- How do I know how much house I can afford?
- What is the difference between a fixed rate loan and an adjustable rate loan?
- How are an index and a margin used in an adjustable rate mortgage (ARM)?
- How do I know which type of mortgage is best for me?
- What does my mortgage payment include?
- How much cash will I need to purchase a home?
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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 purchase a home with a higher value by taking advantage of special loan programs for first time buyers. Give us a call and we 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 rate changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed rate mortgage are stable, payment amounts on an adjustable rate mortgage 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 are an index and a margin used in an adjustable rate mortgage (ARM)?
The interest rate in an adjustable rate mortgage is the index rate plus the margin rate. Index rates are a measurement of financial markets and based on the averages of various financial instruments such as Treasury bills, the 11th District Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). These indexes usually go up and down with the general movement of interest rates. If the index rate moves up, so does your interest rate in most circumstances, and you will probably have to make higher monthly payments. On the other hand, if the index rate goes down, your monthly payment may go down. The margin rate is a few percentage points added to the index rate and is determined by the lender, but is usually constant over the life of the loan.
How do I know which type of mortgage is best for me?
There is no simple formula to determine which type of mortgage is best for you. The best choice will depend on a number of factors, including your current financial picture and how long you intend to keep your home. We can help you evaluate your options and make the most appropriate decision.
What does my mortgage payment include?
For most borrowers, monthly mortgage payments include three parts:
- Principal: repayment on the amount borrowed
- Interest: payment to the lender based on the amount borrowed and the interest rate
- Taxes and Insurance: payment for items like property taxes, hazard insurance, and/or private mortgage insurance. Payments are usually made to the lender via a special escrow account; however in some cases, the borrower may make payments directly to the county tax assessor and/or insurance company.
How much cash will I need to purchase a home?
The amount of cash required depends on a number of factors. Generally speaking, you will need to supply:
- Earnest money: a deposit that is paid when you make an offer on a home
- Down payment: a percentage of the cost of the home that is due at settlement
- Closing costs: fees associated with processing documentation to purchase or refinance a home, due at settlement
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