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Frequently Asked Mortgage
Questions
Do you have questions? We can help! You
will find the answers to several frequently asked mortgage
questions below.
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-qualification 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:
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Calculate the total cost of the refinance
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Calculate the monthly savings
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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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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 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.
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. Currently, any loan over $417,000 is a Jumbo Mortgage.
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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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