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1. How do I know how much house I can
afford? Answer
2. What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer
3. How is an index and margin used in
an ARM? Answer
4. How
do I know which type of mortgage is best
for me? Answer
5. What does my mortgage payment include? Answer
6. How much cash will I need to purchase
a home? Answer
Q. How do I know how much house
I can afford?
A. 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. Give us a
call, and we can help you determine exactly how much you can afford.
Q. What is the difference between
a fixed-rate loan and an adjustable-rate loan?
A. 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.
Q. How is an index and margin used
in an ARM?
A. 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).
Q. How do I know which type of
mortgage is best for me?
A. 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. Pacific Guarantee
Mortgage can help you evaluate your choices and help you make the most appropriate
decision..
Q. What does my mortgage payment include?
A. 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.
Q. How much cash will I need
to purchase a home?
A. 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