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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 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?
The two major Federal agencies that buy mortgages are Fannie Mae & Freddie Mac. They are the two biggest agencies that purchase mortgages by lenders. The loan limits are currently $417,000 for a single family house, 2 family $533,850, 3 family $645,300, 4 family $801,950.
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What is a jumbo mortgage?
Mortgages larger than the maximum eligible for Fannie Mae and Freddie Mac are considered a jumbo mortgage. Anything over $417,000 would be a jumbo mortgage.
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What are points?
It is an upfront cash payment required by the lender as part of a charge for the loan, expressed as a percent of the loan amount. It’s considered an opportunity to buy down your rate with an addition fee paid upfront at closing. (1 point is 1% of the loan amount, so on a $100,000 1 point would cost $1000 plus closing costs)
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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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Private mortgage insurance is insurance that home buyers are typically required to buy if their down payment is low. It is usually required for owner-occupied 1-4 family dwellings if the down payment is 20 percent or less of the purchase price of the home and the land. This insurance helps to protect the lender if the borrower does not repay the loan.
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A popular approach to avoid PMI is called a blend mortgage or also called a piggy-back loan. Whether putting down 0%, 5%, 10%, 15% or even avoiding a jumbo mortgage, this is a creative financing option to help customers save THOUSANDS. This is achieved by obtaining a 1st mortgage at 80% of the purchase price or appraised value and a 2nd for the remaining balance. Please contact your mortgage professional for more information.
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Fair Isaac Corporation developed this mathematical formula used to produce FICO scores. A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that a credit user will pay their bills. It's a snapshot of your credit risk picture at a particular point in time. The higher your score, the lower the risk to lenders. Fair, Isaac began its work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit rating.
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How can I increase my score?
While it is difficult to increase your score over the short run, here are some tips to increase your score over a period of time.
- Pay your bills on time. Late payments and collections can have a serious impact on your score.
- Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.
- Reduce your credit-card balances. If you are "maxed" out on your credit cards, this will affect your credit score negatively.
- The following can effect your score negatively: Recent Late payments on (Credit Cards, Mortgages, Installment Loans, or Charge off), High Balances, Recent Inquiries, Not Enough Credit, Too Much Credit .
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What if there is an error on my credit report?
If you see an error on your report, report it to the credit bureau. The three major bureaus in the U.S., Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) all have procedures for correcting information promptly. Alternatively, your mortgage company may help you correct this problem as well.
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