Frequently Asked Questions

Do you have questions? We can help! You will find the answers to several frequently asked mortgage questions below. Common Refinance Questions can be found here. Additional FHA Loan Questions can be found here.

 

Questions

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 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 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 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.

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.

What manner should Title be held?

There are typically three main ways to hold title, or show ownership, to real estate. They are:

Sole and separate – no one else holds any interest in the property.

Joint tenants – Each person owns an equal share and if one party dies, title transfers to the survivor, regardless of what a will may specify. Joint tenancy require four unities:

Time – Each owner must receive title at the same time.
Title – Each owner must receive title on the same deed or document evidencing title.
Interest – Each owner receives the same proportionate and equal share of ownership.
Possession – Each owner has the identical right of possession.

Tenant in common – Tenants in common may own equal or unequal shares of the home. For example, A could hold 50% ownership, B 25%, and C 25%. If the percentage of ownership is not reflected, it is assumed that each tenant owns an equal percentage; e.g., A would hold 33.3%, B would hold 33.3% and C would hold 33.3%. If one party dies, unless the surviving party is named in the will, the decedent’s percentage of interest passes to heirs. Tenants in common share one unity: the right of possession. All tenants in common have the right to occupy the property, and neither can exclude the other.

Word of caution: please do NOT assume that married applicants should hold title as joint tenants and unmarried applicants as tenants in common. Such an assumption could eliminate any intended heirs of the equity. For example, a previously married co-applicant may want his/her percentage of ownership to go to his/her children from a prior marriage rather than to the other co-applicant, as it would if the title were held as joint tenancy. Loan officers should understand and be able to explain the differences, but NOT give legal advice. It would be totally up to the applicants and their attorney as to how they should hold title as such could affect each of their estates, if one or both were to die.

Will I save money going directly to a mortgage lender?

Usually not. 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.

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.

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.

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.

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.