A: 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
Q: When does it make sense to refinance?
A: 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.
Q: What is rate lock?
A: 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.
Q: What is a mortgage banker?
A: A Mortgage Banker 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. The complete transaction is handled by the mortgage banker including funding the loan the day of closing.
Q: Will I save money by going directly to a bank?
A: Not necessarily. In fact, if you are a reasonably astute shopper, you will probably do better dealing with a mortgage banker. Mortgage bankers 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 bank. Furthermore, because mortgage bankers deal with multiple investors on the secondary market — they can shop for the best terms available on any given day. In addition, they can find investors who specialize in various market niches that many banks 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.
Q: What Is a full documented loan?
A: 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.
Q: What is a good faith estimate?
A: 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.
Q: What is the difference between a conforming and jumbo loan?
A: A conforming loan is a loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac. The loan limits are currently $417,000 for a single family house.
A jumbo mortgage is a loan larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac, currently $417,000.
Q: What are points?
A: Points are a loan fee that can be financed into the loan in some circumstances.
Q: What is pre-qualification?
A: This is the process of determining whether a customer has the credit, cash and 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. Only after the information is verified, the appraisal is completed, and the title work is reviewed will an approval be issued.
Q: What is a reverse mortgage?
A: The U.S. Department of Housing and Development (HUD) created reverse mortgages to give older Americans a greater sense of financial security. A reverse mortgage is a specialized loan that enables senior homeowners (62 years or older) to convert home equity into tax-free income without having to sell the home, give up the title or take on a new monthly mortgage payment. For more information on Reverse Mortgages, click the link below.
Q: What is an FHA mortgage?
A: The Federal Housing Administration is the largest insurer of mortgages in the world. The FHA makes home financing possible for people who might not qualify for conventional mortgage programs to purchase a home or refinance their current mortgages, including Adjustable Rate Mortgages.