If you’re applying for a mortgage or refinancing your existing one, you probably already know that there’s a bit more to the process than finding the best rate and filling out some paperwork--and that it behooves you to go through the process with all the information.
To help you through this process, NCB has outlined ten of the most frequent questions we hear from co-op and condo buyers.
1. What’s the difference between working with a bank or working with a mortgage broker?
A mortgage broker works as a middleman between you and the bank, whereas a bank or mortgage lender works directly with you.
However, the number of mortgage brokers has drastically shrunk over the past few years as many banks have decided to expand their retail operations and scale down their broker relationships.
2. What’s a portfolio loan?
Banks offer a variety of home loans. You may hear the term “portfolio” or “saleable” when you are doing your research, A saleable mortgage means the bank or mortgage lender will likely sell the loan (for example, to Fannie Mae or Freddie Mac).
That’s not the case with a portfolio lender or portfolio loan. In that situation, the bank will hold the loan in its own portfolio or on the bank’s books and not sell the loan.
The advantage is that many times lenders will offer portfolio loans that are not conventional or fit in to a saleable product. This gives you more loan options to choose from and can be particularly helpful if you, your apartment, or your building don’t meet traditional lending criteria.
3. How do I get prequalified for a mortgage?
Typically you fill out a standard residential loan application, listing your name, current address, date of birth, income and assets, and other property owned. You also authorize a credit check, which is the only outside source of information that is checked at this point in the process.
Prequalification is quick and relatively painless. At NCB, we usually tell borrowers whether they’re qualified within about 10 minutes. You can print out your own “prequal” letter, which a real estate broker may want to see before showing apartments and which you’ll need to submit with an offer letter.
4. Can a building be pre-approved?
In addition to getting yourself prequalified, you may want to take the additional step of asking your lender to approve your prospective building.
Here are a few items NCB looks at in getting the building approved:
• Whether it is a co-op or condominium
• A review of operating documents
• The number of apartments occupied by owners versus renters
• Percent of apartments delinquent on their maintenance fees or common charges
• Cash flow and cash reserves
• Pending lawsuits
• Insurance coverage including flood if applicable
• Sponsor information--for example, what percentage of units are sponsor-owned, and are they current in assessments? Are they selling units? Is there a current Attorney General amendment? Are the shares pledged?
5. What's the difference between a prequalification letter and a mortgage commitment?
A prequalification states that you are qualified for the loan subject to verification of certain items. It is important to note that the only item that has been verified is your credit history via the credit report.
Before issuing a commitment, the bank gathers supporting documents for the information you provided in the prequalification process, sends out standard mortgage disclosures and issues a good faith estimate about all the costs involved in obtaining a mortgage.
The next step is the verification process. Information on the application is verified (i.e. income, employment, assets, etc.), and the property and title search are ordered. Once these are completed, the lender can then issue you a loan commitment.
At this point, we basically know that you’re qualified and you can proceed to your co-op board interview.
There may be some items outstanding even after the commitment letter is issued that could affect whether the loan ultimately goes through. For example, you will also need to have sufficient funds to close and a verification of employment.
6. What’s a Fannie Mae loan?
Fannie Mae is a government sponsored entity created in 1938 as a way to add stability to the housing market. The sole purpose of FannieMae is to provide banking institutions and other mortgage companies a way to keep mortgages available and affordable on the market.
Fannie Mae does not directly lend money to the public. They work with financial institutions and mortgage companies to purchase loans. Fannie Mae then sets the guidelines and rates they are willing to purchase. So when people say it is a “Fannie Mae” loan, they have to follow certain guidelines.
7. Which is better -- an adjustable-rate mortgage (ARM) or a fixed rate mortgage?
It really depends on your budget and how long you think you’re going to live there. If you knew you were going to move within five years, you might want to take an ARM because rates are typically lower on Fannie Mae conventional loans.
On the other hand, you might not… five years can go by quickly. The market could change you might not be able to sell. It all depends.
8. How much do I need to put down, and how high does my income have to be?
At NCB, we require 20% down without having mortgage insurance. If you put less down, we require mortgage insurance. Mortgage insurance is an insurance policy which compensates lenders for losses due to the default of a mortgage loan.
As far as income, at NCB we like to see that the amount of your monthly mortgage plus maintenance payments--or common charges and taxes, if you’re buying a condo--divided by your monthly gross income is no higher than 36%. However, there are some case-by-case exceptions.
9. How long can I lock in my rate?
In general, lenders usually lock in rates within a range of 40-90 days.
At NCB, we offer a 60 day rate lock, but under extenuating circumstances—such as a co-op board interview that is delayed past the rate lock period—we try to work with that borrower.
10. Can I take cash out when I refinance?
If it's your primary residence, most lenders will allow you to take cash out (subject to your board’s approval) for any reason, such as renovation, debt consolidation, college tuition, or the purchase of a second home.
Lending guidelines and rates will differ from lender to lender. At NCB, you can take up to 80% depending on your loan amount and rates could vary depending on loan to value and credit scores.