FAQ

  1. How do I know how much house I can afford? Answer
  2. How do I know which type of mortgage is best for me? Answer
  3. What does my mortgage payment include? Answer
  4. How much cash will I need to purchase a home? Answer
  5. What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer
  6. How is an index and margin used in an ARM? Answer
  7. What is an FHA Loan? Answer
  8. What is PMI? Answer
  9. What is a VA Loan? Answer

Q : How do I know how much house I can afford?

A : The amount that you can borrow will depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. Give us a call, and we can help you determine exactly how much you can afford as well as the best product for you.


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. Todays 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 these 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, depending on the amount of your down payment.

If you borrow more than 80% of the purchase price, you will pay a mortgage insurance premium until the loan-to-value allows the monthly premium to be dropped.


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

Some of the closing costs may be payable at the beginning of the application but most are paid at closing


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: What is an FHA Loan?

A: The Federal Housing Administration (FHA) was established in 1934 to improve housing standards and conditions and to provide an adequate home financing system through insurance of mortgages. Families that would otherwise be excluded from the housing market were finally able to buy the homes of their dreams.

An FHA loan allows you to buy a house with as little as 3.5% down, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home. The FHA does not make home loans--it insures them. If a home buyer defaults, the lender is paid from the insurance fund. This is a perfect mortgage solution for those starting out or those having a tough time qualifying for conventional loans.


Q: What is PMI?

A: If you make a down payment of less than 20% of the purchase price of the home, mortgage lenders generally require that you take out Private Mortgage Insurance (PMI) that protects the lender incase you default on your mortgage. You may need to pay up to a year’s worth of premium for this coverage at closing, which can amount to as much as several hundred dollars. One obvious way to avoid this extra cost is to make a 20% down payment. There are also other ways to eliminate PMI such as 80-10-10 financing which is further described in this section.


Q: What is a VA Loan?

A: The VA Loan began in 1944 through the original Servicemen's Readjustment Act, also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans. VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.


For more information on the mortgage lending process see our blog post on the Top 10 Mortgage Questions Answered.