1. What is the difference between a pre-qualification letter and a pre-approval letter?
A pre-qualification shows you what you can afford and a pre-approval is confirming with bank statements, pay stubs and credit reports what you have provided verbally for the sake of achieving a full loan approval.
2. Why do rates move?
Rates can move more than daily, but on a typical day rates do not move very much. This is why it is important to employ Fairway to assist you in making the determination of when to lock your loan. Things that will affect the interest rate moving are strong swings in the equity or stock market and indications from our economic position in not only the U.S. market but the world market as well.
3. What is a FICO score?
FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms.
4. By completing the initial loan application, am I committed to you and your company?
No, unless you have locked in your interest rate, there are no contractual agreements included in the application package.
5. What is an escrow account?
An escrow account is a separate account that your lender holds money in for your homeowner’s insurance and property taxes. Each month, you pay a portion of the estimated annual costs along with your principal and interest payments.
6. What is a rate lock?
It means that a commitment has been made between my company and the investor on your behalf regarding the interest rate in your mortgage loan.
7. When should I lock in my interest rate?
You can lock in your rate approximately ten days before closing on your house. Lock-in periods can be for 30, 60 or 90 days. It is important to note that a longer lock-in period may create additional closing costs or a slightly higher rate.
8. What is Private Mortgage Insurance?
Private mortgage insurance is required on conventional loans and may allow you to purchase a home for as little as 5% down. This coverage requires a monthly insurance fee to be paid. PMI is only required if your loan-to-value is 80% and above.
9. What are pre-paids?
This includes your property taxes, homeowner’s insurance and mortgage interest rate. This is due at the time of closing.
10. What are closing costs?
Closing costs are those costs that include the loan origination fee, discount points, appraisal costs, and any other charges associated with the legal transfer of property. Typically, these costs will range between 2% and 3% of the mortgage amount.