Prequalification vs. Preapproval
When you are looking for a mortgage, you may think that “prequalification and preapproval” are interchangeable terms. But they have different meanings. A Prequalification is just that. Based on the information you have provided to your mortgage professional, they make an estimate of how much of a mortgage payment you can afford. The prequalification is based off of how much information you provide, and is always subject to further verification- credit report, income verification, appraisal of the property, and a clear title to the home. A preapproval is a more firm commitment from your mortgage professional, and is more in depth.
Your credit report will be analyzed, along with your proof of income, including pay stubs, W-2’s and even tax returns. During the preapproval process, much of the same steps are taken as in a full approval, minus the appraisal and title work. Even still, many Mortgage Companies will contact a local appraiser and get their opinion of the value of the home before issuing a preapproval. A preapproval is always subject to a final approval from the underwriter.
This is one document you will want to analyze very carefully. A fee worksheet is required be provided to you within 3 days of making a mortgage application. It will outline all costs and fees associated with your loan, and help you shop for the best interest rate and fees. This document will tell you the loan fees (fees paid to your mortgage company for originating the loan), fees to be paid in advance (prepaid interest for your new mortgage, mortgage insurance premium, if required), escrow reserves (monies deposited into an escrow account to pay real estate taxes and homeowners insurance as they come due), government charges (state and transfer taxes, recording fees), and additional charges (pest inspection fees, if required).
You will also receive a truth in lending statement or TIL. This outlines your cost of credit expressed as an annual rate (APR). It will also tell you your finance charge, amount financed, and total of payments. The total of payments will tell you, after paying each monthly payment as agreed, the total you will have paid the lender at the end of the loan. This includes principal balance plus fees, finance charges, and interest.
Now That You Are Preapproved
Now that you have been preapproved for your loan, the verification process begins. This process normally takes about 3 weeks, but can be longer for more complex loans. Your mortgage professional will ask for any additional documents needed from you, order a title report on your property, and arrange for an appraiser to come to inspect your home, and give a report of value. You have the choice of which title company and appraisal to use, as long as they are reputable, and approved by your lender.
Once all of the documentation is received, your information is sent to an underwriter. The job of an underwriter is to look at your entire profile and make a decision. He or she will analyze your credit report, income, title report, and appraisal to ensure everything is correct, that nothing seems out of place, and you meet the credit guidelines. They will also make a final decision of whether or not you are a good credit risk, and to lend money.
You have a Final Approval- Now What?
Congratulations! You have met today’s stringent lending guidelines, and are now clear to close! What you will want to do now is contact your mortgage professional. Keep your good faith estimate handy, and make sure nothing has changed. Talk about your new mortgage payment, terms, fees, interest rate, and your escrow account. Once you have confirmed, and agree to all of the terms, you are ready for closing!
You will need to be at settlement, as will anyone else who will be a borrower on the new loan, or the title to the home. In some states, your spouse will need to be there, even if they are not on the title or note to the home. A power of attorney is acceptable, if applicable. Your title company will send a licensed settlement agent to notarize your closing package. You will need a copy of your driver’s license and social security cards as proof of identity. The closing package may seem daunting, but it is very important that you understand what you are signing. If you are not sure, ask questions!
Your mortgage note will tell you your loan amount, interest rate, and if it is a fixed rate, and date of first payment. If something has changed, do no sign. Contact your mortgage professional immediately, and let them know of the discrepancy. In some cases, human error occurs, and should be able to be fixed with relative ease. Do not sign anything you are not absolutely comfortable with! In most states you have a three day right of rescission-unless you are closing on a purchase of a home, or an investment property. This allows you to cure any buyer’s remorse. Simply notify your lender that you wish to cancel the loan by the end of your rescission period, and the loan is canceled, with no obligations.
The rescission period begins at midnight the day you sign your closing papers, and goes three business days, Monday through Saturday, minus any federal holiday. Sunday’s are not included in the rescission period. The rescission period ends at midnight of the third business day. You must notify your lender in writing that you wish to cancel your loan by midnight of the third rescission day for it to take effect.
Example Closing papers are signed on Monday, Tuesday, Wednesday, and Thursday are included in the recession period. If you have not canceled the loan by thursday at midnight, the funds of the loan will be dispersed on Friday. If you decided that rescinding on your mortgage loan is the best decision, your current mortgage will not change. You will still be obligated to make your payments as agreed. You will not be responsible for any additional debts.
Lyn Graham is dedicated to making your refinancing process as smooth and seamless as possible. For a worry-free mortgage, contact Lyn today.