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What is the
difference between pre-approval and pre-qualification?
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?
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:
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Calculate the
total cost of the refinance
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Calculate the
monthly savings
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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?
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?
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?
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?
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: 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?
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?
A loan eligible for
purchase by the two major Federal agencies that buy mortgages, Fannie
Mae and Freddie Mac. The loan limits are currently $359,650 for a
single family house.
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What is a jumbo
mortgage?
A mortgage larger
than the maximum eligible for purchase by the two Federal agencies,
Fannie Mae and Freddie Mac, currently $359,650.
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What are points?
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?
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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Scott
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