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How do I know how much house I can afford?
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2. |
What is the difference between a fixed-rate loan and an adjustable-rate loan?
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3. |
How are an index and margin used in an ARM?
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4. |
How do I know which type of mortgage is best for me?
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5. |
What is included in my monthly mortgage payment?
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6. |
How much cash will I need to purchase a home?
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7. |
What is a FICO score?
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8. |
What is the difference between a pre-qualification and a pre-approval?
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9. |
What can I do to improve my credit rating?
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10. |
How do I know when or even if I should refinance?
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Q: |
How do I know how much house I can afford?
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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.
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Q: |
What is the difference between a fixed-rate loan and an adjustable-rate loan?
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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.
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Q: |
How are an index and margin used in an ARM?
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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).
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Q: |
How do I know which type of mortgage is best for me?
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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. Briner, Incorporated can help you evaluate your choices and
help you make the most appropriate decision.
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Q: |
What is included in my monthly mortgage payment?
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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.
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Q: |
How much cash will I need to purchase a home?
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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
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Q: |
What is a FICO score?
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A: |
A FICO score is a credit score developed by Fair Isaac & Co.
Credit scoring is a method of determining the likelihood that
credit users will pay their bills. Fair Isaac began its pioneering
work with credit scoring in the late 1950s and, since then,
scoring has become widely accepted by lenders as a reliable means
of credit evaluation. A credit score attempts to condense a
borrower's credit history into a single number. Fair Isaac &
Co. and the credit bureaus do not reveal how these scores are
computed. The Federal Trade Commission has ruled this to be
acceptable.
Credit scores are calculated by using scoring models and mathematical
tables that assign points for different pieces of information which
best predict future credit performance. Developing these models
involves studying how thousands, even milions, of people have used
credit. Score-model developers find predictive factors in the data
that have proven to indicate future credit performance. Models can
be developed from different sources of data. Credit-bureau models
are developed from information in consumer credit-bureau reports.
Credit scores analyze a borrower's credit history considering numerous
factors such as:
- Late payments
- The amount of time credit has been established
- The amount of credit used versus the amount of credit available
- Length of time at present residence
- Employment history
- Negative credit information such as bankruptcies, charge-offs, collections, etc.
There are really three FICO scores computed by data provided by each
of the three credit bureaus -- Experian, Trans Union, and Equifax.
Some lenders use one of these three scores, while other lenders may
use the middle score.
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Q: |
What is the difference between a pre-qualification and a pre-approval?
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A: |
A pre-qualification is normally issued by a loan officer, who, after
interviewing you, determines the dollar value of a loan you can be
approved for. However, loan officers do not make the final approval,
so a pre-qualification is not a commitment to lend. After the loan
officer determines that you pre-qualify, he/she then issues you a
pre-qualification letter. This pre-qualification letter is used when
you are making an offer on a property. The pre-qualification letter
indicates to the seller that you are qualified to purchase the house
you are making an offer on.
Pre-approval is a step above pre-qualification. Pre-approval involves
verifying your credit, down payment, employment history, etc. Your
loan application is submitted to an underwriter and a decision is
made regarding your loan application. If your loan is pre-approved,
you are then issued a pre-approval certificate. Getting your loan
pre-approved allows you to close very quickly when you do find a house.
A pre-approval can help you negotiate a better price with the seller,
since being pre-approved is very close to having cash in the bank to
pay for the house!
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Q: |
What can I do to improve my credit rating?
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A: |
- Pay your bills on time! Late payments and collections can have
a serious impact on your credit score.
- Do not apply for credit frequently. Having a large number of
inquiries on your credit report can worsen your credit score
- Reduce your credit card balances. If you are "maxed" our on
your credit cards, this will affect your credit score negatively.
- If you have limited credit, obtain additional credit. Not
having sufficient credit can negatively impact your credit score.
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Q: |
How do I know when or even if I should refinance?
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A: |
As a general rule, the most common reason is to save money on your
monthly payment. However, you may also want to refinance to convert
an adjustable rate loan to a fixed rate or (when rates are low), to
shorten the amortization term of your loan. Finally, you may refinance
to consolidate debts and replace high-interest loans with a lower-rate
mortgage. The loans being consolidated may include second mortgages,
credit lines, student loans, credit cards, etc. In many cases, debt
consolidation results in tax savings, since consumer loans are not
tax deductible, while a mortgage loan is tax deductible.
The conventional wisdom of refinancing only when you can save 2% on
your mortgage is not really true. If you are refinancing to save money
on your monthly payments, the following calculation is more appropriate
than the rule of 2%:
- Calculate the total cost of the refinance -- example: $2,000
- Calculate the monthly savings -- example: $100/month
- Divide the result in 1 by the result in 2 -- in this case
2000/100 = 20 months. This shows the break-even time. If you plan
to live in the house for longer than this period of time, it makes
sense to refinance.
Sometimes, you do not have a choice -- you are forced to refinance. This
happens when you have a loan with a balloon provision, but with no
conversion option. In this case it is best to refinance a few months
before the balloon comes due.
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