A prequalification letter generally states that you have spoken with a loan officer, verbally given them your financial information and once your information is verified it is most likely you will be issues a mortgage commitment to lend. In other words, you have given information and once it is confirmed it is possible you will be given a mortgage.
A mortgage commitment to lend means that you have provided a copy of all the necessary financial documents, the mortgage underwriter has reviewed your documents and approved your mortgage application.
In today's market, the prequalification – or pre-approval letter is proving time and again not good enough to become the winning bidder on a home. If you are serious about purchasing a home, having a mortgage commitment will make you a much more attractive buyer.
Most recently I worked with an extremely well qualified buyer who chose not to provide the documents, made an offer with a pre approval letter and lost their dream house in a multiple bid situation to a buyer who had a commitment to lend. There are more and more loan officers with the same story these days. Today’s sellers have been waiting a long time in most cases for a purchase offer. Once the seller has accepted your offer, their house is essentially off the market until all the inspection, appraisal and loan approval dates have been met – and if they must wait an additional 3 weeks for a mortgage approval with a pre qualification versus an offer with the only the requirement of an appraisal, the smart seller will take the appraisal only offer.
There is no cost or obligation to have a completed commitment to lend - and sooner or later you must provide the documents. If you are serious about purchasing a home, and want to have your offer accepted, ask for the full commitment to lend when you apply for a mortgage. The financial documents needed include; your most recent pay statement, 2 most recent asset statements, 2 most recent W2's or 1099's and 2 years complete tax returns.
Wednesday, March 30, 2011
Thursday, March 10, 2011
Should I refinance my mortgage
The Most Frequently asked mortgage question –
My rate is 7% and I am 12 years into a 30 year fixed, should I refinance?
Two important questions to ask the borrower
1. Do you want to pay off the loan in 18 years or less?
2. Do you want better cash flow?
Assume current 200,000 mortgage @ 7% = 1,500 monthly payment
Example of Three solutions that answer both objectives -
1. New 30 year fixed –
Keep current loan = 324,000 to pay off loan in 18 years
Refinance into a new 30 year fixed rate @ 5% = 1,074 monthly payments = 386,512 to pay off loan in 30 years
The borrower will pay out more to refinance, about 57,000 – however their monthly cash flow will increase by about 450.00 per month or 162,000 over the life of the loan, however subtract the 12 years for the longer pay out = 97,200 is the real cash savings
2. New 20 year fixed -
Keep current loan = 324,000 to pay off loan in 18 years
Refinance into a new 20 year fixed rate @ 5% = 1320 monthly payment = 316,800 to pay off loan in 20 years
The borrower has better cash flow and after paying the refinance charges – the pay off is about the same amount – but adds 2 years to the loan pay off. The 18 year monthly savings for this refinance is 38,880 and the extra 2 years payments = 31,680 = 7,500 is the real cash savings
3. New 15 year fixed rate
Keep current loan = 324,000 to pay off loan in 18 years
Refinance loan new 15 year fixed @ 4.375 = 273,104 to pay off loan in 15 years
By keeping the monthly payments near to current payment, borrower will save about 45,000 in interest over the next 15 years, and 54,000 saved in 3 years of fewer loan payments with the refinance = 99,000 is the real cash savings.
My rate is 7% and I am 12 years into a 30 year fixed, should I refinance?
Two important questions to ask the borrower
1. Do you want to pay off the loan in 18 years or less?
2. Do you want better cash flow?
Assume current 200,000 mortgage @ 7% = 1,500 monthly payment
Example of Three solutions that answer both objectives -
1. New 30 year fixed –
Keep current loan = 324,000 to pay off loan in 18 years
Refinance into a new 30 year fixed rate @ 5% = 1,074 monthly payments = 386,512 to pay off loan in 30 years
The borrower will pay out more to refinance, about 57,000 – however their monthly cash flow will increase by about 450.00 per month or 162,000 over the life of the loan, however subtract the 12 years for the longer pay out = 97,200 is the real cash savings
2. New 20 year fixed -
Keep current loan = 324,000 to pay off loan in 18 years
Refinance into a new 20 year fixed rate @ 5% = 1320 monthly payment = 316,800 to pay off loan in 20 years
The borrower has better cash flow and after paying the refinance charges – the pay off is about the same amount – but adds 2 years to the loan pay off. The 18 year monthly savings for this refinance is 38,880 and the extra 2 years payments = 31,680 = 7,500 is the real cash savings
3. New 15 year fixed rate
Keep current loan = 324,000 to pay off loan in 18 years
Refinance loan new 15 year fixed @ 4.375 = 273,104 to pay off loan in 15 years
By keeping the monthly payments near to current payment, borrower will save about 45,000 in interest over the next 15 years, and 54,000 saved in 3 years of fewer loan payments with the refinance = 99,000 is the real cash savings.
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