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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:
- 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 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 up front 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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How much will I save on my
Interest Rate?
It is a fact that 15 year mortgages will provide you with a
lower interest rate and overall lower interest payment. However,
there is a trade off, be prepared for a larger monthly payment.
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Should I Do A 30 Year Mortgage and Make
Extra Payments?
A 15 year mortgage locks you into a set payment. With
a 30 year mortgage you can make extra payments which will decrease
the number of years of mortgage payments, but you need self
discipline to actually make the payments. You really
have to look yourself in the mirror to answer this question.
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What Is the Benefit of More Equity Sooner?
The benefit of home equity is that it provides a ready source
to borrow against. Often it makes sense to borrow against
yourself (via your home equity).
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How Long Do I Want To Have A Mortgage?
Whether you are young or mature, you may want to eliminate
this obligation sooner. You may, for example, want to
time at the end of your mortgage to enjoy your retirement.
Consider the benefits of earlier relief from this commitment,
but don't forget to consider the income tax implications.
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Should I Use My Home As A Primary Investment?
By obliging in a 15 year mortgage you are investing in real
estate, perhaps leaving less for other investments. Ask
yourself, "How diversified do I want my portfolio to be" before
making this financial commitment.
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Mortgage regulations have changed
significantly over the last few years, making your options
wider than ever. Subtle changes in the way you approach mortgage
shopping, and even small differences in the way you structure
your mortgage, can cost or save you literally thousands of
dollars and years of expense.
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