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| What
is a pre-qualification? |
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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
is the difference between pre-approval and pre-qualification? |
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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? |
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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:
| 1. Calculate
the total cost of the refinance |
| 2. Calculate
the monthly savings |
| 3. 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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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's
the difference between a mortgage broker and a
lender? |
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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?
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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? |
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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? |
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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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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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