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-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.

How will I know how much I can qualify for?

I can work with you to get you qualified BEFORE you look for a home. Based upon information you present to me on the loan application, I can determine the approximate amount of money that you will be allowed to borrow. You will be "pre-qualified" for that loan amount. By allowing me to run your credit report and verify your assets and income, your loan application can be submitted to the underwriter for a full credit approval. I can help you obtain a complete written credit approval (subject to an appraisal) before you make an offer on a home, if you desire.

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.

What is the Annual Percentage Rate on my Loan Estimate Document?

The Annual Percentage Rate (APR) is the cost of your credit expressed as an annual interest rate. Points and other prepaid finance charges are factored into the APR to show the true yield on the loan, which is why the APR is often higher than your note rate. The APR can be compared to the APR on other loan programs to give you a consistent means of comparing rates and programs.

What do I need to bring to closing?

The closing will take place at the title company. Each borrower will need to bring a valid driver's license the day of closing. The funds due at closing must be in the form of either a cashier's check made out to the title company or a wire transfer. You may write a personal check up to $1,500.

What if I am new on my job?

A new job can work in your favor when you apply for your loan. Loan program guidelines look for a 2 year job history in the same field, but a job change for a better position is looked on favorably. If you are a recent college graduate, you may be able to obtain a loan even though you don't have a 2 year work history. When starting a new job, you typically need to be on the job 30 days before approval.

What if I have had credit problems in the past or have filed bankruptcy?

Your credit payment history lets the lender know your intentions to repay the loan. Therefore, a good credit history is important, but a perfect credit history is not. Credit counseling agencies specialize in meeting with clients and reviewing your credit history. If you have any outstanding credit obligations that need to be dealt with, the credit agency can work with you and help you make arrangements to pay any outstanding debts that you may have. First time home buyers can also attend seminars that will go through the home purchasing process and requirements with you.

What if I don't have any established credit?

If you do not have enough established credit, I can work with you to document alternate credit information. If you have been renting, we can obtain a rental rating from your landlord as a way of verifying your payment history. Or, we can contact your utility companies, phone service, cable companies or car insurance carrier to obtain a rating on your payment
history. Not all loan programs will accept alternative documentation on your credit. There are both government and conventional programs that will accept this type of payment history to establish credit qualifications.

What are income and debt ratios?

The Income Ratio is your total monthly housing expense divided by your gross monthly income (before taxes). The Debt Ratio is your total monthly housing expense PLUS any recurring debts (i.e. monthly credit card minimum payment, car payments, or other loan payments) divided by your income. Standard underwriting suggests a maximum guideline of 28% on the Income Ratio and 36% on the Debt Ratio, but these ratios can vary based on the loan program, the financial strength of the borrower and the down payment.

What is Mortgage Insurance?

Mortgage Insurance insures lenders in the event of a borrower's foreclosure. It is paid for by the borrower, and allows lenders to grant loans that they otherwise would not consider. Depending on credit scores and loan structure, mortgage insurance may be required when the down payment is less than 20%.

What are "Cash Reserves"?

Cash Reserves are the funds a borrower has remaining after their loan has funded. The normal requirement could be monies equal to 2 months of the mortgage payment. The amount of Cash Reserves varies by loan program, but larger reserves are a strong compensating factor.

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 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.

What is a loan estimate or closing disclosure?

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 Mac.

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.