What is the difference between pre-qualification and pre-approval?
Pre-qualification is a lender’s opinion of your ability to purchase a home; pre-approval is an underwriter’s decision that you are qualified. When it comes to writing an offer for a home, a pre-approval letter contains much stronger language to the seller and the listing agent, and often is the determining factor in winning the contract in a competitive bid situation. You receive a conditional Approval shortly after returning your qualification worksheet to me, and it is made unconditional by returning the few pieces of financial documentation that we request as a result of that.
Is it okay to use Internet statements instead of actual hard copy bank statements to verify my bank and investment accounts?
Currently Internet statements are allowed if they have the institution’s name printed on them. If you provide a hard copy of Bank Internet statements, we need the complete statement. Bank and investment statements always designate the number of total pages. For instance, your statement may say “1 of 3” or “1 of 5” pages. This tip makes the whole CD worth listening to all by itself – please include all pages of your statements, even if there’s nothing on the last page and even if the first page is an advertisement. With all due respect to my underwriters, they’re wonderful; but they always assume that any missing pages contain the secret to life. In actuality, what they can’t see is what’s on or not on those pages, so the missing pages always present a problem. Fannie Mae and Freddie Mac, by their guidelines, still require all pages of statements to verify accounts. So getting partial statements is probably still the greatest reason we have to come back to our clients and ask for additional documentation later.
Who orders the appraisal and survey, and when is it ordered?
We order the appraisal and survey for you. If your home is new construction, the builder will usually order the survey, just after completion or just before closing. Old surveys can sometimes be used when a home is changing owners. However, I would say this with a word of caution, because if there are any changes or additions or encroachments to the property lines then a new survey will need to be ordered. Don’t usually count on it, but if we can use the old survey it will be an added bonus to you. To answer the question, when is the appraisal and survey ordered, if your contract has an option period written in to it, we usually wait until after that to order the appraisal and survey unless you advise us otherwise. The reason to wait is that you incur a charge for the appraisal when they’re performed. If you exercise your option then you’ve lost the money you’ve spent. If you don’t have an option period, then protocol is to wait until after you have satisfactory inspection of the property to order the appraisal and survey.
What is meant by the term, “locking my interest rate”? And then, when and how do I lock my interest rate?
Locking your interest rate refers to guaranteeing a specific interest rate for a specific period of time. That period of time is called the lock period. The lock period guarantees your rate as long as your loan closes and funds prior to the expiration date of your lock. If your closing is delayed beyond your lock expiration date, you could be exposed to higher market rates, so it’s always good advice to lock for a period longer than you need or longer than your actual closing date. Usually seven to fourteen days is advisable for existing home purchases, and thirty or more days for new construction. Typical lock periods are 15, 30, 45, 60 and 90 days. All things being equal, shorter lock periods provide you with a better interest rate. Remember though, I said “all things being equal,” and things are rarely equal. The market can be volatile, and rates move with market activity, up and down. So let’s look quickly at the four possibilities for rates. Rates can go up slightly, rates can go down, rates can stay the same, or rates can go way up. If rates go up slightly, you might still benefit from waiting to lock because of the shorter lock commitment period. If rates go down, you would definitely benefit by waiting to lock and if rates stay the same you would also do better to wait. Of the four scenarios, you benefit from a longer lock only when rates go up significantly after you lock. For that reason, and generally speaking, I’m a pretty big advocate of shorter lock periods. If you have a feeling, though, that rates are going to go up significantly, by all means call my business partner, Dominik, and let’s lock your rate. The bottom line is this – I do work for you, and I’ll do exactly what you wish concerning your rate lock. I will always give you my advice if you ask, but the final decision is up to you. Prior to locking your interest rate, I will ask you what your target interest rate is – that’s the rate you’d like to obtain. I’ll also ask you what your bail-out interest rate is – that’s the rate that you want to cut your losses with in the event the interest rates do begin to trend upwards. If you’ve not locked in when you receive your application from my office, you’re going to notice that the rate on the application is somewhat higher than the market interest rate, and you’re not stuck with that interest rate. I’ve actually intentionally used a higher rate to qualify you with. In the event that rates do go up prior to locking in, you’re still approved and we do not have to re-approve you, so you’re not exposed to any more paperwork. Once you have a property under contract, you can then lock your rate by calling my office and simply requesting the lock-in. We will fax or e-mail a confirmation to you at this time.
What are origination and discount points?
Briefly, origination and discount points are both a percentage of your loan. If we were talking about 1 percent, it would be 1 percent of the loan amount. If your loan amount were $200,000, then your origination or discount point would be $2,000. The origination point and discount point will affect your mortgage loan interest rate, usually by a quarter of a percent for each point on fixed rate loans, and usually by 3/8 of a point on adjustable rate loans. Check with your CPA or financial planner for tax deductibility; but generally speaking, origination and discount points are tax-deductible points when you are buying a primary residence.
Once I sign my application, am I committed to borrow the money?
A lot of people feel like once they’ve signed the application, they’re obligated to borrow. That is absolutely not the case; in fact none the documents that you have received from us until you are actually at closing and sign your note and deed of trust, are contractual. So all we’re doing with an application is putting you in a position to buy and close and be approved for the mortgage loan that you are applying for.
What is the difference between APR and Interest Rate?
APR is quite often mistaken as the interest rate. This is the single most confusing aspect in all of the disclosures that we send out and also the most commonly asked question. The APR is disclosed on your truth-in-lending disclosure, and is often higher than the actual note rate, or the actual quoted interest rate. There are two rates on the truth-in-lending disclosure, which is also known as the “TIL”. The rate in the upper right hand corner is the note rate, or the rate that you were quoted. You may or may not be locked at this rate. The rate in the upper left hand corner is known as the “APR,” or annual percentage rate. The APR is different than your note rate, or the rate that you were quoted, because the APR includes in addition to interest, some of the prepaid costs of obtaining your financing. A simple way to explain it, is: if you get a credit card with a 6.9% APR there are no closing costs so your interest rate and your APR would be the same. When you finance and automobile or a home there are certain costs that by government regulation are built in to the annual percentage rate. As a result the APR is always higher than the interest rate. Rest assured that your payments are calculated on the interest rate and not the APR.
How will I be kept updated on the status of my loan?
We will proactively communicate with you by e-mail or phone calls during the process. Generally, “no news is good news” but we always strive to exceed your expectations, so if you have questions please call anyone on our team.
Where will I be closing, how much do I have to bring to closing and can I bring a personal check?
Closing will take place at either a title company or attorney’s office; but it’s always stated on your residential earnest money contract, and it’s usually who you made your earnest money check out to. To know how much to bring to closing, we’re going to make a call to you within 5 days of our closing to reconfirm the terms of your loan and to give you an amount so that you can go ahead and arrange funds to bring to closing. It varies at certain title companies but personal checks in the state of Texas in excess of $1500 are not generally acceptable, so you’ll need to either have funds wired directly from your bank to the title company or you can get a cashier’s check and bring your funds that way. In any event, we will be calling you within 5 days of closing to give you wiring instructions, to give you an estimated amount of closing costs and to give you instructions on where the closing will take place. We will also give you the phone number and fax number to your closing agent in case you have any questions you want to ask them directly. The title company or closing attorney prepares the final closing statement also known as a HUD-1. This usually happens within 48 hours of the closing and will have exact numbers.