Frequently
Asked Mortgage Questions
Do
you have questions? We can help! You will find the answers
to several frequently asked mortgage questions below
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:
- Calculate
the total cost of the refinance
- Calculate
the monthly savings
- Divide
the total cost of the refinance (#1) by the monthly
saving (#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 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
is 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 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?
No
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 and 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 band
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 he 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?
If
the list of settlement charges that the lender is obliged
to provide the borrower within three business days of
receiving the loanapplication.
What
is a conforming loan?
A
loan eligible for purchase by the two major Federal
agencies that buy mortgages, Fannie Mae and Freddie
Mac.
What
is a jumbo mortgage?
A
mortgage larger than the maximum eligible for conforming
purchase by the two Federal agencies, Fannie Mae and
Freddie Mac.
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
requirement 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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