Mortgage loans questions and answers.

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How do I know how much house I can afford?

 

 

Generally speaking, you can purchase a home with a value of two or three times your annual household income. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. You may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value. Contact me at (909) 967-8000 so I can help you determine exactly how much you can afford.

 

 

 

What is the difference between a fixed-rate loan and an adjustable-rate loan?

 

With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change. There are advantages and disadvantages to each type of mortgage, and the best way to select a loan product is by talking to us.

 

 

 

How is an index and margin used in an ARM?

 

An index is an economic indicator that lenders use to set the interest rate for an ARM. Generally the interest rate that you pay is a combination of the index rate and a pre-specified margin. Three commonly used indices are the One-Year Treasury Bill, the Cost of Funds of the 11th District Federal Home Loan Bank (COFI), and the London InterBank Offering Rate (LIBOR).

 

 

 

How do I know which type of mortgage is best for me?

 

There is no simple formula to determine the type of mortgage that is best for you. This choice depends on a number of factors, including your current financial picture and how long you intend to keep your house. I can help you evaluate your choices and help you make the most appropriate decision.

 

 

 

What does my mortgage payment include?

 

For most homeowners, the monthly mortgage payments include three separate parts:

 

•  Principal: Repayment on the amount borrowed

 

•  Interest: Payment to the lender for the amount borrowed

 

•  Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company.

 •  It may contain Mortgage Insurance with a LTV more than 80%

 

 

How much cash will I need to purchase a home?

 

The amount of cash that is necessary depends on a number of items. Generally speaking, though, you will need to supply:

 

•  Earnest Money: The deposit that is supplied when you make an offer on the house

 

•  Down Payment: A percentage of the cost of the home that is due at settlement

 

•  Closing Costs: Costs associated with processing paperwork to purchase or refinance a house

 

 

When should I refinance?

 

 

Any reduction can trim your monthly mortgage payments. Your savings depends on your income, budget, loan amount, and interest rate changes. Call me at (909) 967-8000 to find out more.

 

 

 

 

 

Should I pay points to lower my interest rate?

 

 

If you plan to stay in the property for a least a few years, paying discount points to lower the loan’s interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front.

 

 

What is an APR?

 

 

The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs.

 

The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan.

 

Because APR calculations are effected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate.

 

The following fees are generally included in the APR:

 

  • Points – both discount points and origination points
  • Pre-paid interest. The interest paid from the date the loan closes to the end of the month.
  • Loan-processing fee
  • Underwriting fee
  • Document-preparation fee
  • Private mortgage-insurance
  • Escrow fee

 

The following fees are normally not included in the APR:

 

  • Title or abstract fee
  • Borrower Attorney fee
  • Home-inspection fees
  • Recording fee
  • Transfer taxes
  • Credit report
  • Appraisal fee

 

What does it mean to lock the interest rate?

 

 

Mortgage rates can change from the day you apply for a loan to the day you close the transaction. If interest rates rise sharply during the application process it can increase the borrower’s mortgage payment unexpectedly. To “lock-in” the loan’s interest rate guarantees that rate for a specified time period, often 30-60 days.

 

 

 

 

 

 

What is an appraisal?

 

 

An Appraisal is an estimate of a property’s fair market value. It’s a document generally required (depending on the loan program)  to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an “Appraiser” , a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.

 

 

 

What happens at closing ?

 

 

The property is officially transferred from the seller to you at “Closing” or “Funding”.

 

At closing, the ownership of the property is officially transferred from the seller to you.

 

Prior to closing you should have a final inspection, or “walk-through” to insure requested repairs were performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.

 

What can I do to improve my credit score?

 

 

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change — but improvement generally depends on how that factor relates to other factors considered by the model.

 

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

 

  • Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
  • What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
  • How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
  • Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at “inquiries” on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not counted.
  • How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

 

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. Call me at (909) 967-8000. I can help you improve your credit score and it's a free service to you.