What is the difference between pre-approval and
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-qual 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.
Usually people refinance 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 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:
Calculate the total cost of the refinance
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.
Since refinancing is a complex topic, consult a mortgage professional.
What's the difference between a mortgage broker
and a lender?
A mortgage broker counsels you on the loans available from different
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.
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.
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.
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
Stated income/stated assets: Both income and assets are disclosed
but not verified. However, the source of the borrower's income is
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
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.
This 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 loan. A pre-qualification is subject
to verification of the information provided by the applicant. A pre-qualification
is short of approval because it does not take account of the credit
history of the borrower.