Frequently Asked Mortgage Questions
by Refinance One
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-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.
When does it make sense to
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
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.
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.
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.
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.
What is a full documented
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
What are the other types of
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.
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
Stated Assets or No asset verification:
Assets are disclosed but not verified, income is disclosed,
verified and used to qualify the applicant.
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.
What is a good faith
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.
What is a conforming loan?
A loan eligible for purchase by the two major Federal agencies
that buy mortgages, Fannie Mae and Freddie Mac.
What is a jumbo mortgage?
A mortgage larger than the maximum eligible for conforming
purchase by the two Federal agencies, Fannie Mae and Freddie
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
What is a
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 following is a partial list of
programs offered with a brief description of
the key elements of each. For a complete
list of the programs that we offer, please
Traditional loan programs
that usually require 5% down and
offer competitive interest
rates. Documentation and
fair-to-good credit are
No Income Verification
Loans where your income is
not requested or verified with
as little as 10% down are stated
income loans. There are several
varieties of the "no-doc" loan
today. The type of loan that is
best suited for a particular
borrower depends on that
borrower's situation. Some
borrowers choose not to disclose
employment, income, or asset
information, while others may be
willing to disclose employment
and asset information but not
income. Still others might be
willing to disclose income but
select a program that does not
calculate debt-to-income ratios,
allowing those borrowers to
exceed the traditional
guidelines in order to qualify
for a larger mortgage amount.
With all the different
variations of the no-doc loan,
there is definitely a mortgage
program for today's
No Down Payment
0% down payment required and
closing costs paid by the
borrower (seller can contribute
up to 6% towards closing costs).
Troubled credit? Bankruptcy?
Been turned down somewhere else?
We offer loan programs for
customers with credit problems.
0% down payment required and
closing costs can be financed up
to 103% of the purchase price.
Only single-family homes that
will be owner-occupied are
eligible. First time homebuyer
status not required and there
are no income limits.
This is a loan which carries
a second mortgage for up to 15%
of the purchase price of the
property. It is usually used
when wishing to avoid PMI
insurance or to keep your first
mortgage under the FNMA/FHLMC
limit to avoid Jumbo rates. The
borrower puts down a 5% down
payment and then finances a
first mortgage up to the FNMA/FHLMC
limit and a second mortgage of
up to 15% of the purchase price.
Other variations are 80/10/10 or
Offers 30 and 15 year fixed
rate mortgage and competitive
ARM products with full document,
alternate documentation and
Cash out and No cash out
refinance are allowable. Single
family detached, Condo's, PUD's
and single-family second homes
can be financed with no
Challenged Credit Loans
These mortgages are for
borrowers with less-than-perfect
credit. They can vary from
slightly damaged credit to
severely damaged. Regardless of
your situation, we have a
mortgage that will get you back
High Debt Ratio Loans
A ratio of monthly bills to
monthly income higher than 50%
is considered a high debt ratio.
Loan programs are available for
borrowers in this situation,
allowing them to finance the
purchase of a home or property.
Second Mortgage Loans
Subordinate to the first
mortgage, these loans offer the
borrower the ability to get
money for home improvement, debt
consolidation, or many other
reasons without disturbing their
first mortgage. Convenient when
you have a low interest first
Building a new home can be an
exciting prospect - unless you
get caught up in a construction
loan approval process that is
overly complicated and time
consuming. With this loan, we
will finance up to 90% of the
cost of land plus the costs of
construction. We offer a
one-time fixed rate closing or
traditional ARM products.
Used to finance 1-4 family
properties that will be for
investment with as little as a
10% down payment. Aggressively
priced, these programs have many
variations, including: No Doc,
Limited Doc, and Full Doc.
Program may not be available in
Similar to FHA, but without
maximum mortgage amount
limitations. Must be a single
family, owner occupied home and
borrower must have a credit
score of over 680.
Backed by the Veterans
Administration and the federal
government, it is similar to FHA
except that you have to be a
qualified Veteran or military
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