Pre-qualification and Pre-approval are terms that you will hear when you are house hunting. Yes, they do sound similar, and sometimes they are used in a similar fashion, but they are absolutely not the same.

A pre-qualification is an informal review of your qualifications. You may receive one without providing any income or asset documentation. Usually a credit report is ordered, but that is not true in all cases.

If you make an offer on a home with only a pre-qualification the offer may be rejected by an experienced agent. If your offer is accepted then there is a limited guarantee that your loan will be approved.

A pre-approval is a much more formal review of your qualifications. Proof of income, assets, and credit worthiness must be provided. The documentation is carefully reviewed and the customary mortgage debt to income ratio is calculated. More in depth questions are asked to make sure underwriting questions are addressed.

An offer with a pre-approval attached is much stronger than an offer with only a pre-qualification. The pre-approved offer has a much higher likelihood of closing in a timely fashion.

When you have a choice between a pre-qualification or a pre-approval Always Choose to be Pre-Approved!

As of April 5^th, 2010, FHA’s up front mortgage insurance will increase from 1.75% to 2.25% for all new loans.

What does this mean to you? For every $100,000 borrowed, an additional $500 will be added to the principal of your loan. You are allowed to finance in this additional cost but it will increase your monthly mortgage payment.

*** On or about Oct. 4th, 2010 FHA mortgage insurance will increase again. Details will be published here one finalized. Stay tuned!

If you have good overall credit but your credit score seems too low, take a careful look at the amount of money you owe on your revolving debt. If your credit cards at or above the maximum limit may harm your credit score.

It may not be necessary to pay off your credit cards. Paying down the balance or increasing the maximum limit may result in an improved credit score.

One common mistake is closing a paid credit card. Leave the credit card open. The relationship to your maximum credit and balance owed will raise your score.

If you close the account, the above effect will be negated. This may actually result in a lower credit score.

If you need additional mortgage or credit related help, contact me. My assistance is without charge (free).

Call me at 732-207-8434 or email mark@njfhapro.com

Sincerely,

Mark Robinson

NMLS License #198843

Licensed by the New Jersey Dept. of Banking

The current calculation for up front mortgage insurance (UFMIP) is 2.25% of the loan amount. It is financed within the loan.

Ex: A $100,000 loan will have UFMIP of $2,250. The new loan amount will be $102,250.

The monthly mortgage is currently .55%. The calculation is as follows:

Loan amount: $100,000 x .55% = $550/12 = $45.83.

The monthly mortgage insurance does expire. It will last for at least 5 years or 22% equity, whichever comes last.

*UPDATE: FHA upfront mortgage insurance increased from 1.75% to 2.25% on April 5th, 2010.