to, ‘We’re not really sure what we want to do,’ and that’s just not a situation, in all candor, that’s beneficial 98 percent of the time to the client and the broker,” Cooper says.

One of the first questions Ortiz asks on any listing appointment is why the homeowners is selling. “You have to know if this person is real or not,” Ortiz says. “I want to know because that sets the conversation and what my expectations should be.”

Lying About Your Motivation

Your real estate agent will have to know a lot about you — your financial health, your needs and wants in a living space and any life-changing events that could cause you to buy or sell at a specific time — to do his or her job properly. In order to work successfully with your agent, honesty is the best policy.

Cooper says one of the first questions he asks potential clients is why they are looking to sell, primarily to get a full understanding of the clients’ needs and how he can best fill them. “If I’ve got a seller who is changing jobs or who is going through a divorce, those things clearly affect the motivation level they have to sell the home,” he says.

An agent you’ve carefully selected and can trust will keep your personal life private. And by knowing your reason for moving, he or she can better meet your needs. Joe Manausa of Joe Manausa Real Estate in Tallahassee, Florida, says full disclosure can also help prepare agents for what they may face down the line. He gives the example of spouses left in the dark: “There are times we’ve been hired to sell a home, and after they sign the documents I get a call from one of them saying, ‘Hey, he doesn’t know it, but we’re getting divorced, and that’s why we’re selling.”

Overpricing Your Home

You’ve hired a professional to help you throughout the process, and it’s important to give the agent enough breathing room to be the pro, particularly when it comes to pricing. Starting the process with nonnegotiable expectations is a good way to get off on the wrong foot.

Manausa explains that overpricing your home will often leave it on the market longer because the right buyers won’t see it. “People go online and the first thing they do is they shop by price range. If you’re overpriced, the people that do see your house [are] comparing it to nicer houses — they don’t want to see yours,” Manausa says.

Asking Your Friends What They Think Your Home is Worth

The only thing worse than coming up with your own unrealistic number could be having friends come up with the number, especially when they’re not in the real estate business.

Ortiz says a friend’s pricing recommendation often show how kind the friend is but has nothing to do with the actual value of the home. “They’re all your friends and they’ll tell you for the sake of telling you your house is worth $20 million [when] it’s only worth five dollars,” Ortiz says.

Rather than have the agent compete with other opinions, keep your friends’ kind valuations of your home to yourself.

 

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Gather ‘Round the Table: 5 Distinctive Dining Room Styles

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Courtesy of Zillow Digs

By Kerrie Kelly

Dining rooms are a wonderful place to express your style through furniture, lighting, art, and color. Here are five favorite dining room styles, and the elements that make them so appealing.

Tailored and Traditional

Traditional style is all about the details: intricate carving, unique upholstery, textured linens, and statement lighting contribute to this exquisite look. Take your style traditional by focusing on architectural details like embellished table legs or an ornate console serving as a bar.

Paneling is also a classic element found in traditional dining rooms. A gray-toned wall with bright white trim creates a crisp and clean look. Top off the style with an eye-catching chandelier and a few sconces along the wall for ideal ambiance.

Some other style-boosting elements? Mixed finishes, graceful decorations, and textured rugs balance the look.

traditional
Courtesy of Zillow Digs

Modern and Modish

The modern-style dining room takes many shapes and forms, but some themes are very prominent and consistent throughout. Abstract art serves as a must-have focal point in any contemporary setting, but especially in a dining room. Modern art and decor add just the right amount of movement to an otherwise structured style.

Clean lines and crisp corners are another important detail in contemporary design. Whether your chairs’ frames are perfectly rectangular, or your table’s angles are prominent and precise, having perfectly formed 90-degree angles is key to a modern motif.

Other favorite contemporary design elements include high-gloss finishes, metallic details, and sleek and simple tablescapes.

modern

Courtesy of Zillow Digs.

Restful and Rustic

Rustic design often conjures up images of old log cabins and less-than-lovely ski lodges. Because the rustic look is so heavily influenced by wood and organic textures, it’s best to keep it as light and airy as possible, adding in elements of contemporary and traditional designs.

Try creating fresh farmhouse style with exposed beams, a distressed dining room table with bench seating, and plenty of greenery. Details like barn-inspired doors, nailhead trim, and reclaimed wood offer up a refined version of the classic rustic style.

rustic
Courtesy of Zillow Digs

Cool and Cottage

If you’re partial to the calm and collected vibe of the Nantucket shoreline, you might be a fan of cottage design. This cozy and unpretentious style offers a light and bright alternative to traditional design with distressed wood elements, tons of texture, and simple, elegant lighting. You can’t go wrong pairing a seagrass rug with an ornate dining table.

