A pre-qualification is normally issued by a loan officer who will determine the dollar amount of a loan you may be eligible to receive. It is not an approval nor is it a commitment to make you a loan. Conversely, a pre-approval involves actually verifying your credit, income, down payment, etc. so that your loan request may be presented to an underwriter for a credit decision. Once you find a house, having a pre-approval letter allows you to close more quickly since much of the work on the mortgage loan has been completed.
Recently, the past few years caught up with the mortgage industry, particularly in the area of higher credit risk borrowers. It had gotten to the point where almost anyone breathing, no matter what the credit score or credit risk, could get a mortgage loan. Most of these were done on some sort of A.R.M., and when the first adjustment rolled around after a couple of years, defaults started soaring, lenders started rethinking their policies, people started panicking…. This caused most of these high risk lenders to go out of business overnight, leaving many other people holding the bag and many borrowers who could have gotten mortgage financing three months ago unable to find financing. Basically, the whole subprime mortgage industry stopped on a dime. We believe it may get worse before it gets better, but that it will get better at some point as the lending industry is all about making loans.
Each individual has a credit score. This score reflects the level of risk associated with lending to that individual. Scores range from 400-800, with higher being better. Negatively affecting your score are things such as late payments, judgments or collections, heavy use of credit, high ratio of actual credit to available credit, and inquiries into your credit. Credit score plays a significant role in determining your ability to get a mortgage loan.
PMI stands for private mortgage insurance, and is required if your first mortgage is more than 80% of your purchase price/value. You will be required to pay a PMI premium which will be included in your monthly payment.
Closing costs consist of items required to process the closing portion of your loan i.e. attorney fees, title fees, origination fees, appraisal fees, etc. Prepaids are one year of homeowner's insurance, prorated property taxes, and interest from the day you close until the end of the month.
Title insurance is required on every mortgage loan, and insures to both the lender and the borrower that they have "clear title" to the property. This means that the records have been checked and it has been determined that there are no outstanding liens against the property which would affect ownership rights (title) in the property. Examples of items that could cloud title and which title insurance covers include old tax liens from previous owners, judgments against the original builder from unpaid subcontractors, and liens placed by municipalities for unpaid utility bills.
Your monthly payment includes principle, interest, taxes, homeowners insurance, and private mortgage insurance if applicable.
1) Income Documentation:
- Hourly or Salaried Employment - W2's for the past two years and paycheck stubs covering most recent 30 days
- Self-Employed - Typically most recent complete Federal income tax return with W-2.
- Retired - Original Social Security Award Letter or Pension Award Letter.
2) Assets: To verify evidence of sufficient funds for closing, the following will be required: Most recent original statement (all pages) for all checking, savings, or other asset accounts.
3) Property: Provide copy of fully executed Purchase Contract, signed by real estate agent(s) and owner(s).
4) Misc.: Copy of Driver's License
Rates don't necessarily change every day, but they can. As a matter of fact, they actually can change multiple times in a day. These changes are based on a variety of factors, but mainly will correlate to changes in the bond market due to breaking financial news, world events, stock market movement, etc.
The most common reason for refinancing is to save money. Saving money through refinancing can be achieved in two ways:
--By obtaining a lower interest rate that causes one's monthly mortgage payment to be reduced.
--By reducing the term of the loan, thus saving money over the life of the loan. For example, refinancing from a 30-year loan to a 15-year loan might result in higher monthly payments, but the total interest paid durring the life of the loan can be reduced significantly.
People also refinance to convert their adjustable loan to a fixed loan. The main reason for doing this is to obtain the stability and the security of a fixed loan. Fixed loans are very popular when interest rates are low, whereas adjustable loans tend to be more popular when rates are higher. When rates are low, homeowners refinance to lock in low rates. When rates are high, homeowners prefer adjustable loans to obtain lower payments.
Basically, three or more homes that are similar to the subject property (these are called "comparables") that have sold recently in the proximity to the subject are adjusted based on differences in square footage, amenities, etc. to arrive at an adjusted sales price for each comparable. Then, these are averaged, and an appraised value is determined for the subject property. This method is called the “sales comparison approach”. Additionally, the appraiser might provide an estimate of value based on the cost to rebuild the home. This is called the “cost approach”. Typically, the sales comparison approach provides the most accurate estimate of a true market value.