How do I know how much house I can afford? Answer
What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer
How is an index and margin used in an ARM? Answer
How do I know which type of mortgage is best for me? Answer
What does my mortgage payment include? Answer
How much cash will I need to purchase a home? Answer
When does it make sense to refinance? Answer
What are Closing Costs? Answer
What are Pre-Paids? Answer
Can I Roll In my closing costs and pre-paids? Pay Closing Costs With my loan proceeds? Answer
What are Points? Answer
What is a Credit Score? Answer
What is PMI? Answer
What is AMORTIZATION? Answer
What is an ARM mortgage? Answer
What is Locking-In? Answer
What is Floating? Answer
How does a BI-Weekly or Equity Acceleration Mortgage work? Answer
What is a FHA mortgage? Answer
What is a VA mortgage? Answer
What is Sub-Prime or Non-Conforming? Answer
Mortgage Advisory Group
2902 Colby Ave.
Everett, WA 98201
888-317-8007 Toll Free
Q : 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 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?
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?
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?
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. Mortgage Advisory Group can help you evaluate your choices and help you make the most appropriate decision.
Q : What does my mortgage payment include?
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.
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
Q : When does it make sense to refinance?
Usually people refinance to save money, either by obtaining a lower interest rate or by reducing the term of the loan. Refinancing is also a way to convert an adjustable loan to a fixed loan or to consolidate debts. The decision to refinance can be difficult, since there are several reasons to refinance. However, if you are looking to save money, try this calculation:
Calculate the total cost of the refinance
Calculate the monthly savings
Divide the total cost of the refinance (#1) by the monthly savings (#2). This is the “break even” time. If you own the house longer than this, you will save money by refinancing.
Since refinancing is a complex topic, consult a mortgage professional.
Q : What are Closing Costs?
There are several categories of closing costs. First, the mortgage company can charge various fees such as processing fees or administration fees. Next the actual lender or investor who gives you the money can charge fees such as underwriting, commitment, tax service, etc. Then, there are title fees. These can include the title search, commitment, endorsements, recording and courier fees. Usually, the mortgage company can negotiate their fees but rarely will a title company or investor lower their fees. Usually the total closing costs will range in the area of $1,000-$1,400.
Q : What are Pre-Paids?
Pre-Paids are monies which you pay for in advance associated with your loan transaction. These will include interest from the date of closing to the end of the month. Also, any property tax or homeowners insurance which will be put into escrow and disbursed by your lender are considered pre-paids. Mortgage insurance is another pre-paid item.
Q : Can I Roll In my closing costs and pre-paids? Pay Closing Costs With my loan proceeds?
If you are refinancing, provided there is sufficient equity in the property you will be able to Roll In your costs. If you are purchasing a property, closing costs are usually paid out of pocket. There are certain transactions where your seller or mortgage company can pay the closing costs for you.
Q : What are Points?
Points are sometimes paid to buy down your interest rate. Typically, 1% of your loan amount will buy the interest rate down 1/4%. Therefore, a 7% rate with no points can be bought down to 6.75 % by paying 1 point. Generally, the determining factor in whether to pay points is dependent on how long the mortgage will be held. The lower rate will eventually save you money if you keep the mortgage a sufficient length of time.
Q : What is a Credit Score?
Credit scoring is the method of rating, or scoring your credit history. These scores are now being used by credit grantors as a tool in determining risk factors in lending. The risk with mortgage loans is, of course, foreclosure. Although the lender has significant collateral with the lien placed on your property, they are not interested in owning that property. The credit scores give the lender a method of predicting the risk associated with your loan.
There are three major credit bureaus which have credit scoring models. FICO was created by Experian or TRW. Beacon scores are from CBI/Equifax and Empirica comes from Trans Union. These models differ somewhat but all can be used by a mortgage lender in determining risk. Derogatory credit information weighs most heavily on credit scores. Late payments, collection accounts, charge offs, judgements, bankruptcy and foreclosure will severely lower your credit scores. Other factors include numbers of open credit accounts, high balances compared to credit limits, recently opened accounts and recent inquiries into your credit history. Surprisingly, a borrower who has perfect credit history can have low scores because of too much credit.
Q : What is PMI?
Private Mortgage Insurance. This type of insurance is required by lenders for loans with a low equity position. For example, if you purchase a property with less than 20% down payment, the lender will require you to have mortgage insurance. The insurance will cover a percentage of your mortgage should there be a default. Mortgage insurance must be paid each month and is included in your mortgage payment. You must maintain the insurance until you can prove that the equity in the property has reached 20%. In other words, the lender’s exposure has been reduced to 80%. Mortgage insurance is expensive and if possible should be avoided.
Q : What is AMORTIZATION?
This is how your payments break down during the life of the loan. It involves dividing the principal and total interest charges into equal payments and will completely pay off the debt at the end of the term.
Q : What is an ARM mortgage?
An Adjustable Rate Mortgage. This is exactly as it sounds — a mortgage that can adjust over periods of time. Typically, an ARM will have rate caps. This means that after a specified number of payments, the rate can only increase by a certain percentage, usually no more than 2%. There are also lifetime caps, usually 6%, which will indicate the highest possible rate for that particular mortgage. ARM mortgages are usually taken out by borrowers who plan to stay in the property a limited period of time, or by borrowers who need a lower rate to qualify for more mortgage money.
Q : What is Locking-In?
Locking will guarantee your interest rate for a specified period of time regardless of market fluctuations.
Q : What is Floating?
Floating means that there is no guarantee of what the interest rate will be on your loan. You are gambling that the market will improve so you can take advantage of a lower rate during the time your loan is being processed.
Q : How does a BI-Weekly or Equity Acceleration Mortgage work?
The Bi-Weekly mortgage plan has been endorsed by financial analysts everywhere from the Wall Street Journal to Consumer Reports. This is a plan that breaks your monthly mortgage payment in half and is paid every two weeks. Since interest on a mortgage is calculated based on outstanding principal, you will drastically reduce the amount of interest you will pay over the life of the loan. The Bi-Weekly mortgage plan will build equity at over 2.5 times faster than a monthly mortgage.
Q : What is a FHA mortgage?
The Federal Housing Authority is a government agency that insures lenders against default by borrowers. FHA loans require less money for down payment and somewhat more liberal credit guidelines. One must carry mortgage insurance for the life of the loan with FHA. This can add to the cost of credit but it will allow many more people the advantages of home ownership.
Q : What is a VA mortgage?
These types of loans are available for US Military Veterans only. The advantages for Veterans are the more liberal credit guidelines and no down payment requirements. The Veteran must obtain a Certificate of Eligibility from the Veterans Administration in order to qualify.
Q : What is Sub-Prime or Non-Conforming?
These are categories of mortgage loans for those with difficult credit, or borrowers who can not verify income. Non-conforming loans typically require a higher equity position as they are “higher risk” loans. The interest rates are higher but the credit and underwriting guidelines are more flexible.