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One of the first things a savvy home shopper does PRIOR to starting a serious home search is to explore mortgage options.  Bruce Ailion is an experienced Realtor that will encourage buyers speak with a lender and get "pre-approved."  This benefits all parties involved by ensuring that prospective buyers can actually qualify for a mortgage on the homes they're interested in.  Failure to do so can cause frustration and disappointment for any agents or buyers who naively regard today's stringent mortgage process as a minor detail to be addressed after a sales contract is accepted.  No one likes surprises during the purchase process!  

Two terms that are often (and incorrectly) used interchangeably are "pre-qualified" and "pre-approved".  While their exact meanings will vary by lender, in most cases a pre-qualification is far less desirable and less clearly defined.

A Pre-Qualification typically means a buyer has spoken with a lender (who may or may not have pulled a credit report) and verbally discussed employment, liabilities, payment histories, and assets.  Actual verification of assets, income, and credit may not occur with a pre-qualification, and an automated underwriting system (Desktop Underwriter or Loan Prospector in most cases) likely has not been run.  While better than nothing, a Pre-Qualification remains entirely dependent on a far more thorough process of verification and examination of a borrower's credit, assets, and income.  At best, it's a "probably."

A true Pre-Approval, on the other hand, entails a strict review of the client's credit, down payment capacity, income, and asset documentation.  Credit reports are thoroughly dissected, rather than just credit scores verified.  Veteran loan officers run prospective buyers though underwriting engines if they have any doubts concerning debt ratios, derogatory credit items, or employment history/income verification.  Once the system returns an approval, it too needs to be read in detail, as it will list specific requirements for final loan approval.  A lender who bases his pre-approval on mere credit scores and underwriting engine approval without fully examining it, risks his reputation and the satisfaction of the other parties involved.

Unfortunately, the ambiguity between Pre-Approvals and Pre-Qualifications can cause mismanaged expectations.  For example, a client that came to me recently, saying he was pre-approved with another lender, and that his salary was $X/yr.  He had already identified a home and written a sales offer.  His debt ratios were tight, but, based on the information he provided, he met Fannie Mae's requirements.  Once his W2, paystubs, and tax returns were received, it became apparent that his "salary" included a number of incentives and other non-guaranteed items.  When I said we'd need to verify that the extra income was likely to continue with his employer, his comment was "the other loan officer didn't ask me to break my income down."  He also had two liabilities on his credit report that didn't show monthly payments, and needed to be determined.  When asked about those, he remarked that the prior lender hadn't mentioned them. Ideally, these issues are caught early enough in the process to address them, if not,  they can result in extra processing time that delays closing.

If all parties involved are aware of the distinction, it helps everyone play their role to the best of their ability.  The listing agent who calls the mortgage originator to ask if the buyer's income and asset docs have been examined clearly understands the differences between pre-qualifications and pre-approvals.  Conversely, the originator who contacts the Realtor can better manage expectations by clearly defining their pre-qualification or pre-approval process.  Even clients, armed with this information, can request a thorough pre-approval rather than a cursory pre-qual, and play a role in ensuring the best possible handling of their transaction.

Americans Squeezed by Higher Rents, Tight Credit

by Bruce Ailion

Americans Squeezed by Higher Rents, Tight Credit

By Michelle Conlin and Melanie Hicken

Thu Jul 5, 2012 1:01pm EDT

(Reuters) - One night last spring, David Hall returned home to his studio apartment outside Boston to learn that his monthly rent had spiked from $725 to $995.

It would be much cheaper for the maintenance manager to buy a nearby starter house than to stay put. But his mortgage broker told him that while his credit score was good, it was not high enough to meet banks' tough standards, he said. "I know if I walk into a bank, they are just going to laugh at me," Hall says. "So I'm stuck." He is not alone.

Five years after the housing bubble burst, the United States is in the midst of a housing affordability crisis. Home prices have fallen a third from their peaks, but many Americans cannot benefit because they cannot get a mortgage. With credit tight, many consumers have no choice but to rent. Others who can afford to buy are also renting, because they view real estate as a lousy investment. As demand has increased, rents in some cities have jumped by double-digit percentage rates.

Rents rose 1 percent to record highs in the second quarter from the prior period, according to real estate research firm Reis.

Just 4.7 percent of U.S. apartment units are vacant, the lowest level since the fourth quarter of 2001. Low vacancies are likely to push rents even higher, Reis said.

People with lower incomes have long struggled to find affordable housing, but many in the middle class are now hurting, too. Most personal finance experts recommend allocating no more of 30 percent of family income to housing, but nearly 40 percent of Americans are paying more than a third, according to the U.S. Census Bureau's American Community Survey. In New York City, one-third of households are spending more than half their pay on rent.

"We have falling incomes, rising rents and nothing but substantial upward pressure on those rents," says Chris Herbert, director of Harvard University's Joint Center for Housing Studies. "And nothing in the cards suggests it will turn around anytime soon."


