Financing Q&A

What's the difference between pre-approval and pre-qualification?

Pre-qualification is a lender's opinion of your ability to purchase a home, and is based on things like your income, employment history and available down payment.

Pre-approval is a lender's underwriting decision that you are qualified, subject to the conditions noted in your pre-approval, and is based upon the lender's review of your completed application, credit check, appraisal and home inspection.

When you write an offer for a home, a pre-approval letter contains stronger language to the seller and the listing agent than a pre-qualification. You, the buyer, have the increased negotiating leverage because the mortgage is already in place.

A pre-approval can often be a determining factor in winning the contract in a competitive bid situation.

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What's the difference between Annual Percentage Rate and the interest rate?

The Annual Percentage Rate (APR) will be outlined on your Truth In Lending disclosure that you receive after your application. The APR is often higher than the quoted interest rate, or note 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 additional costs of obtaining your financing. This is a common practice in mortgage lending.

Simply stated, if there were no costs in obtaining financing, your note rate and the APR would be the same.

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What are points?

A point equals one percent of the loan. Points are usually paid at closing. If your loan amount is $100,000; then one point would equal $1,000 or one percent.

Discount Points are fees paid by the buyer to the lender to reduce the loan's interest rate. If you plan to keep the residence for five or more years, it may be worthwhile to pay discount points to reduce your monthly payment and achieve greater savings over the life of the mortgage.

The number of discount points required to buy down your interest rate will vary based on loan type. Consult your mortgage consultant for details on your specific transaction. Points may be tax deductible when buying a primary residence; consult your tax advisor for information on limitations to tax deductibility.

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What is meant by the term "locking my interest rate"? And then, when and how do I lock my interest rate?

When a lender "locks" your interest rate, this means you are guaranteed a specific interest rate for a specific period of time. That period of time is called the lock period.

The lock 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. It is good advice to lock for a period longer than you need, or a period beyond your actual closing date. This will protect you in case unforeseen circumstances arise.

Typical lock periods are 15, 30, 45 and 60 days. In a stable rate environment, shorter lock periods provide you the potential for a better interest rate. However, the market can be volatile and rates move with market activity, up and down.

If you believe rates may go up slightly, you might benefit by waiting to lock because of the shorter lock commitment period. If you believe rates will go down, you would benefit by waiting to lock. If you believe rates will stay the same, you may also do better to wait. If you have a feeling that rates are going to go up significantly, by all means lock your rate.

Once you have a property under contract, you may be able to lock your rate by simply speaking with your mortgage consultant.

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Who orders the appraisal and survey, and when is it ordered?

Your mortgage consultant will order the appraisal. Buyers are responsible for ordering the survey and ensuring the appraisal is complete in a timely fashion. Be sure to get a copy of the appraisal from the lender. Among other things, surveys can help determine whether there has been an encroachment to the property lines, building lines, or easements. If your home is new construction, the builder may order the survey just after completion, or just before closing. It is recommended that all buyers purchase a survey even though they are often not required in Georgia.

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Once I sign my application, am I committed to borrow the money?

None of the mortgage documents you have received are contractual until you are actually at closing and sign your note.

All your mortgage consultant is doing with your application is approving you and putting you in a position to make an offer, purchase a home and close a mortgage loan. You are not obligated for the loan transaction until you sign your closing documents. Buyers should confirm this with their lender.

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What key items help ensure a smooth closing?

There are several key items you need to have addressed to ensure a smooth closing.

Homeowners Insurance, or Hazard Insurance, is coverage that compensates for physical damage to the property by fire, wind or other natural causes. It is very important for you to obtain your Homeowners Insurance at the earliest possible date so that there are no delays in your closing or in obtaining the necessary closing funds.

You should send your Declaration Page of your Homeowners Insurance policy with proof of payment to your mortgage consultant at least 5 days prior to your closing date. The responsibility to order and produce a clear Termite Certification depends on the terms in your contract. Check with your mortgage consultant for details.

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Where will I be closing? How much do I have to bring to closing, and can I bring a personal check?

Closing costs are the other charges the buyer must pay to obtain a loan. These usually included taxes, which are charged in most states, and title insurance. When applying for your mortgage, your mortgage consultant will provide you with a Good Faith Estimate of the closing costs as part of the application package you receive. Your mortgage consultant should contact you within 72 hours of your closing date, and will provide you with a preliminary Settlement Statement or a HUD-1 indicating the required cash to close. This ensures that you have ample time to arrange for wiring the necessary funds.

You will probably be required to wire your funds to the closing attorney prior to closing. Although variations from the HUD-1 arenít anticipated, you should bring your personal checkbook to closing in case there are last minute adjustments. If you are due a refund at closing, the attorney will issue you a check.

Closing will typically take place at an attorney's office. The attorney usually represents the lender - not the buyer or seller. All borrowers associated with the mortgage loan transaction will be required to bring Picture Identification to closing such as a driver's license or passport.

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