Frequently Asked Questions
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, twenty-five
to thirty, 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, six months of stated income and two 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 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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