Frequently Asked Mortgage Questions and Videos
Below you will find common questions about new and refinance mortgages and the corresponding answers. I am happy to answer any other questions you have--you can email me or just give me a call.
What is a “prequalification”?
Prequalification is a simple process whereby a lender will determine if the borrower has the means to qualify for a certain amount and type of loan.
Prequalifications eventually have to be vetted further when getting the approval for an actual loan.
What is the difference between the prequalification and preapproval process?
Preapproval is a more thorough process than prequalification. If you are getting prequalified for a loan, a loan officer will ask you a few basic questions and then give you a prequalification letter. Preapproval on the other hand is much more involved and involves all aspects of getting a loan except for the title search and home appraisal. As a preapproved buyer, you'll be in a better position to negotiate for a home then bidders who are not preapproved.
What is a “rate lock”?
A rate lock is an agreement between the buyer and the lender that stipulates the exact interest rate, loan program, length of the lock, and points that will be offered for a certain loan. Once the rate is locked, the above-mentioned rates and terms won't be changed for a given loan for a certain time window.
What is the difference between a “mortgage broker” and a “mortgage lender”?
The mortgage broker will help you find the best loan from one of many possible lending companies. They typically do all the legwork involved with getting your loan setup and filled. This would include taking in and verifying all paperwork and making arrangements for appraisals, etc. Once the filing has been completed the “mortgage lender” becomes involved. The mortgage lender will underwrite the loan if the mortgage lender believes that you are credit-worthy.
What is a fully documented loan?
With a fully documented loan all income and assets of a borrower are documented so that they can be verified and to make sure the borrow will be able to afford to pay back the loan. Many different kinds of documentation may be used for this process including copies of the borrower’s original bank statements, paycheck stubs, tax statements and W-2s.
Are there other types of loans?
Yes, there are other variations of loans, including stated income/stated
assets, stated income/verified assets, no ratio, no income, stated assets or no
asset verification, or no asset loans.
In a stated income/verified asset loan the income is disclosed and the source
of the income is verified, but the amount of income is not verified. The assets
are also verified and must meet an adequacy standard, i.e. 6 months of stated
income and four months of expected monthly housing expense.
In a stated income/stated asset loan both the income and the assets are
disclosed, but neither are verified. The source of the income is verified,
In a no ratio loan, the amount of income is disclosed, but not used for
qualification purposes and the standard rule that a borrower’s housing
expense may not exceed a specified percent of income is ignored. Assets are<
disclosed and verified.
In a no income loan, the amount of income is not disclosed, but his/her assets
are disclosed and verified, and must at least meet an adequacy threshold.
In a stated asset loan, also known as a no asset verification loan, assets are
disclosed, but they are not verified. The income is disclosed and verified and
used to qualify the applicant for the loan.
In a no asset loan, the amount of assets is not disclosed, but income is
disclosed and verified in order to qualify the applicant borrower.
In a no income/no asset loan, neither the income nor the assets of the
potential borrower/applicant disclosed.
What is a “conforming” loan?
A “conforming” loan is loan eligible for purchase by Fannie Mae and Freddie
Mac, which are two Federal Agencies that purchase mortgages.
What is a “jumbo” mortgage?
A “jumbo” mortgage is a mortgage, which is larger (in dollars) than the
maximum eligible for purchase by Fannie Mae and Freddie Mac, the Federal
agencies that purchase mortgages.
What are “points”?
“Points” are an upfront cash payment that is required by the lender as
portion of the charge for the loan, that is stated as a percentage of the total
loan amount. For example, 2 points would result in a charge equal to 2
percent of the total loan balance being paid to the lender.
How much can I afford to borrow?
When a mortgage banker is considering how much they will lend you for your home purchase, the three most important items are your income, debts, and the amount of down payment provided. Any of these items alone may significantly alter the amount of loan you are qualified to receive. Generally, a monthly mortgage payment should not exceed twenty-eight percent of your gross monthly income and no more than thirty-six percent of your gross monthly income should be used to pay your mortgage plus other monthly debt. The following are the most common items that limit the amount you may qualify for or may prevent you from qualifying for a mortgage at all.
Excessive Long-Term Debt
If you have an excessive amount of long-term debt a lender will either limit the amount they will lend to you or may not offer to lend to you at all. To counteract this, a borrower should offer to make a lower down payment and use the money that would have been used for the down payment to pay off some of their preexisting debt. Alternatively, a borrower could sell an asset and use the money from the sale to pay off a preexisting debt.
If your income is insufficient to qualify you for the amount of mortgage loan you would like, the following options may be able to help. The borrower should have a second person act as a cosigner on the mortgage. Note that the cosigner is now jointly liable on the mortgage payment. The borrower may make a higher down payment, as this will effectively limit the amount to be mortgaged. Additionally, the borrower should consider any other sources of income that they may have omitted, such as child support, alimony, bonuses, overtime, or future pay rises. Finally, the borrower could consider a different type of mortgage that would allow the borrower to stretch their purchasing power.
If the borrower suffers from credit issues, the borrower should immediately begin a process to repair their credit. Contacting creditors and requesting that any negative information be removed can repair the borrower’s credit. Additionally, the borrower will improve their credit rating by paying off any outstanding judgments, liens, and collections.
Lack or Minimal Down Payment
There are a few options to overcome a lack of a down payment or a minimal down payment. One option would be to ask an immediate family member for a gift or you could sell or borrow against an asset for money to use for the down payment. The borrower could ask the seller to carry back financing or to contribute towards closing costs. The borrower could ask the mortgage banker for a low point or zero point loan or they could consider other financing options that offer lower down payments and help with the costs of closing.
We understand that obtaining a Mortgage or refinancing a homeloan can be frustrating and complicated, but we know how to simplify the process and help our clients meet all of the requirements. Please contact us for a free consultation.