The following is a partial list of common mortgage questions and answers offered by TST Financial Inc.. For a specific answer to any question not listed below, please contact us at 970-222-0816.
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.
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.
A three bureau, or tri-merged, credit report is typically required when applying for a mortgage. Generally speaking, the middle score is used for qualifying a borrower. If more than one borrower, the lowest middle score of all borrowers is used when qualifying the mortgage application and pricing the interest rate terms.
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. Rate lock periods usually cover 15, 30, 45 or 60 day increments. Make certain your rate lock period covers your anticipated closing date.
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.
Not necessarily. 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. Different lenders may underwrite to different standards, a mortgage broker can help match you with a lender which fits your situation best.
Usually, people refinance to save money, obtain a lower interest rate, change the term of the loan, access equity or to obtain a Reverse Mortgage. 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 can be a complex topic, we suggest consulting a mortgage professional to assist with those calculations.
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.
These might commonly be mentioned as "Non-QM" or what many previously called sub-prime mortgage 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.
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.
The Closing Disclosure or "CD" is the list of final settlement charges that the lender is obliged to provide the borrower prior to loan closing. Material changes to these figures may require additional re-disclosure prior to signing your final mortgage documents.
A loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac.
A mortgage larger than the maximum eligible for conforming purchase by the two Federal agencies, Fannie Mae and Freddie Mac. For 2023, the basic conforming loan limit for a single unit is $726,200, two unit is $929,850, three unit is $1,123,900 and four unit is $1,396,800. Some areas are classified as 'high cost' areas which increases these amounts.
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.
Mortgage Insurance (or 'MI') helps protect the lender in the event of borrower default and is typically tied to the amount of down payment and loan program selected. Mortgage Insurance can be paid monthly, up-front as part of closing costs, or even be incorporated into the interest rate (called 'lender paid' mortgage insurance). HUD provides mortgage insurance for FHA loans, requiring both monthly and up-front premiums. VA does not require monthly mortgage insurance but may charge an up-front 'VA funding fee'. A private mortgage insurance company will provide coverage for Fannie/Freddie mortgages and uses many factors when calculating the premium including credit score, down payment, property location, program type, occupancy. A private MI quote may allow a borrower to choose between monthly, up-front, or even lender paid options to best fit their situation.
