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.
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.
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.
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.
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.
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.
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.
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.
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 $300,700 for a
single family house.
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 $300,700.
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.
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.
How can I increase
my score?
While it is difficult to increase your score over the short
run, here are some tips to increase your score over a period
of time.
 Pay your
bills on time. Late payments and collections can have a serious
impact on your score.
Do not
apply for credit frequently. Having a large number of inquiries
on your credit report can worsen your score.
Reduce
your credit-card balances. If you are "maxed" out
on your credit cards, this will affect your
credit score negatively, therefore, keep a low balance on
your credit accounts
If you
have limited credit, obtain additional credit. Not having
sufficient credit can negatively impact
your score.
Don’t
close your credit cards even if you have a zero balance. This
will reduce your FICO score.
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