Whatis the difference between pre-qualifying and pre-approval?
A pre-qualification for a specific loan dollar amount is based on a review of basicfinancial information you supply to us. No verification of this information is performed.The pre-qualification means that if the information you supplied to us is accurate,subject to verification of credit, appraisal of the property, and the lenders underwritingcriteria for the loan amount, you should be able to receive a loan as described in thepre-qualification letter or document. This is not a final approval. Apre-qualification is not a commitment to lend. However, a pre-qualification letterindicates to you and the seller that in the opinion of the loan officer you are qualifiedto purchase the house you are making an offer on.
Pre-approval is a step above pre-qualification. Pre-approval involvesverifying your credit, down payment, employment history, etc. Your loan application issubmitted to an underwriter and a decision is made regarding your loan application. Ifyour loan is pre-approved, the lender will loan you money on the basis that you requestedsubject to: a satisfactory appraisal (both as to value and type of product); yourfinancial condition remains as stated on your application and satisfying any underwritingconditions from the lender.
Getting your loan pre-approved allows you to close very quickly when you do find ahouse. A pre-approval can help you negotiate a better price with the seller, since beingpre-approved is very close to having cash in the bank to pay for the house!
What are credit scores?
A credit score (such as FICO - developed by Fair Isaac & Co and used by Experian, orBECON developed and used by Equifax or EMPIRICA developed and used by Trans Union)or credit scoring is a method of determining the likelihood that a credit user (you) willpay their bills. Fair Isaac began its pioneering work with credit scoring in the late1950s. Since then scoring has become widely accepted by lenders as a reliable means ofcredit evaluation. A credit score attempts to condense a borrowers credit history into asingle number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scoresare computed. The Federal Trade Commission has ruled this practice to be acceptable.
Credit scores are calculated by using scoring models and mathematical tables thatassign points for different pieces of information that best predict future creditperformance. Developing these models involves studying how thousands, even millions, ofpeople that have used credit. Score-model developers find predictive factors in the datathat have proven to indicate future credit performance. Models can be developed fromdifferent sources of data. Credit-bureau models are developed from information in consumercredit-bureau reports.
Credit scores analyze a borrower's credit history considering many factors such as:
- Late payments
- ERROR MSGThe 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.
There are really three credit scores computed by data provided by each of the threebureausExperian, Trans Union and Equifax. Some lenders use one of these threescores, while other lenders may use the middle score and still others may use all three.
How can I increase my score?
While it is difficult to increase your score over the short run, here are some tips toincrease 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.
- discount hotel ScheveningenIf you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score. (Normally lenders like to see you have at least five (5) lines of credit not including utilities (such as telephone, gas and electric companies) and oil company credit cards.
What if there is an erroron my credit report?
If you see an error on your report, to rectify it, you must contact the credit bureau. Thethree major bureaus in the U.S., Equifax (1-800-685-1111), Trans Union (1-800-916-8800)and Experian (1-888-397-3742) all have procedures for correcting information promptly.Alternatively, we as your mortgage company may help you correct this problem as well.Understand this process takes time, must be done in writing, and may require proofdepending on the nature of the error.
Why areinterest rates different from day to day and one source to another?
To understand why mortgage rates change we must first ask the more general question,"Why do interest rates change?"
Interest rate movements are based on the simple concept of supply and demand. If thedemand for credit (loans) increases, so do interest rates. This is because there are morebuyers, so sellers (those who loan the money) can command a better price, i.e. higherrates. If the demand for credit reduces, then so do interest rates. This is because thereare more sellers than buyers, so buyers can command a lower better price, i.e. lowerrates. When the economy is expanding there is a higher demand for credit, so rates movehigher, whereas when the economy is slowing the demand for credit decreases and so dointerest rates.
This leads to a fundamental concept:Bad news (i.e. a slowing economy) is good news for interest rates (i.e. lower rates).
Good news (i.e. a growing economy) is bad news for interest rates (i.e. higher rates).
A major factor driving interest rates is inflation. Higher inflation is associatedwith a growing economy. When the economy grows too strongly, the Federal Reserve increasesinterest rates to slow the economy down and reduce inflation. Inflation results fromprices of goods and services increasing. When the economy is strong, there is more demandfor goods and services, so the producers of those goods and services can increase prices.A strong economy therefore results in higher real estate prices, higher rents onapartments and higher mortgage rates.
