|
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. Midland Funding 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 borrowedInterest: Payment to the lender for the amount borrowedTaxes & 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 houseDown Payment: A percentage of the cost of the home that is due at settlementClosing Costs: Costs associated with processing paperwork to purchase or refinance a house |
| |
|
Q
:
|
What is the difference between being pre-qualified and pre-approved? |
|
A
: |
Pre-qualifying is the process through which a loan officer determines the dollar amount that a buyer can qualify for based on their income, debts, and down payment. Pre-approval is when your loan application and income and asset documents are underwritten and approved by a specific bank or lender. Receiving an actual pre-approval is recommended before making an offer on a home for two reasons. The first is that a seller will feel more confident receiving an offer from someone who has been pre-approved than from someone who has not. The second is that it reduces the amount of stress involved in the real estate purchase process. There is nothing worse than finding your dream home and then haing to worry about being approved for the loan.
|
| |
|
Q
:
|
What are some factors that raise my credit score? |
|
A
: |
Both negative and positive factors influence your credit score. The most important factors that raise your score are listed below, in order of importance. Remember that these factors vary in how strongly they impact your credit score. For example, if you have a very high credit score, the negative factors in your analysis are likely to have a small impact. The same is true for positive factors if you have a very low credit score.
Payment History : You have never missed a payment, and no negative public records are listed on your credit report.
This will improve your credit score. Missing payments is a negative factor. Some cases are worse than others. For example, if you have not missed any payments recently, lenders may think you are (or have become) responsible and do not (or will no longer) miss payments. Also, missing payments on only a few accounts is not as harmful as missing payments on most or all of your accounts, because lenders realize that many people miss a payment (or pay late) once in a while. Also, missing a single payment is not as harmful as missing several consecutive payments because many lenders consider missing 3 or more consecutive payments as an indication that you may never repay them. Finally, it is not as harmful to miss payments on accounts with low balances as it is on accounts with high balances because lenders stand to lose less money on low balances if they remain unpaid.
Credit Usage : On average, you currently maintain a low balance on each of your credit cards.
This only includes your open accounts.
This makes your score higher too. High balances are a negative factor (except for some types of installment loans such as mortgages and auto loans), because lenders worry that you are living beyond your means and may not be able to repay them. This is particularly true with credit card debts. Lenders do evaluate how much you owe (your debt) in relation to how much you earn (your income). However, changes in your employment and income, or certain life events (such as divorce or illness), may cause difficulty for you to pay your monthly bills. Meanwhile, low balances are a positive factor because lenders do not stand to lose too much if you become unable to repay them. However, never using your credit cards may be considered a negative factor. First, it does not provide lenders with information about how you typically use credit and repay your debts. Second, it also means that you have a lot of available credit, which you may decide to use if you experience financial trouble.
Credit Applications : You did not apply for credit in the past 6 months.
This makes your score higher as well. When you apply for any type of credit (such as a mortgage, auto loan, credit card, department store card, etc.), your credit history is checked by the lender considering your application, and it is noted on your report as an "inquiry." Although inquiries are a natural result of applying for credit, lenders dislike seeing many within a short period of time. This is because it is hard for them to determine whether you are applying with different lenders in a search for the best offer or if you are desperately trying to obtain credit because of financial trouble. Remember, making many applications in a short period of time could hurt your credit score. Therefore, try to limit your comparison to a small number of lenders when "shopping" for the best offer.
|
| |
|
Q
:
|
What is LTV (Loan To Value)? |
|
A
: |
Loan to value, or LTV as it is commonly referred to, is the ratio of Loan Amount to the purchase price or value of the property. For example, a loan of $100,000 on a property selling for $200,000 is at an LTV of 50 percent. The loan to value ratio is determined by the amount of down payment.
Purchase loans
When a property is purchased, the down payment is critical to the lending decision. When the down payment is less than 20 percent, a conventional loan will require mortgage insurance. These premiums are calculated based on the amount of down payment and are automatically included in your monthly payment.
Refinance loans
In a refinance transaction, the LTV is calculated on the actual appraised value. If a borrower wants to get cash out of the value of the home, most lenders will require the total loan amount be no more than 80 percent of the appraised value of the home. If the purpose of refinancing is simply to lower the current interest rate by financing the current loan amount plus applicable closing costs, you can borrow up to 80 percent of the value without requiring Mortgage Insurance. When paying off both a first and second mortgage in a refinance transaction, most lenders will require that the second loan be at least 12 months old. If the second is not ‘seasoned’ for 12 months, the lender will view the consolidation of the first and second mortgages as a cash out refinance loan, subject to the lower LTV guidelines.
In general, the lower the loan to value ratio, the more favorably a lender views the risk of the loan. Loan to value considerations will differ in owner occupant versus rental or non-owner situations.
|
| |
|
Q
:
|
What is title insurance? |
|
A
: |
Title Insurance is an insurance policy, issued by a Title Insurance Company, which insures a home owner against claims made due to errors or omissions that were not disclosed up front. The premiums are determined primarily by the loan amount and are regulated by local agencies. This policy protects you from buying a home and later having a lien placed on your home for a debt incurred by the previous owner. All mortgage lenders will require that you have a title insurance policy.
|
| |
|
Q
:
|
What is PMI (Private Mortgage Insurance)? |
|
A
: |
Private mortgage insurance is a policy which protects the lender from loss due to payment default by the borrower. It is used in conventional loans and is typically an additional monthly charge included in your mortgage payment. PMI is required when the loan amount exceeds 80 percent of the purchase price of the home. PMI allows buyers to obtain loans with less than 20 percent down payment due to the fact that the lender is protected in case of default by the borrower.
This type of insurance should not be confused with mortgage life, credit life, or disability insurance which is designed to pay off a mortgage in the event of the borrower's disability or death. Once you have 20 percent equity in your home you can request that this insurance be dropped. Most lenders will require an appraisal to verify your equity position and will require that your last 12 mortgage payments have been made on time.
|
| |
|
Q
:
|
What is an appraisal and how is it calculated? |
|
A
: |
An appraisal is a determination of property value made by an independent, professional appraiser based on the recent sales prices of comparable homes in the area. Appraisers are required to insure that the home is worth what you are paying for it thereby protecting the lender should they have to repossess and resell the home. Appraisals also protect you from paying more than a home is worth.
|
| |