A rate lock is a contractual
agreement between the lender and borrower. There are four
components to a rate lock: loan program, interest rate, points,
and the length of the lock. Not all loan programs are eligible
for a rate lock.
What’s
the difference between a mortgage broker and a lender?
Mortgage brokers are not empowered
to make mortgage loans. A mortgage broker counsels you on
the loans available from different wholesale lenders, takes
your application, and 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.
Will
I save money going directly to a mortgage lender?
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.
What
is a full documented loan?
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.
What
are the other types of 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.
What
is a good faith estimate?
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.
What
is a conforming loan?
A loan eligible
for purchase by the two major Federal agencies that buy mortgages,
Fannie Mae and Freddie Mac. The loan limits are currently
$417,000 for a single family house.
What
is a jumbo mortgage?
A mortgage larger
than the maximum eligible for purchase by the two Federal
agencies, Fannie Mae and Freddie Mac, currently $417,000.
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;
for example., “2 points” means a charge equal
to 2% of the loan balance.
