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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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What documents are typically required for a loan?
W-2s (last two years)
Paystubs (last 30 days)
Recent Bank Statement (within last two months)
Most Recent Retirement/401K Statement (if applicable)
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