Do you have questions? We can help! You will find the
answers to several frequently asked mortgage questions
below.
A FICO score is a credit score developed by Fair Isaac &
Co. Credit scoring is a method of determining the
likelihood that credit users will pay their bills. A
credit score attempts to condense a borrower’s credit
history into a single number. Fair, Isaac & Co. and the
credit bureaus do not reveal how these scores are
computed. The Federal Trade Commission has ruled this to
be acceptable.
Credit scores analyze a borrower's credit history
considering numerous factors such as:
-
Late payments
-
The amount of time credit has been established
-
The amount of credit used versus the amount of credit
available
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Length of time at present residence
-
Employment history
-
Negative credit information such as bankruptcies,
charge-offs, collections, etc.
There are really three credit scores computed by data
provided by each of the three bureaus--Experian, Trans
Union and Equifax. Some lenders use one of these three
scores, while other lenders may use the middle score.
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Pre-qualification is usually determined by a loan officer.
After interviewing you, and reviewing your credit, income,
expenses, etc. the loan officer determines the potential
loan amount for which you may be approved. The loan
officer does not issue loan approval; therefore,
pre-qualification is not a commitment to lend.
Pre-approval is the next step after pre-qualification.
Your loan application is submitted to a lender's
underwriter, and a decision is made regarding your loan
application. At this time your credit, down payment,
employment history, etc. are verified by the bank. Getting
your loan pre-approved allows you to close very quickly
when you do find a home. Pre-approval can also help you
negotiate a better price with the seller.
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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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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.
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You cannot close a mortgage loan without locking in an
interest rate. There are four components to a rate lock:
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Loan program.
-
Interest rate.
-
Points.
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Length of the lock.
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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.
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Your loan can be sold at any time. There is a secondary
mortgage market in which lenders frequently buy and sell
pools of mortgages. This secondary mortgage market results
in lower rates for consumers. A lender buying your loan
assumes all terms and conditions of the original loan.
If your lender goes out of business, you are still
obligated to make payments! Typically, loans owned by a
lender going out of business are sold to another lender.
The lender purchasing your loan is obligated to honor the
terms and conditions of the original loan. Therefore, if
your lender goes out of business, it makes little
difference with regards to your loan payments.
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PMI is normally required when you buy a home with less
than 20 percent down. Mortgage insurance is a type of
guarantee that helps protect lenders against the costs of
foreclosure. This insurance protection is provided by
private mortgage insurance companies to protect the
lender. It enables lenders to offer loans with lower down
payments. In effect, mortgage insurance pays the lender a
certain percentage of your original purchase price to
cover a lender's losses in the unfortunate event of
foreclosure. Therefore, without mortgage insurance, you
would need to make a 20 percent down payment in order to
buy a home.
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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 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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Once a loan has been approved by the lender, the buyer is
asked to go to settlement to sign papers, and the loan
process is complete. There are certain costs involved in
closing a loan which usually amount to about 2%-5% of your
mortgage loan. For example, if your mortgage loan is
$300,000, your closing costs might range from $6000 to
$15000. These closing costs will be in addition to your
down payment on the house, and they vary based on the loan
amount, loan program, etc.
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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. |
