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:
- 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?
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 our 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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