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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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About Making Home Affordable
The Obama Administration has introduced a comprehensive Financial Stability Plan to address the key problems at the heart of the current crisis and get our economy back on track. A critical piece of that effort is Making Home Affordable, a plan to stabilize our housing market and help up to 7 to 9 million Americans reduce their monthly mortgage payments to more affordable levels.
The Home Affordable Refinance Program gives up to 4 to 5 million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments. The Home Affordable Modification Program commits $75 billion to keep up to 3 to 4 million Americans in their homes by preventing avoidable foreclosures.
Our consumer website provides homeowners with detailed information about these programs along with self-assessment tools and calculators to empower borrowers with the resources they need to determine whether they might be eligible for a modification or a refinance under the Administration's program. Through this website, borrowers can also connect with free counseling resources to help with outstanding questions; locate homeowner events in their communities; find a handy checklist of key documents and materials to have ready when making that important call to their servicer as well as FAQs from borrowers in similar circumstances; and much more.
We hope that you will find this website informative and useful as we all work together to solve our nation’s housing crisis and put our country on the path to a lasting economic recovery. |
Refinance Homeowner Example
Example #1 Meet Brian and Lisa – They need to refinance their mortgage
Brian and Lisa have steady jobs – Brian is a high school teacher, Lisa is a nurse. They pay their bills on time, including their monthly mortgage payment. Like many homeowners, Brian and Lisa are unable to refinance to a lower interest rate because the value of their home value has declined.
Do Brian and Lisa qualify to refinance to a lower interest rate under the new plan? They may because they meet the following requirements:
- They own a one- to four-unit home.
- The loan on their home is owned or guaranteed by Fannie Mae or Freddie Mac.
- They are current on their mortgage payments and have not been 30 days late making a payment within the past 12 months.
- Their mortgage is no more than 105% of the value of their home; in this case they owe $258,000 on their first mortgage but their home value dropped to $250,000.
Like Brian and Lisa, you may be able to refinance to take advantage of lower interest rates to reduce your mortgage payments. If so, here are the answers to some of the questions you may be asking.
How do I know if I have a Fannie Mae or a Freddie Mac loan?
You can call or fill out an online request form to find out if Fannie Mae or Freddie Mac owns or guarantees your loan.
How do I know if I am eligible?
Eligible loans include those where the first mortgage (including any refinancing costs) does not exceed 105 percent of the current market value of the home. For example, if your home is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.
I have both a first and second mortgage. Do I still qualify to refinance under the program?
You may only refinance your first mortgage. If that mortgage is less than 105 percent of the value of the property, you may qualify.
Your eligibility will depend on whether you are able to make the new payments on the first mortgage. The lender on your second mortgage must agree to remain in the second position.
Will refinancing lower my payments?
Generally yes. If your mortgage interest rate is higher than the current market rate you should see an immediate reduction in your payments. If your existing mortgage requires you to pay interest only and no principal, or if you are currently paying only a low introductory (or “teaser”) rate, you may not see your current payment go down. However, refinancing to a low, fixed rate mortgage can reduce the risk of payment shock when your monthly payment amount changes, and refinancing could save you a great deal of money over the life of the loan.
What would my new interest rate be?
The rate will be based on market rates at the time of the refinance and any associated points and fees quoted by the lender.
Will refinancing reduce the amount that I owe on my loan?
No, refinancing will not reduce the amount you owe on your loan or any other debt you may have. However, by locking in a low fixed interest rate, it should save money over the life of the loan.
When can I apply?
You can apply now, and should reach out to your servicer or a housing counselor to determine if you qualify.
$8000 Tax Credit
$8000 First Time Home Buyer Tax Credit
- The tax credit is available for first time home buyers only.
- The maximum credit amount is $8,000
- The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009
- Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
- You can use down payment assistance with one of our state nonprofit organizations and still qualify for the $8000 tax credit.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
- Who is eligible to claim the $8,000 tax credit?
First time home buyers purchasing any kind of home new or resale are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.
- What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
- How do I claim the tax credit? Do I need to complete a form or application?
Applying for the credit will be easy or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their taxes can file amended returns for 2008 to claim the credit.
- What types of homes will qualify for the tax credit?
Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.
- Does the credit amount differ based on tax filing status?
No. The credit is in general equal to $8,000 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer.
- Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $8,000 tax credit?
In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $8,000. For most first-time home buyers, this means the credit will equal $8,000. For home buyers purchasing a home priced less than $80,000 the credit will equal 10% of the purchase price.
- I heard that the tax credit is refundable. What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.
For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
- What is the difference between a tax credit and a tax deduction?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives a $8,000 tax credit would owe nothing to the IRS.
- Does the credit have to be paid back to the government?
The buyer must keep the home for at least three years to avoid paying back the tax credit.
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