Mortgage FAQ's

What is the difference between pre-qualification and commitment?
When does it make sense to refinance?
What is a rate lock?
What is the difference between a banker and a mortgage broker?
What is mortgage insurance?
What is a loan estimate?
What is a conforming loan?
What is a jumbo mortgage?
What are points?

What is the difference between pre-qualification and commitment?

A commitment is much more complete than pre-qualification. For pre-qualification, the loan officer asks you a few questions obtains a few income documents and provides you with a pre-qual letter. A commitment includes all the steps of a full approval, including the appraisal and title search. Pre-qualification may be necessary to begin negotiations for a home.

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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.

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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.

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What is the difference between a banker and a mortgage broker?

A banker completes the entire loan process "in house". That means the mortgage lender helps you find the best loan product, originates, processes, closes and funds your home loan.  A mortgage broker takes your application and then searches for a lender who can underwrite, close and actually fund your loan file.

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What is mortgage insurance?

Fannie Mae and Freddie Mac require 20% down payment to obtain a mortgage, but when a borrow lack this necessary down payment, they have the alternative to purchase mortgage insurance which insures the lender for additional risk taken because of the smaller down payment. This insurance policy is call PMI or private mortgage insurance. The government also provides similar insurance which is called FHA or VA. These are not different mortgages, just different insurance plans. Of course the government always throws in a few extra rules to make life more difficult.

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What is a loan estimate?

This new form integrates and replaces the old Good Faith Estimate and the initial Truth in Lending disclosures.
o The LE  contains a good faith estimate of credit costs and transaction terms.
o The LE is provided to you in writing.
o The LE will be delivered to you or placed it in the mail no later than the third business day after receiving your application.

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What is a conforming loan?

A loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac.

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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.

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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.

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