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

A: Generally speaking, you can purchase a home at a price of two or three times your annual household income. However, the amount that you can borrow depends on your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. If you're a first-time home buyer, you may also qualify for special loan programs to purchase a home at a higher price. Give us a call, and we will 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. Talk to us, and we'll help you select the right loan product for you.  

 

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 indexes 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). The pre-specified margin is fixed rate for a duration of years then may adjust in a few years.

 

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.  Approved Home Mortgage can help you evaluate your situation and help you make the most appropriate decision.

 

Q: What does my mortgage payment include?

A: For most homeowners, a monthly mortgage payment includes three separate parts:

• Principal: repayment on the amount borrowed.
• Interest: payment to the lender for the amount borrowed.
• Taxes & Insurance: monthly payments are usually 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 necessary amount of cash 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.