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 $333,700 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
$333,700.
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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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