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Common
Questions
•
What is the difference between pre-approval and pre-qualification?
• When does it make sense to refinance?
• What is a rate lock?
• What's the difference between a mortgage broker
and a lender?
• Will I save money going directly to a mortgage
lender?
• What is a full documented loan?
• What are the other types of loans?
• What is a good faith estimate?
• What is a conforming loan?
• What is a jumbo mortgage?
• What are points?
• What is a pre-qualification?
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:
1. Calculate the total cost of the refinance
2. Calculate the monthly savings
3. 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.
Back to top
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. Back
to top
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. Back
to top
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. Back to top
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. Back to top
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. Back
to top
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 $333,700
for a single family house. back to top
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 $333,700. back
to top
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. Back
to top
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. Back to top
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