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Helpful Q&A:
1. Should you talk to a mortgage professional before house hunting? Answer
2. What is the difference between a mortgage broker and my bank? Answer
3. What is a credit score? Answer
4. What is the difference between a pre-qualification, a pre- approval , and a formal approval? Answer
5. What information do I need to get a mortgage? Answer
6. How can I make the mortgage process go faster? Answer
7. I hear about these different "ratios" when qualifying for a mortgage. What are front and back ratios? Answer
8. What is PMI (Private Mortgage Insurance? Do I have to pay it? Answer
9. What are closing costs? Answer
Answers:
1. Should you talk to a mortgage professional before house hunting?
Absolutely! Even if you haven't so much as picked out houses to visit yet, it's important to see your mortgage professional first. When we pre-qualify you, we help you determine how much of a monthly mortgage payment you can afford, and how much we can loan you. It's short and to the point, and we keep the paperwork to a minimum! To a home seller, your being pre-qualified is like you walked into their house with a suitcase full of cash to make the deal.
2. What is the difference between a mortgage broker and my bank?
Mortgage brokers lend money from other sources such as mortgage banks. They attempt to find competitive mortgage pricing from various mortgage banks at wholesale prices and earn a profit. The theory is that because a mortgage broker has access to multiple lenders, they have the ability to shop for the best rates. 50% or more of all mortgages are originated by mortgage brokers.
Mortgage bankers will fund a mortgage with its own money, and either sell the mortgage like a broker, or keep it in house. Mortgage bankers also service mortgages that they do not own. Many mortgage banks also have a wholesale mortgage operation where they use mortgage brokers to funnel mortgages their way. Typically the wholesale operation will have more favorable rates than is available through their own retail channel. (less costs involved i.e. no infrastructure to maintain)
3. What is a credit score?
There are three major credit reporting agencies (Equifax, Experian and TransUnion) and they each use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. Each of the models considers a range of data available in your credit history such as:
How long have you had credit?
Payment History - Do you pay your bills on time?
Credit Card Balances - How much do you owe on how many accounts?
Credit Inquiries - How many times have you had your credit checked?
Each of these, and other items, are assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 850, with higher being better. Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
4. What is the difference between a pre-qualification, a pre- approval , and a formal approval?
Pre-qualification is an opinion that your income, assets and current debts qualify you for a loan of some specified amount. The opinion may come from a lender, a Realtor, or it may be your own based on your use of an affordability calculator. Whatever the source, the opinion does not take your credit into account, and no one is committed by it.
Pre-approval is a conditional commitment by a lender or broker to make a loan prior to the identification of a specific property. On a pre-approval, unlike a pre-qualification, the lender verifies the information you provide and checks your credit. The lender's commitment under a pre-approval is always conditional, but rarely are the conditions spelled out.
Formal Approval is a commitment by a lender to make a loan. Unlike a pre-approval, a specific property (along with its appraised value) is identified, and the loan details are spelled out. These include the type and purpose of loan, down payment, and type of documentation. It will also include an interest rate, even though a rate is not firmly established until it is locked. It is not 100%, however because sometimes one or more of the conditions that accompany the approval are not met. Approval letters contain “Prior to Doc” and “Prior to Funding” conditions, which are checklists of nitty-gritty details that must be completed before the final documents are drawn, and before funds are disbursed.
5. What information do I need to get a mortgage?
You will need to complete a full credit application plus provide the items below. This is not the complete list for all cases, but it is a good start.
a. Legible copy of drivers license and social security cards
b. Last two months checking and savings account statements - all pages
c. Note, deed of trust, and survey from last transaction if refinancing ( you will find this in the package that the title company gave you at your last closing )
d. Copy of mortgage statement from current mortgage if refinancing
e. Name and number of current insurance agent
f. Last 2 years W-2’s
g. 30 days worth of paystubs
6. How can I make the mortgage process go faster?
A. Have everything ready and in one place. If you get them all together and keep them in a safe, portable place like a special pouch or folder, you can cut down on time spent rooting around for things we may need. Also, you'll help cut down on your own anxiety and confusion.
B. Be honest and complete when you fill out your application. "Fudging" your employment or residence history or omitting open credit accounts you'd rather not have considered doesn't increase your chances of getting a favorable loan. In 100 percent of cases, it makes it harder, and it takes longer.
C. Respond promptly to requests for additional information. During processing, we or the lender considering your loan may need additional information. Provide it as soon as you get the request, or return the call as soon as you get the message.
D. Be prepared to explain derogatory items in your credit report. This is really part of B above. If you had an illness or a divorce where you missed or made late payments, or you have other instances of late payments or delinquencies on your credit report, be prepared to explain them. Be honest, and don't be nervous! The loan processor isn't judging you; they're trying to fill in all the blanks in their paperwork.
E. Let the appraiser in! The appraisal is one of the lengthiest parts of the mortgage loan process. Studies have shown that the single biggest factor in appraisal "lag time" is the appraiser's inability to reach the homeowner to make an appointment. If you're refinancing and the appraiser calls to make an appointment, make it as soon as convenient for both of you.
7. I hear about these different "ratios" when qualifying for a mortgage. What are they?
Debt to income ratios give lenders a quick rule of thumb to determine how much you can borrow. They try to keep loans affordable by keeping payments to a modest percentage of your total income. With debt to income ratios, they can quickly figure out a reasonable monthly payment – and use that number to calculate your total loan amount.
8. What is PMI (Private Mortgage Insurance)? Do I have to pay it?
Mortgage insurance is a method of reducing a lender’s loss in the event of a default on a mortgage. It’s just like other forms of insurance in that a pool of money is created via insurance premiums paid by the many who are insured. And from that pool of money, losses or claims are paid. In the mortgage world, when the amount of money borrowed is more than 80% of the appraised value of the property, then the lender requires the borrower pay for mortgage insurance. There are ways to avoid the insurance by getting a second mortgage.
9. What are closing costs?
In addition to the down payment, you'll also have to pay closing costs -- miscellaneous fees charged by those involved with the process (such as your lender for processing the loan, the title company for handling the paperwork and providing a title insurance policy, a surveyor, an appraiser, local government offices for recording the deed, etc.). The amount varies, but could be approximately $6000 on a $130,000 house.
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