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FAQ
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. Mortgage pre-approval includes all the steps of a full mortgage approval, except for the appraisal and title search. Pre-approval can put you in a better negotiating position, similar to that of a cash buyer.
WHAT IS A HOME LOAN PRE-QUALIFICATION?
his 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 home loan. A pre-qualification is subject to verification of the information provided by the applicant. A pre-qualification is short of mortgage approval or pre-approval because it does not take account of the credit history of the borrower.
WHAT IS A CONFORMING LOAN?
A loan eligible for purchase by the two major federal agencies that buy mortgages, Fannie Mae and Freddie Mac.
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.
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 great terms available on any given day. In addition, they can find the mortgage financing 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 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; e.g., “2 points” means a charge equal to 2% of the loan balance.
WHAT IS A JUMBO MORTGAGE?
A jumbo mortgage is any mortgage financing amount larger than the maximum eligible for conforming purchase by the two federal agencies, Fannie Mae and Freddie Mac.
WHAT IS THE DIFFERENCE BETWEEN A MORTGAGE BROKER AND A LENDER?
A mortgage broker counsels you on the loans available from different mortgage financing 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 and receive mortgage approval.
WHAT IS A RATE LOCK?
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.
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. Alternative documentation, designed to save time, accepts copies of the borrower’s original bank statements, W-2s and paycheck stubs.
WHEN DOES IT MAKE SENSE TO REFINANCE?
Usually people refinance their mortgage to save money, either by obtaining a lower interest rate or by reducing the term of the loan. Refinancing is also a way to convert an adjustable loan to a fixed-rate loan or to consolidate debts. 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:
#1 Calculate the total cost of the refinance
#2 Calculate the monthly savings
Divide the total cost of the refinance (#1) by the monthly savings (#2). This is the “break even” time. If you own the house longer than this, you will save money by refinancing.Start by trying our online mortgage calculator to get a basic idea of refinancing numbers. Then, since refinancing is a complex topic, consult a mortgage financing professional for more personalized information.
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.
Frequently Asked Questions
Pre-approval, pre-qualification, mortgage refinancing, good faith investment….when you start learning about mortgage financing, it can be a little overwhelming! Our mortgage experts know the terms of the mortgage industry inside and out, but we know that the common person can get overwhelmed by these terms! That’s why we created this mortgage terms glossary, so that you can better understand your mortgage options.
Pre-qualification is an initial estimate of how much you may be able to borrow based on basic information you provide. Pre-approval goes further — the lender reviews your credit, income, and finances to give you a conditional commitment. A pre-approval carries more weight with sellers because it shows you’re a serious, qualified buyer.
Refinancing may make sense if interest rates have dropped, your credit has improved, or you want to change your loan terms. It can also help you consolidate debt, lower your monthly payment, or tap into your home’s equity.
Pre-qualification is a quick review of your income, assets, and debts to give you a general idea of how much you might qualify for. It’s a useful first step, but not a guarantee of financing.
Points are upfront fees you can pay to lower your mortgage interest rate. One point typically equals 1% of your loan amount. Paying points can save you money over the life of the loan if you plan to stay in the home long term.
A jumbo mortgage is a loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. These loans are used for higher-priced homes and often have different requirements for credit, income, and down payment.
A conforming loan meets the standards set by Fannie Mae and Freddie Mac, including loan limits, documentation, and borrower requirements. These loans typically offer competitive rates and easier approval.
A Loan Estimate is a standardized three-page form lenders must provide within three business days of your mortgage application. It shows your estimated interest rate, projected monthly payment (including principal, interest, taxes, and insurance), and estimated closing costs. The format makes it easy to compare offers from different lenders.
A Closing Disclosure is a five-page form that gives the final details of your loan, including terms, monthly payments, and all closing costs. Lenders must provide this at least three business days before closing, giving you time to compare it to your Loan Estimate and ask questions before signing.
In addition to conventional mortgages, there are government-backed loans like FHA, VA, and USDA, as well as jumbo, construction, and renovation loans. Each option is designed to fit different needs and financial situations.
A fully documented loan requires proof of income, employment, assets, and debts — usually through pay stubs, tax returns, and bank statements. This is the most common type of mortgage.
Not necessarily. While going direct can seem simpler, working with a company like Patriot gives you access to multiple loan options, guidance, and support to find the right fit for your situation.
A lender provides the funds for your loan directly. A broker works as a middleman, comparing loan products from multiple lenders to help you find the best match. Patriot Home Mortgage acts as your guide, making sure you get the right option for your needs.
A rate lock guarantees your interest rate for a set period while your loan is processed. This protects you from market fluctuations, giving you peace of mind as you move toward closing.
Still Have Questions? We’re Here to Help.
VEvery situation is unique, and our team is happy to walk you through your options. Whether you’re buying, refinancing, or just exploring, we’ll make sure you have the answers you need.