What is Pre-qualification?
The informal process of determining if the borrower will be loan approved by a loan officer and how much money a prospective borrower can possibly be approved for based on running the credit report and verbally getting income and asset information without looking at any financial documents. In some cases, the credit report is not even pulled and borrower merely states what their current fico score is around at (including any foreclosure, short sale or bankruptcy), and how much is their monthly credit obligations. This informal process is based on the loan officer’s past experience and knowing the current lender’s guidelines. If the loan officer feels the borrower can be loan approved, then the borrower goes to the next step of being pre-approved. See “What is Pre-Approval?” below. Also see the EZ Qualifier above to determine if you are Pre-Qualified.
What is a Pre-approval?
A process in which the mortgage broker or lender gathers all your recent financial records (ie paystubs, bank statements, W-2, 1099, 1040’s) and use current lender guidelines to determine if you will be loan approved by the lender’s underwriter. Part of this process includes using the Fannie Mae or Freddie Mac’s website to automate underwrite the loan application and to make a loan decision. If it is approved in either website, then the lender merely double-checks the financials to make sure there were no errors entered into the loan application, but in some small cases, there are limitations this automated underwriting system cannot make a decision on (ie the buyer says it will be owner occupied, but the lender believes it will be an investment due to borrower’s circumstances) and these limitations can be discussed by your loan officer based on your loan situation. In these cases, the lender’s underwriter will overturn the automated underwriting loan approval for denial.
What information do I need to provide when I apply?
When you’re ready to apply, you need the most current information on your monthly income and debt, a total of your assets, your social security number, and employment information. For a complete list, visit our Application Checklist.
Is there a cost to apply? If so, how much?
Upfront cost by borrower is usually to pay for the mortgage credit report from $20 for single up to $40 for husband and wife paid to 3rd party vendors. Also we need to do income verification and sometimes your employer uses 3rd party companies to verify employment and that cost is around $30 – $60 depending on 3rd party company.
Where do I close and sign for my loan?
Typically your closing will take place at a title closing agent’s office. When all parties agree upon a closing date, we will provide you with the exact location and time of your loan closing.
What documents will I receive at closing?
The most important documents that you will receive at closing is the Promissory Note and Deed of Trust. Promissory Note shows the terms and conditions of the loan (ie loan amount, interest rate, due date). Deed of Trust is a security instrument for the lender in case you defaulted on the Promissory Note.
How long will the loan process take?
Loan approval and funding time frames vary depending on the type of transaction and the complexity of your personal finances. The process can take, on average, anywhere from 14–60 days.
What is a lock-in?
Loan approval and funding time frames vary depending on the type of transaction and the complexity of your personal finances. The process can take, on average, anywhere from 14–60 days.
When can I lock-in my rate?
Once your loan is submitted to the lender to be underwritten by the lender’s underwriter, then you can lock the rate based on the rate quote you were given. It is required by the lender that the interest rate must be locked prior to signing the final loan documents at the title. If your loan is not yet locked, then it is considered floating. In some cases, you can request to change your locked interest rate based on the pricing of the rate lock date. In most cases, if you change your locked interest rate to a lower interest rate, then you will be paying the upfront cost in points to the lender at loan closing. Each point equals one percent of the loan amount. FYI, interest rate fluctuates every day and sometimes during the day if the bond market is very volatile. So the rate you were quoted by the loan officer might not be the same when the loan is submitted to the lender and the time it is ready to be rate locked.
How long is my rate lock valid?
Varies between 15 to 45 days, but majority of the time, borrowers lock for 30 days.
Can I pay my loan off early, can I pay extra each month?
Yes, you can make principal payments at anytime during your loan term or pay the loan in full. You can also pay a set amount each month above the normal payment due or make lump sum payments periodically.
What is an escrow account?
A non-interest bearing account setup by the lender to collect enough funds from the borrower to pay for property taxes and home insurance when they are due.
What is PITI?
This represents the accounts your money is applied to when you make your monthly mortgage payment:
P – Principal
I – Interest
T – Taxes
I – Insurance
How do I know what loan is best for me?
Review your current situation and future goals, then answer the following questions to help determine the direction you may wish to take. Also, discuss these questions with your loan officer to help determine the type of loan you need.
• How long do you expect to stay in the house?
• Which is more important, low monthly payments, or low closing costs?
• Will my income increase or decrease in the next three years?
• How comfortable are you with your monthly payment potentially increasing?
What is the difference between a fixed rate and adjustable rate mortgage?
With a fixed rate mortgage, the interest rate and payment remain constant over the life of the loan. Whereas, with an adjustable rate mortgage, the interest rate can either increase or decrease, based upon the terms of the loan. Adjustment in your interest rate will also adjust your monthly mortgage
What is a convertible mortgage?
A convertible mortgage allows you to convert your adjustable rate mortgage to a fixed rate mortgage for a flat fee during a specific time frame.
What is a balloon mortgage?
A fixed term (ie 1 yr, 2 yrs, 3 yrs) of payment, then a lump sum payment of the remaining balance owed at the end of the term. Best to overestimate and choose the longer term rather than be short as you may not be ready to either sell or refinance the subject property.
What is a conventional loan?
A home mortgage other than a guaranteed loan by VA or USDA or insured by FHA. About half of all conventional loans fall under the guidelines of two government-sponsored enterprises (GSEs) named Fannie Mae and Freddie Mac. These GSEs buy mortgages from lenders and sell them to investors. Reason for the creation of these two GSEs is to make mortgages more widely available.
What is a jumbo loan?
A conventional loan that exceeds the loan limits of Fannie Mae or Freddie Mac guidelines.
What is PMI?
This stands for Private Mortgage Insurance for a conventional loan only. It is required if the borrower is loaning over 80% of the appraised value or purchase price, whichever is lower.
This protects the lender against financial loss if the loan is defaulted.
What is mortgage life insurance?
Toggle Content goes hereThis insurance would pay the balance owed on your mortgage home loan in the event of your death during the term of the mortgage.
What is hazard insurance?
This represents the insurance that protects your investment in your home. It provides compensation to the insured in case of property loss or damage.
What are points?
Points are cost paid by Borrower at closing. For example, 1 point equals to 1% of the loan amount. Points are categorized under Loan Origination and/or Loan Discount. Loan Origination is the commission paid to the Lender and Loan Discount is the cost to buy down your interest rate.
What is a buy-down?
A fee paid to the lender to lower the interest rate on a mortgage. The buyer, seller, or any other interested party may pay it. A permanent buy-down would lower the rate for the entire term of the mortgage, while a temporary buy-down lowers the rate for a specified shorter term, generally 3 years or less.
What is an origination fee?
An origination fee is an upfront fee charged by the lender for processing a new loan application. This fee is the lender’s compensation. Fees are quoted in the percentage of the loan amount.
What are closing costs?
Fees and costs that both buyer and seller must pay at closing. They generally include: origination fee, discount point, appraisal fee, credit report, title search, recording fees, and other costs described in the Closing Disclosure or Combined Settlement Statement.