Keep colors soft and sinuous with tones of gray, beige and white, and lightly add pattern with an area rug, table linens, or upholstered chairs. Other cottage elements to consider: gentle patina on surfaces like tables, consoles, and shelves, slipcovered chairs, and curated tabletop decor.

cottage
Courtesy of Kerrie Kelly Design Lab via Zillow

Trendy and Transitional

Taking cues from modern and traditional design, the transitional style is a cultivation of contemporary elements and classic architecture. Minimal accents and culled accessories lend a clean touch to a timeless dining room setting, and the less-is-more-approach is alive and well throughout the space with statement lighting and just a few curated fittings detailing the space.

If you’d like to mimic the transitional style further, consider these design elements: crisp window treatments, a calming color palette, and organic decor.

trendy
Courtesy of Zillow Digs

While these are only a handful of the possible design styles to outfit your dining room, they are great starting points.

 

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How to Help Your Adult Kids Buy Their First Home

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By Susan Johnston Taylor

As families gather for the holidays, some adult children or their parents will broach the topic of real estate and how to make that first home purchase.

For parents who have the funds and desire to help adult children buy a home, gifting a down payment is one of the most common ways to help. But it’s not the only option.

Here’s a look at several ways parents can assist their children in becoming homeowners.

Gifting a Down Payment

For an owner-occupied property (not an investment property), mortgage lenders typically allow borrowers to use money gifted from a family member as a portion of the down payment. However, if it’s a recent gift, the borrowers must be able to prove the origin of those funds and provide a letter affirming that the money is a gift and does not need to be repaid.

Bob Collins, a mortgage broker with Signal Hill Mortgage in California, says parents gifting a down payment often treat it as “here’s your inheritance in advance,” so they can see the benefit of that money during their lifetime.

This approach puts the gift-giver under some scrutiny with the lender, but not nearly as much as other options. “All we have to do is verify that they have the funds to give, and we get a gift letter,” says Greg Cook, a mortgage consultant in Southern California. “Then they send the money to the settlement agent, and as long as it matches up with the gift letter, we’re good to go.”

If the gift exceeds the Internal Revenue Service’s annual gift tax exclusion of $14,000 per recipient per year, then it may require extra tax paperwork. However, a married couple could each give $14,000 to a child and a child’s spouse, for a maximum of $56,000 in four separate gift checks.

Offering a Family Loan

Given the current low interest rates on savings vehicles such as certificates of deposit, or CDs, relatives with cash to spare might choose to loan money to a family member to buy a home in lieu of the buyer getting a traditional mortgage. “It’s a win on both sides,” says Dan Yu, managing principal of EisnerAmper Wealth Advisors in New York. “If Mom and Dad went to the bank and said, ‘What will you pay me for a five-year CD?’ If the son or daughter went to the bank to try to borrow on a 30-year mortgage, they might have to pay 4 percent. Both sides of the family win, and mom and dad are earning a higher interest rate [than they’d get from a CD].”

However, as Yu points out, “it’s not just Mom and Dad, but rich aunts and uncles do this as well.” Assuming the lending relative has the liquidity to make the loan and is prepared to do so, the homebuyer would be able to make an offer not contingent on financing and potentially offer the seller a quicker closing, which could be an asset in competitive markets where all-cash offers are the norm.

One thing to remember with family loans is that it still needs to be at arm’s length, meaning it follows the IRS’s proscribed interest rates based on the term of the loan.

If earning interest isn’t the goal, the relative giving the loan could choose to forgive up to $14,000 in interest per year under gift tax exclusions ($28,000 if they’re lending to a couple). Otherwise, lenders have to report interest payments as taxable income, just as they’d report interest from CDs or money market accounts. Borrowers can deduct mortgage interest (assuming they itemize their tax deductions) just as they would with a traditional mortgage.

Co-signing the Mortgage

In cases where an adult child’s income is too low to qualify for a mortgage on the home they want, having a parent co-sign the mortgage might help. If they can afford to take on the obligation, some parents may prefer this option if the alternative is their child buying in an area they consider unsafe or undesirable.

However, co-signing is a bit of misnomer in this case. “They’re really a co-borrower, and they’re in the deal as much as the kids are,” Cook says. “They’re under the lender’s microscope to the same extent: income, credit, current debt load, all the things that we look at for the kids.” If the child’s income is sufficient to qualify for the remaining balance on their own in the future, the loan might be refinanced in just his or her name to relieve the parents of liability.

One potential downside for parents is that the mortgage will show up on their credit as an outstanding loan obligation, which could complicate refinancing or buying another home in the future. “They’ve created an obligation for themselves that could limit anything they might want to do moving forward,” Collins says. Also, if the child misses mortgage payments, that will also impact the parents’ credit.

With all these options, you should consult a financial advisor first to make sure you can comfortably afford to help without jeopardizing your financial security. You may also want to consult your tax preparer about potential tax implications, and, depending on the circumstances, ask a lawyer how to structure the legal paperwork in case your child divorces or defaults on the loan. Nobody plans on things going awry with real estate transactions, but it can happen, so it’s best to be prepared.

 

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