Today's housing market is a buyer's paradise.

It is now cheaper to buy a home than it is to rent in virtually every major city in the United States, according to John Burns Real Estate Consulting.

But for many in the renter class, buying even a modest home is impossible because financing is so hard to secure.

Lending for home purchases hit a 12-year low of $404 billion last year, down from $1.4 trillion in 2006, according to trade publication Inside Mortgage Finance. That means mortgage credit is tighter than it was even before the housing boom.

This year, lending is expected to drop even more, according to Inside Mortgage Finance.

A recent Morgan Stanley research report states that the average credit score is 762 for a consumer securing a mortgage backed by government-sponsored enterprises like Fannie Mae. But 65 percent of Americans have scores below 750.

In other words, a disproportionate number of mortgages are going to people with unusually good credit. A perfect score is 850, and anything below 660 is considered subprime.

"Basically, access to credit for borrowers with less than spotless credit is severely limited," the Morgan Stanley report states. "A good chunk" of U.S. households are "cut off from mortgage credit on this count alone."

For people who can get mortgages, rates are at their lowest levels in several generations. Add that to the cheap home prices, and houses are at their most affordable since at least 1970, when the National Association of Realtors began tracking this metric.

Normally, high affordability translates into higher sales. And the housing market is showing some signs of recovery - the S&P/Case Shiller index of home prices had its third consecutive monthly gain in April. Last week, the NAR said pending home sales had matched a two-year high in May.

But any recovery has been tepid. The NAR said existing home sales had declined 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April. That is 34.2 percent above the July 2010 bottom of 3.39 million, but far short of the 5.5 million pace that the NAR considers healthy.

"Home sales have just barely picked up from their cyclical lows, and that's because there are still constraints to borrowing," said Moody's Analytics economist Celia Chen.

Part of the lender pullback has to do with the stringent regulations Washington put in place after the housing crash, says Michael Fratantoni, vice president of the Mortgage Bankers Association. These rules put more of the losses from bad mortgages onto lenders, instead of investors or government-sponsored enterprises.

Then there is the climate of unstable home prices and a shaky labor market: "There's a risk that even a borrower with moderately good credit may fall behind," Fratantoni says.

Consumers who cannot buy must rent, and that is where many Americans are feeling the pressure. A rent index from real estate data provider Zillow shows year-over-year gains for 70 percent of the U.S. metropolitan areas, while its home value index rose in only 7.3 percent.

In the 12 months ended in May, rents rose 14 percent in San Francisco and 11 percent in San Jose, California, according to Zillow. Last year in Minneapolis, they spiked 11 percent even as home values sank 8 percent.

Only a few years ago, landlords in cities like San Francisco and New York were tossing in a month or two of free rent, sometimes with parking, to lure tenants into signing leases.

Today, applicants are showing up at apartment viewings with copies of their unblemished credit reports and letters of recommendation from bosses and prominent friends, in the hopes of snatching up a place to rent.

Equity Residential, one of the biggest apartment owners in the United States, has more renters with high credit scores than ever, Vice President of Operations David Santee said on an April conference call with analysts.

Demand for apartments is also higher because many potential buyers in their 20s and 30s want to stay flexible - home ownership is not as attractive as it was to earlier generations.

Still, plenty of people would prefer entry into the ownership class. Last spring Rosemary Wynder, a physician order specialist, found her rent shooting up. She decided to buy a house.

But a bank glitch in February had caused one late car loan payment, dinging her credit score. The Utica, New York, resident has been unable to straighten out the mistake, and five banks have rejected her for a mortgage.

"I've been crying," says Wynder. "I've been praying."

Best rates - At 60 year lows!

by Bruce Ailion

Mortgage rates declined slightly enough to officially hit new all-time lows. Some perspective is in order though. Certain lenders' rates are unchanged on the day, and some are even slightly higher, but the average moved lower. The improvements from yesterday were seen in the form of lower borrowing costs for those same rates. Bottom line: Best-Execution remained at 3.625%, but just got a bit more affordable.

I am often asked is this the best time to lock in a mortgage interest rate?  I am reminded of the limbo and the question “how low can you go?”. Rates simply just can’t drop much more from here.  For more than 60 years there has not been a better time than now.

The possibility of a sharp upward spike in response to unpredicted or unscheduled events remains a risk.  The risk/reward matrix for floating a historic bottom is generally negative.


  • 30YR FIXED - 3.625%
  • FHA/VA -3.5% - 3.75%
  • 15 YEAR FIXED - 3.00%
  • 5 YEAR ARMS - 2.625-3. 25% depending on the lender


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Contact Information

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The Ailion Team
RE/MAX Town and Country
2623 Sandy Plains Rd #202
Marietta GA 30066
Fax: 404-480-8448

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