Home Loan & Mortgage FAQs
Do you have questions? We can help! You will find the answers to frequently-asked mortgage questions below.
- What is the difference between pre-approval and pre-qualification?
- When does it make sense to refinance?
- What is a rate lock?
- What is the difference between a mortgage broker and a lender?
- What is a good faith estimate?
- What is a conforming loan?
- What is a jumbo mortgage?
- What are points?
What is the difference between pre-approval and pre-qualification?
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-qualification letter. Pre-approval includes all the steps of a full approval, except for the appraisal and title search. Pre-approval can put you in a better negotiating position, much like a cash buyer.
When does it make sense to refinance?
Usually people refinance to save money by obtaining a lower interest rate. Refinancing is also a way to convert an adjustable loan to a fixed loan, or to consolidate debt. Traditionally, people would refinance only if the rate difference was significant, as it did not make sense to pay closing costs to save a small amount monthly. However, the No-Cost Refinance Program now makes refinancing for smaller rates changes more appealing.
On qualifying loan amounts greater than $150,000, Mortgage Financial Inc. has a No-Cost Refinance Program that truly has NO COSTS, which means no points, no hidden fees, and no surprises. We don’t increase your loan amount to cover the closing costs. It's simple: we pay all the closing costs out of our commission. That’s it. Yes, you pay a slightly higher interest rate, usually 1/8th-1/4% higher, but you save all of the closing costs….no appraisal fees, no attorney’s fees, no fees period! But does a higher rate really make sense? Most often, yes! Consider this:
On a $250,000 loan the closing costs to refinance would be approximately $2,000. If you paid this $2,000, the after-tax savings is only about $28 per month! So, it takes 71 months, or almost 6 years to break even. But what if you invested the $2,000 you did not pay in closing costs? $2,000 invested at 8% would make you $10 per month, after taxes. Once you take this into account, the actual break-even is nearly 10 years, while the average mortgage loan in the U.S. lasts, according to Fannie Mae, only 4.2 years. Also, if rates drop after you close, you can simply refinance again with no closing costs. Compare this to paying (or rolling into your loan) $2000 every time rates drop!
Click here for a recent joint Freddie Mac/Penn State University study outlining the benefits of not paying points.
What is a rate lock?
A rate lock is a contractual agreement between the lender and the buyer. There are four components to a rate lock: loan program, interest rate, points (if any), and the length of the lock.
What is the difference between a mortgage broker and a mortgage lender?
We are a mortgage lender. Unlike mortgage brokers, lenders underwrite and fund loans in-house. By maintaining this control, we can approve loans faster and we can be more flexible about when the loan closes. Unlike banks and credit unions, we have many investor outlets that allow us increased flexibility and ongoing great rates.
What is a Good Faith Estimate?
A Good Faith Estimate is the list of charges that the lender is obliged to provide the borrower.
What is a conforming loan?
A conforming loan is a loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac. The current Vermont maximum for a conforming loan is $417,000.
What is a jumbo mortgage?
A mortgage larger than the maximum eligible for a conforming purchase by the two Federal agencies, Fannie Mae and Freddie Mac.
What are points?
Points are upfront finance charges paid at closing to reduce your interest rate. Points are expressed as a percent of the loan amount, for example "2 points" means a charge equal to 2% of the loan balance. Each point you pay drops your interest rate by aproximately .25%. Click here to view a recent study by Freddie Mac showing paying points most often does not make sense.
