FAQs
What is the difference between
pre-approval and pre-qualification
When does it make sense to refinance?
What is a rate lock?
What is the difference between a mortgage broker
and a lender?
Will I save money going directly to a mortgage
lender?
What is a full documented loan?
What are the other types of loans?
What is a good faith estimate?
What is a conforming loan?
What is a jumbo mortgage?
What are points?
What is a prequalification?
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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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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