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What is the
difference between pre-approval and pre-qualification? |
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The pre-approval process is
much more complete than pre-qualification. For pre-qualification,
the loan officer asks you a few questions and provides
you with a pre-qual letter. Pre-approval includes all
the steps of a full approval, except for the appraisal
and title search. Pre-approval can put you in a better
negotiating position, much like a cash buyer. |
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When does it make sense
to refinance? |
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Usually people refinance to
save money, either by obtaining a lower interest rate
or by reducing the term of the loan. Refinancing is also
a way to convert an adjustable loan to a fixed loan or
to consolidate debts. The decision to refinance can be
difficult, since there are several reasons to refinance.
However, if you are looking to save money, try this calculation:
- Calculate the total cost of the refinance
- Calculate the monthly savings
- Divide the total cost of the refinance (#1) by the
monthly savings (#2). This is the "break even"
time. If you own the house longer than this, you will
save money by refinancing.
Since refinancing is a complex topic, consult a mortgage
professional. |
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What is a rate lock? |
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A rate lock is a contractual
agreement between the lender and buyer. There are four
components to a rate lock: loan program, interest rate,
points, and the length of the lock. |
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What's the difference between
a mortgage broker and a lender? |
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A mortgage broker counsels
you on the loans available from different wholesalers,
takes your application, and usually processes the loan
which involves putting together the complete file of information
about your transaction including the credit report, appraisal,
verification of your employment and assets, and so on.
When the file is complete, but sometimes sooner, the lender
"underwrites" the loan which means deciding
whether or not you are an acceptable risk. |
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Will I save money going
directly to a mortgage lender? |
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Not necessarily. In fact, if
you are a reasonably astute shopper, you will probably
do better dealing with a mortgage broker. Mortgage brokers
do not add any net cost to the lending process, because
they perform functions that would otherwise have to be
done by employees of the lender. Furthermore, because
mortgage brokers deal with multiple lenders -- in a typical
case, 25 to 30, sometimes more -- they can shop for the
best terms available on any given day. In addition, they
can find the lenders who specialize in various market
niches that many other lenders avoid, such as loans to
applicants with poor credit ratings, loans to borrowers
who do not intend to occupy the property, loans with minimal
or no down payment, and so on. |
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What is a full documented
loan? |
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Both income and assets are
disclosed and verified, and income is used in determining
the applicant's ability to repay the mortgage. Formal
verification requires the borrower's employer to verify
employment and the borrower's bank to verify deposits.
Alternative documentation, designed to save time, accepts
copies of the borrower's original bank statements, W-2s
and paycheck stubs. |
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What are the other types
of loans? Stated income/verified assets |
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Income is disclosed and the
source of the income is verified, but the amount is not
verified. Assets are verified, and must meet an adequacy
standard such as, for example, 6 months of stated income
and 2 months of expected monthly housing expense.
Stated income/stated assets: Both income and
assets are disclosed but not verified. However, the source
of the borrower's income is verified.
No ratio:
Income is disclosed and verified but not used in qualifying
the borrower. The standard rule that the borrower's housing
expense cannot exceed some specified percent of income,
is ignored. Assets are disclosed and verified.
No income: Income is not disclosed, but assets
are disclosed and verified, and must meet an adequacy
standard.
Stated Assets or No asset verification:
Assets are disclosed but not verified, income is disclosed,
verified and used to qualify the applicant.
No
asset: Assets are not disclosed, but income is disclosed,
verified and used to qualify the applicant.
No income/no assets: Neither income nor assets are disclosed.
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What is a good faith estimate? |
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It is the list of settlement
charges that the lender is obliged to provide the borrower
within three business days of receiving the loan application. |
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What is a conforming loan? |
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A loan eligible for purchase
by the two major Federal agencies that buy mortgages,
Fannie Mae and Freddie Mac. The loan limits are currently
$333,700 for a single family house. |
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What is a jumbo mortgage? |
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A mortgage larger than the
maximum eligible for purchase by the two Federal agencies,
Fannie Mae and Freddie Mac, currently $333,700.00. |
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What are points? |
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It is an upfront cash payment
required by the lender as part of the charge for the loan,
expressed as a percent of the loan amount; e.g., "2
points" means a charge equal to 2% of the loan balance. |
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What is a pre-qualification? |
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This is the process of determining
whether a customer has enough cash and sufficient income
to meet the qualification requirements set by the lender
on a requested loan. A pre-qualification is subject to
verification of the information provided by the applicant.
A pre-qualification is short of approval because it does
not take account of the credit history of the borrower. |
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