FAQs

A pre-qualification is an estimate of how much mortgage you may qualify for based on preliminary information that you have provided to a loan officer. This preliminary information would include such things as income, debts, assets and liabilities. It is important to understand that a pre-qualification is not a commitment by the lender but rather a preliminary "looks good" test by the loan officer.

In contrast, a pre-approval is a formal commitment by the lender to grant you a mortgage based on a set of conditions. In order to issue a pre-approval, a lender must review your application and verify your income, employment, assets, liabilities, credit history and cash available to close the transaction. Upon completion of the verification process the lender will issue a pre-approval letter that can be used with your offer on your next home. You will find that being pre-approved prior to making your offer will strengthen your offer and put you in a better negotiating position. In the Twin Cities and Greater Minnesota housing markets, it really is a must. With today's emerging technology we are able to pre-approve borrowers in as little as an hour or two, 24 hours with one phone call.

PMI or Private mortgage insurance is normally required when you buy a house with less than 20% down. Mortgage insurance helps protect the lenders against foreclosure and is provided by a private mortgage insurance company. It enables lenders to accept lower down payments than they would normally accept. In effect, mortgage insurance provides what the equity of a higher down payment would provide to cover a lenders losses in the event of a foreclosure.

The cost of PMI increases as your down payment decreases. For example, the cost of PMI for a 10% down payment is less than the cost of PMI for a 5% down payment. Your PMI payment is normally added on to your monthly payment.

The decision to cancel your private mortgage insurance rests with the lender. However, in most cases, the lender will allow cancellation of mortgage insurance when the loan is paid down to 80% of the original property value.

To cancel the PMI on your loan, contact your lender to determine what requirements must be met.

APR or Annual Percentage Rate is the interest rate that you are paying after adding in some of the costs associated with closing the loan. It is always different from the note rate that is stated on your loan. Because different lenders charge different fees for their loans, the Federal Truth in Lending Law requires mortgage companies to disclose APR when they advertise a rate as a way to compare lenders. For example, two lenders may advertise an 8% rate but if their closing costs are different, this will show up in the APR rate with the higher closing cost lender having a higher APR. The APR does not affect your monthly payment. Your monthly payment is based on your note rate and the life of the loan.

This is a complex question and varies based upon an individuals situation. In addition to lowering your monthly payment and saving money, some of the more common reasons to re-finance include; conversion of an adjustable rate loan to a fixed rate loan, reducing the term of your loan(30 year to 15 year), convert your equity to cash which can then be used to pay other debts, invest or spend at will.If refinancing a way to approach this is to calculate your cost recovery period. This is how it would work:

Example: a. Determine the costs of your re-finance. $2,000 b. Determine your monthly savings (old payment minus new payment) $100 c. Divide the results in (a.) by the results in (b.) ($2,000/$100 = 20 months)

The number of months needed to recover your costs in this example is 20 months. If you were planning to live in the house for longer that 20 months then you would be money ahead and it would make sense to re-finance your loan. ( This calculation does not include the impact of tax savings or investment opportunity loss)

A credit score is a method of determining the likelihood that credit users will pay their bills. Scores are calculated using scoring models and mathematical tables that add or subtract points for different pieces of credit information that predict future credit performance. These mathematical models were developed after studying the credit histories of millions of consumers. The specifics of how these scores are computed is a closely guarded secret. However, we do know that the following items will impact your score.

• Late payments
• The length of time credit has been established
• The amount of credit used versus the amount of credit available
• Negative information such as bankruptcies, foreclosures, judgments, liens, collections, charge-offs etc.

If you feel that your credit score is low please feel to contact us for a thorough review. The good news is that poor credit is repairable with a little time and effort on your part. There is no magic to improve your credit scores overnight; however, once you start to demonstrate a good payment history and resolve any negative information your credit score will begin to grow. Here are some of things that you can do to maintain good credit or begin the process of clearing up poor credit.

1. Pay your bills on time. Late payments and collection accounts can have a very negative impact on your score.
2. Do not apply for credit frequently. If you have frequent inquiries on your report it could mean you're shopping for credit and can reduce your score.
3. Reduce your balances. Maxing out your credit card and making minimum payments, even if they're on time, can have a negative effect.
4. If you have little or no credit history obtain additional credit sources and pay your bills on time. This will begin to develop your history.

Traditionally, the way to determine how much mortgage someone qualifies for was to review their income and debts and then apply a mathematical formula that will give us the answer. However, the rules are changing in this business daily and the traditional formulas may not apply in your situation. Please contact us to discuss your individual situation. Once we know the facts we can quickly do a calculation for you.