FAQs
QUESTIONS TO ASK POTENTIAL LENDERS
Q. Do you charge any type of points: loan origination fee, discount points, broker fees?
Q. When do you guarantee (lock-in) the interest rate, for how long, and is there a fee to do so?
Q. What are the closing costs, and when do you put them in writing? (At the time of the application the lender should provide you a Closing Cost Estimate / Good Faith Estimate and Federal Truth In Lending form.)
GENERAL QUESTIONS
Q. What is the difference between pre-approval and pre-qualification, and which is better?
A. Your ability to buy depends on your ability to borrow, so it makes sense to talk with a lender before looking at houses to check your mortgage / home loan borrowing power and consider which loan program might be best for you.

Pre-qualification is strictly an estimate of your borrowing power based on your income, financial assets and current debt level. You are qualified for a home loan for "x" amount of dollars. This can be accomplished by a simple phone call to a lender. They may or may not run a credit report.

Pre-approval is a more formal process. Here you will need to complete a loan application and provide the lender, with documentation to verify your income and financial assets necessary to purchase the type of property you may have in mind. The lender will also run a credit report and a loan approval. This is a more complete process.

Also, a pre-approval helps remove the guesswork of how much you can actually afford. In other words, with a pre-approval you have completed the mortgage loan process as far as possible without having a specific property and a written purchase agreement. In the eyes of a seller, a pre-approved buyer is the "stronger buyer" than the pre-qualified buyer. This is also more helpful in negotiating a better deal for you. It eliminates any doubt with the seller as to what you can afford. It can also make you feel more comfortable with understanding the loan approval process.

Neither a "pre-approval" nor a "pre-qualification" are seen as absolute loan commitments. Lenders still need to look at property appraisals, verify information, and in some cases, re-check credit before agreeing to loan commitment.

By speaking with a lender, you can get an informed idea of how much you can afford, which homes are in your price range, and which loan programs might be best for you. Also, you will learn how much cash you will need to close the deal. It's all a very important part of the real estate process. It also helps demonstrate to the seller that you are a serious and motivated buyer.
Q. I keep hearing people talking about a credit score. What is a credit score?
A. You have three scores - one from each national credit bureau / repository. Your scores are a measure of your financial responsibility, based on your credit history. Most lenders will look at your scores when evaluating your credit or loan applications.

Credit bureau scores are sometimes called "FICO scores" because most credit bureau scores used in the US are produced from software developed by Fair Isaac and Company. Credit scores are provided to lenders by the three major credit reporting agencies: Equifax (Beacon), Experian (Experian / Fair Isaac Risk Model), and TransUnion (Emperica).

Credit scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a "good" or "bad" customer. While many lenders use credit scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single "cutoff score" used by all lenders, and there are many additional factors that lenders use to determine your actual interest rates.

More than one score
In general, when people talk about "your credit score," they're talking about your current FICO score or the middle number from the three bureaus. However, there is no one score used to make decisions about you. This is true because:
• Your score may be different at each of the three main credit-reporting agencies.
The score from each credit-reporting agency considers only the data in your credit report at that agency. If your current scores from the three credits reporting agencies are different, it's probably because the information those agencies have on you differs.
• Your scores can change with time.
As your data changes at the credit-reporting agency, so will any new score based on your credit report. So your scores from a month ago are probably not the same score a lender would get from the credit-reporting agency today.
• Several items determine your score.
Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories: Payment History, Amounts Owed, Length of Credit History, New Credit, and Types of Credit Used.
The percentages for each category are based on the importance of the five categories for the general population. For particular groups (e.g., people who have not been using credit long), the importance of these categories may be somewhat different.

Please note that:
• A score takes into consideration all these categories of information, not just one or two.
No one piece of information or factor alone will determine your score.
• The importance of any factor depends on the overall information in your credit report.
For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. Thus, it's impossible to say exactly how important any single factor is in determining your score. What's important is the mix of information, which varies from person to person, and for any one person over time.
• Your credit score only looks at information in your credit report.
However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
• Your score considers both positive and negative information in your credit report.
Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.