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FAQS
What is the difference between pre-qualifying
and pre-approval?
A pre-qualification is normally issued by a loan officer, who, after interviewing
you, determines the dollar value of a loan you can be approved for. However,
loan officers do not make the final approval, so a pre-qualification is
not a commitment to lend. After the loan officer determines that you pre-qualify,
he/she then issues you a pre-qualification letter. This pre-qualification
letter is used when you are making an offer on a property. The pre-qualification
letter indicates to the seller that you are qualified to purchase the
house you are making an offer on. Pre-approval is a step above pre-qualification
and our reccommendation. Pre-approval involves verifying your credit,
down payment, employment history, etc. Your loan application is submitted
to an underwriter and a decision is made regarding your loan application.
If your loan is pre-approved, you are then issued a pre-approval certificate.
Getting your loan pre-approved allows you to close very quickly when you
do find a house. A pre-approval can help you negotiate a better price
with the seller, since being pre-approved is very close to having cash
in the bank to pay for the house!
What is a FICO score?
A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring
is a method of determining the likelihood that credit users will pay their
bills. Fair, Isaac began its pioneering work with credit scoring in the
late 1950s and, since then, scoring has become widely accepted by lenders
as a reliable means of credit evaluation. A credit score attempts to condense
a borrowers credit history into a single number. Fair, Isaac & Co. and
the credit bureaus do not reveal how these scores are computed. The Federal
Trade Commission has ruled this to be acceptable.
Credit scores are calculated by using scoring models and mathematical
tables that assign points for different pieces of information which best
predict future credit performance. Developing these models involves studying
how thousands, even millions, of people have used credit. Score-model
developers find predictive factors in the data that have proven to indicate
future credit performance. Models can be developed from different sources
of data. Credit-bureau models are developed from information in consumer
credit-bureau reports.
Credit scores analyze a borrower's credit history considering numerous
factors such as:
- Late payments
- The amount of time credit has been established
- The amount of credit used versus the amount of credit available
- Length of time at present residence
- Employment history
- Negative credit information such as bankruptcies, charge-offs, collections, etc.
What Can I Do To Increase My Credit Score?
While it is difficult to increase your score over the short run, here are some tips to increase your score over a period of time.
- Pay your bills on time (Late payments and collections can have a serious impact on your score).
- Do not apply for credit frequently (Having a large number of inquiries on your credit report can worsen your score).
- Reduce your credit-card balances (If you are "maxed" out on your credit cards, this will affect your credit score negatively).
- If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score.
If you see an error on your report, report it to the credit bureau. The three major bureaus are:
1. CBI/Equifax (1-800-685-5000)
2. Trans Union (1-800-916-8800)
3. Experian (1-888-397-3742)
All bureaus have separate procedures for correcting information promptly. Check with them first. Generally speaking, you will need the one or more of the following 3 items to correct information with the credit bureaus:
A letter from the credit grantor, on letterhead, authorizing whatever is to be corrected. It must be specific as to what is to be corrected/deleted. Letters cannot be hand written. Letters MUST have a contact name and phone number clearly shown. Universal Data Form, completely filled out (this can be filled out by hand), and MUST be specific on what is to be corrected/deleted (these forms are obtained from the creditor in question). Certified Court Document. This might be a Satisfaction Of Judgment, Release Of Tax Lien, Bankruptcy Filing and Discharge paperwork. Attorney letter are not an acceptable form of documentation.
Alternatively, you can also request a copy of my book "Credit Aid" written exclusively for my clients with credit challenges. To request a copy, contact us at 1-800-839-2954.
What is a prepayment penalty?
A prepayment penalty is a really just unpaid interest if a loan is paid off early. Not all loans have this feature.
The rational behind a prepayment penalty is that the investor wants to be guaranteed of making a certain amount of money from the customer whether they are with them for a long period of time or not. Many investors attach prepayment penalties to loans because of the heavy amount of refinancing that has taken place through the 2000's. Prepayment penalties vary from one lender to another in terms of their impact. Some which are referred to as soft prepays, actually are waived in the event of a sale of the home, but may only kick in if there is a refinance. Sometimes borrowers will request a prepayment penalty because the lender will give them a better interest rate in return for the servicing guarantee!
The most common prepay is the following formula: 6 months interest on 80% of the principal balance owed at the prepayment. To figure this out on a $100,000.00 loan, if the customer's interest rate is at 8%; you would first take 80% of $100,000.00 which is $80,000.00. Next you would multiply that $80,000.00 by 8%, which would give you $6,400.00. You would then have to divide that by 2 because the prepayment penalty states 6 months interest, which would give you a prepayment penalty in this particular example of $3,200.00
Remember this is only an example and each lender's prepayment terms and conditions may vary.
What is the process for obtaining a loan?
1. The loan application is completed and all pre-approval checklist items are collected.
2. The credit report is ordered and missing documents are gathered.
3. The completed loan file is submitted to the underwriter for pre-approval.
4. After loan approval, the appraisal, title report and escrow are ordered.
5. The lender reviews all the remaining conditions prior to final loan approval.
6. The loan documents are prepared and delivered to the Escrow Company.
7. The Escrow Company contacts borrower to set appointment for document signing.
8. The loan closes after the lender receives and reviews the signed documents.
What are your interest rates?
