Frequently Asked Mortgage Questions

The FAQ lists 20% as a private-mortgage-insurance reference point and mentions options with 3-3.5% or no down payment. Ask which down-payment and mortgage-insurance terms apply to the loan you are comparing.

Qualifying for a loan involves a detailed examination of your credit, income, debts and other expenses related to the property you want to buy. When you apply for a mortgage, lenders look at the various loans they offer and see if you can meet the requirements for one or more of them.

A mortgage broker compares a variety of lenders and loan types on your behalf, so you don’t have to complete multiple applications. With a professional mortgage broker, you gain a specialist who can help make the choice that meets your financial goals.

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. Ask what information a pre-approval reviewed and which conditions, such as appraisal or title work, remain.

People may review a refinance to change the rate or term, convert an adjustable loan to a fixed loan, or consolidate debts. Whether a change saves money depends on comparing its full costs and terms with the current loan. 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. Compare the break-even estimate with how long you expect to keep the home and loan; it does not by itself establish net savings. Ask a mortgage professional to check the calculation against the written costs and terms for the proposed refinance.

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.

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. Broker compensation and borrower-paid fees depend on the transaction; ask which charges appear in the Loan Estimate and who receives them. Furthermore, because mortgage brokers deal with multiple lenders -- in a typical case, 25 to 30, sometimes more -- they can compare terms available from different lenders for the application. 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.

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.

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.

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.

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.

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.