Mortgage Pre-Approval Versus Mortgage Commitment

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Q & A with Dottie Herman
 
QUESTION: What's the difference between a mortgage pre-approval and mortgage commitment? My banker said they needed to look at all income, asset and credit documentation to have a fully vested pre-approval.

ANSWER: Pre-approvals are based on an accept result from an automated underwriting computer analysis, such as Fannie Mae Desktop Underwriter, Freddie Macs Loan Prospector or the lender's own proprietary system. This takes into account credit pulled from the three bureaus and accurate documentation inputted into the system. There is no guarantee to lend with a pre-approval.

Mortgage commitments are issued by an underwriter and are an actual promise to lend from the creditor pursuant to certain terms.

QUESTION: I want to lock in the rate, but the seller needs the short sale approval first, what should I do?

ANSWER: Most lenders offer rates and lock-in periods to cover many closing timeframes. Extensions can be costly, so check with your lender upfront on costs for time extensions.

Side note: if you think it will be cheaper to let the rate expire and re-lock, check with the lender's policies as it could be a better worst case scenario, even if rates had become lower.

QUESTION: I was initially planning on putting 20% down on a home, if I found a more expensive home, can I put less down?

ANSWER: Lenders offer programs with less money-down options. Sometimes waiting to save for that larger down payment can actually cost you money. If rates or property values rise it could be counterproductive in holding off on buying into the American dream now. 

QUESTION: I keep on hearing the terms Mortgage and Note, are these the same thing?

ANSWER: The promissory Note is a contract to pay a sum of money to the creditor with specific terms. The Mortgage is a pledge of interest in securing the debt (of the note) while retaining use and possession of the property. It gives the lender the right to take the property if the borrower goes into default and doesn't pay under the terms of the note. The mortgage is recorded in the town or county's recording office, while the note stays with the lender. 

In summary a Note is signed by the people who agree to pay the debt and a Mortgage is signed by the owners of the property being mortgaged (which can be the same people).

QUESTION: What's included in my mortgage PITI payment?

ANSWER: PITI is an acronym for Principle, Interest, Taxes and Insurance. When making a PITI mortgage payment the lender picks up 1/12 of the real estate taxes and 1/12 of the home owners insurance that will be held in a separate escrow account for when those bills come due. If private mortgage insurance is needed that will be part of your monthly piti payment as well.

Side note: Should you wish to pay or taxes and insurance outside of an escrow account, consult with the lender if this option may be available.