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What is the difference between pre-approval and pre-qualification?
A pre-qualification is normally issued by a loan officer, who, after interviewing you, determines the dollar value of a loan you can be approved for. However, loan officers do not make the final approval, so a pre-qualification is not a commitment to lend. After the loan officer determines that you pre-qualify, he/she then issues you a pre-qualification letter. This pre-qualification letter is used when you are making an offer on a property. The pre-qualification letter indicates to the seller that you are qualified to purchase the house you are making an offer on.
Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is submitted to an underwriter and a decision is made regarding your loan application. If your loan is pre-approved, you are then issued a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a house. A pre-approval can help you negotiate a better price with the seller, since being pre-approved is very close to having cash in the bank to pay for the house!
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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 rate mortgage loan to a fixed rate mortgage 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.
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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 mortgage lender?
A mortgage broker is a person whose job it is to bring together lenders and borrowers. For a commission, a mortgage broker will work to secure a loan for you from any lending institution with which he or she has a working relationship.
A mortgage lender is a financial institution from which you receive money to purchase a home. A lender gets the money from investors or its own customers if it is a consumer institution such as a bank.
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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.
Contact me with any questions.
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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.
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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. Assets are verified, and must meet an adequacy standard.
Stated Income/Stated Assets: Both income and assets are disclosed but not 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 a list of estimated settlement charges that the lender is required 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?
Points are an upfront payment as part of the charge for the loan. Points are expressed as a percentage 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 client has enough cash and sufficient income to meet the qualification requirements set by the lender on a particular loan. A pre-qualification is subject to verification of the information provided by the applicant. A pre-qualification is short of pre-approval because it does not take into account the credit history of the borrower.
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