That might seem such a silly question at first glance. After all, how many approvals can a lender actually provide? That’s a fair question but the fact is the approval process at a mortgage company is a path. When you’re absolutely, 100 percent approved, you’re in the “clear to close” category. Lenders are careful when issuing any sort of prequalification, preapproval or loan approval and make it clear that the loan application is fully approved only when the underwriter says so. Here are the different stages you can expect.
Prequalification. A prequalification can be issued with a 10 minute phone call with a loan officer. The loan officer will ask several questions about your income, your job, how much money you have available to close. You’ll also need to have a general idea regarding your current credit status, such as “excellent” or “average.” If you’re unsure, the loan officer can pull a credit report for you, something you really should have done prior to calling any mortgage company.
A prequalification carries very little weight as nothing has been verified. The purpose of a prequalification is to provide you with an idea of what you might qualify for, what your monthly payments could be and about how much money you’ll need at the closing table.
Preapproval. A preapproval is a prequalification that has been validated. The loan officer asks for such things as recent pay ...
FHA loans carry a government guarantee to the lender. Should the loan ever go into foreclosure, the lender is compensated 100 percent of the outstanding balance. That’s quite a benefit to the lender, as long as the lender approved the loan using current FHA guidelines. Yet this guarantee comes at a cost and is funded by an upfront mortgage insurance premium and an annual mortgage insurance premium, or MIP.
The upfront premium, currently 1.75 percent of the loan amount, is rolled into the principal balance and not paid out of pocket. The annual premium is paid in monthly installments. The annual premium amount will vary based upon loan term and down payment. Today, the annual premium is 0.85% of the loan with a 30 year term and a 3.5 percent minimum down payment. The premium for a 15 year loan with 5.00 percent down is 0.70%, for example. But FHA mortgage insurance premiums don’t always have to be forever.
Current guidelines for all FHA loans with case numbers issued prior to June 3, 2013, the annual MIP will automatically be cancelled on a 30 year note when the balance is naturally amortizes to 78 percent of the original value and the note is at least five years old. The annual premium is also cancelled automatically on 15 year loans when the loan balance falls to 78 percent of the original value. There is ...
Once you apply for a mortgage, whether for a purchase or a refinance, you’ll soon get your fair share of paperwork. There are things to sign, initial and understand and some of those documents might seem a bit redundant, if not confusing. Yet by law, these loan disclosures are required to be presented to those who apply for a home loan to provide a thorough understanding of the terms of the loan, monthly payments and other important information. One document included in the stack is a form generally referred to as an Interest Rate Lock/Float Agreement. Why is this included?
Because your interest rate isn’t guaranteed until you specifically request the lender lock your rate for you. Here’s why that’s important. You recall when you first started out researching mortgage options, one of the most important things you wanted to know concerned interest rates. What’s the rate today? Are there any points? What’s my monthly payment? All questions revolve around the interest rate. Yet regardless of any rate you see advertised or quoted to you directly, they’re really not available to you. You need to lock that rate in.
Lenders can have different rate lock policies but whatever the policy it must be disclosed. That disclosure comes in the form of the Rate Lock/Float Agreement. One of the primary requirements to lock in a rate is having a loan application on file with the lender. Many years ...
Mortgage insurance has been a staple in the mortgage industry since the late 1950s. Private mortgage insurance, or PMI, is in fact an insurance policy much like any other. Mortgage insurance on conventional loans is required when the first mortgage exceeds 80 percent of the value of the home. If the borrowers put down 20 percent or more, no mortgage insurance is needed. Should the loan ever go into foreclosure, the lender is compensated by the difference between the borrower’s original down payment and 20 percent of the value of the home. This amount will vary based upon other factors but generally speaking that’s how mortgage insurance works.
Yet up until the passage of the Homeowners Protection Act of 1998, mortgage insurance was a lifetime affair. Unless the mortgage was retired by sale or refinanced, the mortgage insurance policy would always be a part of the mortgage, regardless of the current market value of the home. This Act provided ways for consumers to get rid of mortgage insurance, either by a direct request or natural amortization, for all loans issued on or after July 29, 1999.
Borrowers may request cancellation of a mortgage insurance policy by writing the current lender asking for a review and removal of PMI once the mortgage balance is naturally paid down to 80 percent of the original value of the property. The ...
Have you ever been curious how lenders set their interest rates? Wonder why lenders ask a series of questions when you call and ask them about their rates before they make any sort of quote? Mortgage lenders price their mortgage each business day on the very same set of indices. Without going into detail, that’s for another blog, lenders set a 30 year fixed rate based upon the price of the FNMA-30yr 3.0 coupon. That’s a mortgage bond and can fluctuate day to day and even through the course of the day. That said, it’s just a starting point.
A lender may have a general interest rate they quote to potential borrowers but that rate is subject to other factors as well. This is why lenders won’t lock in your interest rate until they’ve received a completed loan application and reviewed a credit report. You can have three different borrowers call the very same lender on the very same day and they may each have a different quote. Not a big difference, but a difference nonetheless.
For example, borrower A might have a quote for a 30 year mortgage of say, 3.75 percent with one point. Borrower B might have a quote of 3.75 with one-half point while borrower C could be quoted 3.875 percent with no points. All for the same 30 day lock period. But there is a method to this apparent madness.
Understanding The LLPA (Loan Level Pricing Adjustment)
Lenders price their loans based upon the Loan Level Pricing Adjustment, or LLPA. This is in ...