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What is the difference between Pre-Approval and Pre-Qualifying?
The pre-approval process is much more complete than pre-qualifying. For pre-qualification, the loan officer usually asks you a few questions about your income/assets and obtains a preliminary credit report. Pre-approval includes most of the steps required to obtain formal approval, except for the appraisal and title report since there is no subject property. Therefore, pre-approval can often put a potential home buyer in a stronger negotiating position.
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When does it make sense to refinance?
Most people refinance to save money, either by obtaining a lower interest rate or by reducing the overall term of the loan. However, refinancing can also be beneficial to borowers wanting to convert an adjustable loan to a fixed loan, or to consolidate debts.
The decision to refinance can be complicated since there are numerous factors to consider. A quick way to determine whether it's feasible for you or not is to do the following:
Estimate the total cost of the refinance;
Calculate the "projected" monthly savings;
Divide the total cost of the refi by the monthly
savings to determine the break-even point.
If you expect to own the subject property longer than this, you will save money by refinancing. For more information, please consult a certified mortgage consultant with your specific situation.
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What is a rate lock?
A rate lock is a written or verbal agreement between the lender and the borrower outlining the following components: closing date, subject property, interest rate, origination and/or discount points.
Unless there is a specific request made by the borrower during the loan process, the rate/points are typically floating with the market. In most cases, lenders nowadays require approval prior to locking.
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What is the difference between a mortgage broker and a lender?
A mortgage broker (and some mortgage bankers) counsels you on the loans available from different wholesale lenders, assists in completing your application, and processes the loan.
When the processing phase is complete, the broker submits the file to the lender to "underwrite" the loan, ie: decide whether or not the deal meets their lending critieria, etc. Typically, the u/w issues an approval subject to certain conditions that the broker or borrower must meet prior to closing the loan.
Once a clear-to-close has been obtained, the broker works with the lender to prepare/send closing documents to the title company. The lender then works with the title company to close/fund the loan.
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Will I save money by going directly to my bank?
Not necessarily. Since no two loan scenarios are exactly alike and because one lender cannot possibly be the price leader on a daily basis, you will often do better dealing with an independent mortgage broker/mortgage banker.
Mortgage brokers/mortgage bankers do not add any net cost to the lending process, because they perform functions that would otherwise have to be handled by bank employees. Furthermore, because mortgage brokers/mortgage bankers deal with several wholesale/corres lenders, they can help shop for the best terms.
In addition, they can find the lenders who specialize in various market niches that many bank employees avoid, such as loans to applicants with lower credit scores, borrowers who don't intend to occupy the property, purchases with a lower down payment, etc.
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What does Full Doc mean?
Full Documentation loans require all income and assets disclosed on the application to be verified according to present industry lending guidelines.
The verified income is used to determine the applicant's overall debt ratio and ability to repay the mortgage. Formal verification requires the borrower's employer to verify employment and the borrower's bank to verify deposits.
In many cases, Alternative Documentation (Alt Doc) can be utilized to save time. In the case, the lender relies on copies of recent paystubs, W2s, 1040s, bank statements and phone verifis.
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What are the other types of loans?
Stated Income/Verified Assets (SIVA): Income is disclosed and the source of the income is verified, but the amount received is not. Assets are verified and must meet the current standards.
Stated Income/Stated Assets (SISA): Income and assets are both disclosed on the applcation, but neither is verified. Most lenders have suspended this type of loan indefinitely.
No Asset Verification (NAV): Assets are disclosed but not verified. This a rare parameter, but still applicable on select transactions.
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What is a Good Faith Estimate?
The GFE is a written list of estimated settlement charges that the lender is obligated to provide to the borrower within three business days of receiving a signed loan application. It is often accompanied by a more complicated document called the Truth-In-Lending disclosure. The primary purpose of the TIL is to express the estimated cost of the loan in the form of an interest rate.
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What is a Conforming loan?
Loans up to $417,000 that are eligible for purchase by FNMA and FHLMC. These two companies were established by the Federal Govt aprroximately 30 years ago to purchase mortgages from banks and mortgage lenders on the secondary market.
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What is a Jumbo loan?
Loans >$417,000 that are not eligible for purchase by FNMA or FHLMC. Most are now limited to Fixed/ARM loans and are subject to slightly different qualifying guidelines. These change frequently, so be sure to contact a certified mortgage consultant for futher info.
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What are points?
Points are an upfront cash payment expressed as a percentage of the loan amount. They can be disclosed as an Origination Fee, which is the broker or lender's fee for arranging the loan, but can also be disclosed as Discount Points for applicant's who prefer a below-market (discounted) rate of interest.
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What is a Pre-Qualification?
This is the process of determining whether the customer has a high enough credit score and sufficient income/assets to meet the present requirements for the type of loan they are seeking.
Pre-Qualification is often done online or by phone and is subject to verification of the information provided by the applicant. Therefore, it's understood that a "pre-qual" is not an approval.
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Do you have questions? Below you will find the answers to several FAQs.