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 $417,000 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
$417,000.
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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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