Mortgage rates tend to move in the same direction as interest rates. However, actualmortgage rates are also based on supply and demand for mortgages. The supply/demandequation for mortgage rates may be different from the supply/demand equation for interestrates. This might sometimes result in mortgage rates moving differently from other rates.For example, one lender may be forced to close additional mortgages to meet a commitmentthey have made. This results in them offering lower rates even though interest rates mayhave moved up!
There is an inverse relationship between bond prices and bond rates. This can beconfusing. When bond prices move up, interest rates move down and vice versa. This isbecause bonds tend to have a fixed price at maturitytypically $1000. If the price ofthe bond is currently at $900 and there are 10 years left on the bond and if interestrates start moving higher, the price of the bond starts dropping. The higher interestrates will cause increased accumulation of interest over the next 10 years, such that alower price (e.g. $880) will result in the same maturity price, i.e. $1000.
Do I need flood Insurance?
Most lenders will not lend you money to buy a home in a flood hazard area unless you payfor flood insurance. Some government loan programs will not allow you to purchase a homethat is located in a flood hazard area. Your lender may charge you a fee to check forflood hazards. You will be notified if flood insurance is required. If a change in floodinsurance maps brings your home within a flood hazard area after your loan is made, yourlender or service may require you to buy flood insurance at that time.
What are your rates?
The first question customers usually ask when calling a mortgage company or lender is"What are your rates?" Because of the number of mortgage programsavailable and the various rate and point combinations, most mortgage companies have ratesheets that are 5-10 pages long.
Getting a rate quote is just a small part of shopping for a mortgage and usually notthe best way to select a lender. Customer service, professional staff, convenience,and flexibility are some of the key attributes to selecting the best lender for yourneeds.
Kortrijk cheap hotelsIn helping you assess a rate, you will need to provide answers to a few basic questionslike:
- What is your purchase price?
- What loan amount are you looking for or what loan amount do you want to finance?
- Do you prefer a fixed rate or an adjustable rate mortgage?
- How long do you plan to live in the house?
- How many points are you willing to pay?
The purchase price or the value of your home effects the rate because it effects thesize of the loan. For example, Jumbo Loans, currently over $240,000, have a higher rate.Similarly, smaller loans have a higher rate or cost more because it cost the same andtakes the same effort to do $35,000 loan as it does a $200,000 loan. Lenders and brokersneed to make or charge a certain minimum amount of money to cover overhead, per loan(transaction) cost and make a profit.
The type of loan, fixed or variable for example, affect the rate because they affectthe lenders income & inflation risk. For example, with a fixed rate loan, if rates goup the lender could lend out money at a higher rate than they are currently loaning it toyou, and therefore earn more money. With a variable rate loan since the rate the lendercan charge you changes regularly their income remains consistent with their current incomeopportunities. Therefore with variable rate loans they give you a better rate sincethey know that if rates go up they can charge you more.
The length of time you will own a house affects both the type of loan you may want andthe amount of points it may make sense to pay. For example, if you are going to keep ahouse for a short period of time (lets say 3 years), you may be better off with avariable rate loan (e.g. a 3/1 ARM fixed for 3 years and varies once a year every yearthere- after until the loan is paid off). Why? Because typically the 3/1 ARM has a lowerrate associated with it than a 30 year fixed rate loan and since you will sell the housein 3 years you would not be affected by higher rates which may exist at that time. On theother hand, if you expect to live in the house for 30 years you might be willing to paysome points to receive a lower interest rate now. The lower interest rate would save youmoney every month over the life of the loan. The total savings in this situation should begreater than the cost of points, giving consideration to the amount that the point moneycould earn if invested (saved) after taxes.
Whathappens if my loan gets sold or my lender goes out of business?
The simple answer is nothing. You will still have to pay your mortgage. The terms of yourmortgage will not change nor will the requirement for you to pay on time change. The onlything that would change is to whom you make out your check.
Doeszero points really mean zero points?
What about no closing costs loans?
The answer is maybe. Remember there are more then one type of Points (Discount andOrigination) not to mention a Mortgage Broker fee which is expressed as points. Rememberthat the lender and broker needs to make a living. Therefore the more lines on the closingstatement or good faith estimate that says zero the more likely the rate you are paying ishigher than it otherwise would be. Also, it is often unclear what a lender or broker meansby no closing costs or no point loans. Sometimes the lender or broker will increase feesto compensate for the lack of points or a more favorable rate.
Should I refinance?
Yes, if it saves you money or converts you out of a mortgage type you dont want. Thesaving money is obvious but not necessarily easy to calculate.
