Pre-qualification is normally determined by a loan officer. After interviewing you, the loan officer determines the potential loan amount for which you may be approved. The loan officer does not issue loan approval, therefore, pre-qualification is not a commitment to lend. After the loan officer determines that you pre-qualify, he/she then issues a pre-qualification letter. The pre-qualification letter is used when you make an offer on a property. The pre-qualification letter informs the seller that your financial situation has been reviewed by a professional, and you will likely be approved for a loan to purchase the home.
Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is submitted to the underwriter of a lender, and a decision is made regarding your loan application. When your loan is pre-approved, you receive a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a home. Pre-approval can also help you negotiate a better price with the seller.
An Interest rate is the monthly cost you pay on the unpaid balance of your home loan. An Annual Percentage Rate (APR) includes both your interest rate and any additional cost or prepaid finance charges such as the origination fee, points, the initial private mortgage insurance, underwriting and processing fees. (Your actual fees may not include all of the items above.) The APR is a universal measurement that will assist you in comparing the cost of mortgage loans offered by different mortgage lenders.
A fixed rate mortgage is a loan where the principal and interest payment never change during the life of the loan. Fixed rate mortgages are beneficial to those who are on a fixed income, (adverse to interest rate change) and those who prefer fixed payment schedules. There are numerous adjustable rate mortgage programs. The rate may fluctuate and increase throughout the life of the loan. Adjustable rate mortgages are advantageous for those who do not plan to stay in their home for a long time, for those borrowers who do not qualify at higher fixed interest rates, and those who can financially handle fluctuating payments.
Escrows are payments made by you to the mortgage company for the purpose of paying your taxes, insurance, and other payments associated with home ownership. The mortgage company is responsible for the timely disbursement of escrow funds to pay your escrow bills as they come due.
Private Mortgage Insurance and government mortgage insurance protect the lender against default and enable the lender to make a loan, which the lender considers a higher risk. Lenders often require mortgage insurance for loans when the down payment is less than 20% of the sales price. You may be billed monthly, annually, by an initial lump sum, or some combination of these practices for your mortgage insurance premium. Ask your Flagstar loan officer if mortgage insurance is required and how much it will cost. Mortgage insurance should not be confused with mortgage life, credit life or disability insurance, which are designed to pay off a mortgage in the event of the borrower’s death or disability.
When purchasing your home, the LTV is the purchase price compared to the loan amount. For example if you bought your home for $200,000 and put $50,000 down, your LTV would be 75% (200,000-50,000/200,000).
When refinancing your home, the LTV is the appraised value compared to the loan amount. For example, if your home appraises for $100,000 and your loan amount is $80,000, your LTV would be 80% (80,000/100,000).
A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable.
Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit. Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit bureau reports.