What is the difference between pre-qualifying and pre-approval?
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.
What is "credit score"?
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.
What is PMI?
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.
What is the difference between closing costs and prepaids?
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.
What is title insurance?
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.
What comprises my monthly payment?
Your monthly payment includes principle, interest, taxes, homeowners insurance, and private mortgage insurance if applicable.
What documents do I need to apply for a Home Loan?
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
How often and why do rates change?
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.
Should I refinance?
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.
How does an appraiser compute a home's value?
Basically, three or more homes that are similar to the subject property (these are called "com-parables") 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.
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