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 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 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.
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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.
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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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