This is an important question. Here is why we don't post our rates on-line: Interest rates fluctuate, sometimes on a daily basis, and positioning of lenders in the marketplace also changes. Everyday we shop interest rates and discount points with hundreds of lenders online. This ensures that we are able to offer you the best overall price on a large variety of products with numerous lenders. When working with Keith and his staff, you are leveraging Keith's extensive lending network which makes getting the best rate simple and easy. Not only can you save time and skip checking rates with multiple banks and mortgage companies, but we will help you select from among thousands of unique loan products and help you choose the one that best fits your needs.
For more information about rates and fees, ask us about our exclusive Rate Watch® program, and our Closing Cost Guarantee®.
What is the annual percentage rate (APR) and why is it different from the interest rate?
The APR is not your interest rate! The APR is not how the lender calculates your monthly payment. Your APR as disclosed to you on your Federal Truth-In-Lending Disclosure Statement has absolutely no affect you're the Note Rate which is the rate you were quoted. So what is APR then?
The Annual Percentage Rate (APR) is the cost of credit expressed to you as an annual rate. Because you may be paying loan discount "points" and other "prepaid" finance charges at closing, the APR disclosed is often higher than the interest rate on your actual loan. This APR can be compared to the APR on other loan programs, giving you a consistent means of comparing rates and programs.
The APR is computed from the Amount Financed, and based on what your proposed payments will be on the actual loan amount credited to you at settlement. For example, in a $50,000 loan with $2,000 Prepaid Charges, and a 30-Year term, with a fixed interest rate of 12%, the payment would be $514.31 (principal and interest). Since the APR is based on the Amount Financed ($48,000), while the payment is based on the actual loan amount given ($50,000), the APR (12.5553%) this is why it is higher than the actual interest rate. Simply put, the APR is just a math equation that you can use to compare rates and programs.
The APR can also be effected by an Adjustable Rate Mortgage (ARM). For example, a One- Year ARM may have a first year interest rate of 6.0%, but will adjust yearly based on the index. The APR attempts to predict an average rate over 30 years. The APR is also increased if the loan has Private Mortgage Insurance (PMI). PMI is required on most loans that exceed 80% of the value of the house. The PMI is considered a "prepaid" finance charge when calculating the APR.
What are documents do you need to submit my loan for Approval?
The items need to process and approve a mortgage loan can vary from lender to lender. Here are the minimum items needed to obtain a credit approval. Additional documentation may be requested upon a review of these items:
- Last 2 Paycheck Stubs
- Last 2 Years W2's
- If Self-employed, Last Two Years Tax Returns
- Last 2 Months Bank Statements
- Documentation of Down Payment
What is the difference between non-recurring closing costs and recurring closing costs?
Examples of non-recurring closing costs would be as follows: Your appraisal, your credit report, your escrow, your title insurance, lender fees, etc. These are all one time fees associated with obtaining a mortgage loan (remember to ask about our Closing Cost Guarantee). An example of recurring closing costs are costs that would recur over and over again through out the life of the loan such as your mortgage payment, property taxes, homeowners insurance, etc. The reason that this is important is because lenders will allow for the broker/ banker, or even the seller of a home to pay non-recurring closing costs on behalf of the client, but will not allow for the recurring closing cost to be paid by anyone other than the borrower themselves.
What does the new Private MI Cancellation Law mean to me as a consumer?
On July 29, 1999, President Clinton signed Senate Bill 318 (S-318) into law. The President's signing of S-318, also known as the Homeowners Protection Act of 1998, culminates a year's worth of the political process on Capitol Hill and put to rest, finally, the national debate about consumer's rights to have private mortgage insurance cancelled.
To understand the impact of S-318, it is important to clearly understand the role of private MI and how it works. When a borrower makes a down payment of less than 20 percent of the home's sale price, lenders often will purchase private MI to protect themselves against the borrower going into default. Research indicates that rates of default are significantly higher among borrowers making less than a 20 percent down payment.
The lender is listed on the MI policy as both the insured party and the beneficiary, but private MI provides advantages to the consumer as well.
With LPMI (Lender Paid Mortgage Insurance) the incremental cost of coverage is incorporated into the first mortgage note rate.
This new law succeeds in providing consumers with disclosure about their rights to have private MI canceled, and it establishes equity thresholds for automatic termination of private MI policies.
One new consumer-protective requirement is the Annual Disclosure. Lenders must inform borrowers annually with a written statement that they continue to have private MI and have the right to have it canceled upon request and subsequent to meeting the lender's cancellation criteria.
For Borrower Initiated cancellation, for most conventional loans closed beginning on July 29, 1999, the borrower will have the right to cancel private MI coverage by written request (if the borrower has a good payment history and there is no decline in property value) at an LTV of 80%.
How long does my approval last?
This is an absolutely outstanding question, and one that many borrowers ask us from time to time. The answer to it is simply, forever, as long as your income, asset, and credit situation does not change.
Of course, after a period of time the file becomes stale and the documentation within it becomes outdated. Recent bank statements, pay stubs and even tax returns may be required to bring the file up to date. As long as your income situation has not changed significantly and you have not incurred any additional credit obligations, or incurred late payments, or other derogatory credit, your approval is, in fact, good indefinitely. Also you need to keep in mind that if interest rates go up it can affect your long-term ability to qualify because your mortgage payment will become higher.
My question wasn't answered here. How can I contact you directly?
We want to give you personal service throughout the loan process. If you have questions or comments at any time, please contact us at 1-800-839-2954.
