 | What Is Prequalifying? |
| Prequalifying is a process whereby a loan officer takes information about you, either over the telephone or face-to-face and indicates how big a loan of a particular type you will qualify for. The lender would then give you a "prequalifying letter" which is of considerable value in dealing with a Realtor or a potential seller. Realtors and sellers are interested in dealing with people whom they know to be able to get the loan necessary to close the deal.
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| What Is Preapproval? |
| Preapproval is a step beyond prequalifying. In a preapproval we send the credit part of the loan package to the lender and get you approved for a certain type of loan with a particular lender before you have found or made an offer on a property.
With a preapproval you can close the loan faster and often will find your offer more acceptable to the seller. Sometimes sellers are anxious and will take somewhat less in price from someone who can close quickly. |
| What Is A FICO Score? |
| FICO scores are numeric representations of your credit profile. The higher the FICO score the better credit risk you are.
FICO is a product of Fair, Isaac Company. These have been around for several years but started to be used in the mortgage lending business in 1995 for the purpose of keeping down the expense associated with Home Equity loans. You needed a certain minimum score to get such a loan.
Both FMLMC and FNMA insist on a FICO score on your credit report. Presumably, you can be denied a mortgage loan if your score is to low. People will be unhappy as a result and our elected officials will find a new cause to protect us from. At the present time we can say the following about these scores:
- they are based on years of computer modeling aimed at predicting who might be a credit risk.
- their purpose is to reduce the cost of examining a credit report and speed mortgage approval.
- when your FICO is computed the program tells the credit bureau what the 4 most important factors were in determining the score.
- Fair, Isaac and the credit bureaus do not want to reveal how these scores are computed. The Federal Trade Commission has ruled this to be OK.
- The important negative factors are: bankruptcies, delinquencies, credit lates, collections, too many "tapped out" credit lines, "too much" credit, to little credit history.
- The score is only as good as the data. The amount of credit data history is so large that there are problems with it. The most common problem that we see is with relatives with the same name.
Borrowers often dispute the data but it is very accurate.
- It will become more important than ever to keep a good or perfect credit history.
- Even the very act of getting a credit inquiry is said to lower the FICO score (very slightly) so it is important to not authorize someone to pull your credit unless it is necessary.
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| On A Purchase Loan, Is There Someone Who Will Work With My Realtor? |
| Yes. Since each loan is assigned to one customer service specialist who works with you until you close, he or she will be able to assist you or your Realtor at any time. |
| What If My Lender Goes Out Of Business? |
| People sometime ask: If the lender you find for me goes out of business or becomes insolvent can I be forced to pay my loan off early. The answer is No, never. If the ownership of your loan is transferred because of failure it is still governed by the original note and deed of trust. Your note cannot be accelerated and your rate cannot be modified as a result of the failure. (Interestingly enough, this is not true of the savings or CD account you might have with a failed institution. There the principle may be guaranteed but the interest isn't.) |
| Can I Pay My Taxes Outside Of My Mortgage Payment? |
| Yes, in most cases this can be done at a cost of .25% of the loan amount. |
| Can I Prepay My Mortgage? |
| Yes, at any time with no penalty. The prepayment amount will be deducted from your balance but your monthly payment will not change unless you have an "ARM" and the interest rate is being applied. |
