Frequently Asked Questions (FAQs)
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.
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.
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.
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.
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.
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.
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.
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.
A loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac.
A mortgage larger than the maximum eligible for conforming purchase by the two Federal agencies, Fannie Mae and Freddie Mac.
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.
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.
You can call or fill out an online request form to find out if Fannie Mae or Freddie Mac owns or guarantees your loan.
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.
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.
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.
The rate will be based on market rates at the time of the refinance and any associated points and fees quoted by the lender.
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.
You can apply now, and should reach out to your servicer or a housing counselor to determine if you qualify.