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What's a 'HUD'?
Also called the settlement statement, it’s the master accounting page for any real estate closing that involves mortgage financing. The final HUD-1 will show all figures associated for the purchase or refinancing of a home. These items include the sales price, closing costs, escrow items, property taxes and loan amounts. The statement will be reviewed before and then signed at closing.
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What’s Private Mortgage Insurance (PMI?)
PMI is insurance that lenders require when you are trying to borrow a large amount of what a home is worth. PMI is required on loans with less than 20 percent down. Though paid by the borrower, PMI is a policy that benefits the lender. Sometimes, lenders can structure your one loan into two so that PMI is not paid. You will see mortgage shorthand for these “piggyback loans” written as 80:15:5 or 80:10:10.
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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. Having been pre-approved means, in the eye of a realtor, that you are a more “serious” buyer than someone who just has a pre-qualification letter.
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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 the act of guaranteeing, via a written document, an interest rate, loan program, points and term for a set period of time (15 days, 30 days, 45 days, etc.). Make sure that your rate lock period is long enough to get you through your loan closing.
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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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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.
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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 (GFE)?
It’s a document that you will be given with a copy of your loan application. It estimates settlement charges, and is organized in similar fashion to a settlement statement (see “What’s a HUD?” below). When comparing rates and loan programs, the GFE can be helpful in detailing various lender costs (outlined in the 800 section of the GFE).
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What is a conforming loan?
A loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac.
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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.
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What are points?
These are sometimes called “Origination Fees” or “Discount Points” or even “Broker Fees”. One point equals one percent of the loan amount (so on a $200,000 loan, one point equals $2,000). Borrowers can pay up front points to reduce the loan’s interest rate. Pay a lot now, save a little each month in the future. Which is right for you will hinge on how long you’ll be in the property!
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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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