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FAQs

1. What is a mortgage?
2. What factors affect mortgage payments?
3. How large of a down payment do I need?
4. What is a Loan to Value (LTV) ratio?
5. How Much Money Do I Need to Buy a Home?
6. What do lenders look for when a borrower submits for a loan?
7. What other factors may affect the lender’s decision to approve a loan?
8. How do I choose the best loan program?
9. What is a Fixed Rate Mortgage?
10.What are the advantages of a Fixed Rate Mortgage?
11. Who would be an appropriate borrower for a Fixed Rate Mortgage?
12. What is an Adjustable Rate Mortgages (ARM)?
13. What are the advantages of an Adjustable Rate Mortgage?
14. Who would be an appropriate borrower for a fixed rate mortgage?
15. What is a Hybrid Adjustable Rate Mortgage (ARM)?
16. What are the advantages of a Hybrid ARM?
17. Who would be an appropriate borrower for a Hybrid ARM?
18. What is an Option Adjustable Rate Mortgage (ARM)?
19. What payment options does the Option ARM offer?
20. What are the advantages of an Option ARM?
21. Who would be an appropriate borrower for an Option ARM?

1. What is a mortgage?

  • A mortgage is a loan obtained to prchase real estate.
  • The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt
  • All mortgages have two features in common: principal and interest.

2. What factors affect mortgage payments?
The size of your mortgage payment is affected by:

  • Amount of the down payment
  • Size of the mortgage loan
  • Interest rate
  • Length of the repayment term
  • Payment schedule

3. How large of a down payment do I need?

  • No down payment options are available (100% financing).
  • The larger the down payment, the better the interest rate. Also, more loan products and more flexible underwriting terms are available.
  • Mortgages with less than a 20% down payment generally require a mortgage insurance policy or a combination of two separate loans.



4. What is a Loan to Value (LTV) ratio?

  • The amount of money you borrow divided by the price or appraised value.
  • LTV reflects the amount of equity borrowers have in their homes.

5. How Much Money Do I Need to Buy a Home?
You'll need money for:

  • A down payment (down payments usually range from 3 to 20% or more of the property value).
  • Closing costs (closing costs include taxes, title insurance, underwriting fees, financing costs and other settlement costs that must be prepaid in Escrow).
  • Other housing-related costs (i.e. mortgage payments, maintenance and repair costs).

6. What do lenders look for when a borrower submits for a loan?
Mortgage lenders primarily look at the “Three C's”
:

  • Capacity: Your ability to make your mortgage payments on time. This depends on your income and income stability, your assets and reserves (including the amount of income each month that is available after you have paid for your housing costs, debts and other obligations). “Capacity” is measured by the Debt-to-Income Ratio (your debt divided by your income).
  • Collateral: Property that is pledged as security for a debt. Collateral is measured by the Loan-to-Value (LTV) ratio.
  • Character: The ability to borrow money, as a consequence of a person’s past responsible use of credit. This is measured by the credit scores on the credit report.

7. What other factors may affect the lender’s decision to approve a loan?
Aside from examining your credit score and credit record, lenders look at:

  • Stability of income
  • Employment history
  • Monthly debt payments – i.e. credit card bills, car loans, etc., in relation to your income
  • How you save money and how much you have saved
  • The type of mortgage you are considering
  • The type and value of the property you want to buy
  • The amount of the down payment you plan to make
  • On-time payment of rent and utilities
  • A good balance between the “Three C’s”: Capacity, Collateral and Character



8. How do I choose the best loan program?

  • Examine your personal situation
  • Assess how you expect your finances to change over the next few years
  • Estimate how long you plan to live in this home
  • Determine your comfort level of changing mortgage payments vs. fixed amounts
  • Consider how long you wish to remain paying mortgage debts (as your children approach college age or as you prepare for retirement, etc.)
  • Your loan officer can help you use your answers to these questions to choose the mortgage program that best suits your needs and goals

9. What is a Fixed Rate Mortgage?
Fixed Rate Mortgage payments remain the same for the life of the loan. Amortization Periods Range from 15-year, 20-year, 30-year and 40-year schedules.

10.What are the advantages of a Fixed Rate Mortgage?
Housing cost remains unaffected by interest rate changes and inflation.


11. Who would be an appropriate borrower for a Fixed Rate Mortgage?

  • Someone who expects to live in the home for at least 10 or more years
  • Someone who is not able to absorb interest rate increase that may be possible with an Adjustable Rate Mortgage
  • Someone who strongly desires and can afford the piece of mind a fixed rate loan offers

12. What is an Adjustable Rate Mortgages (ARM)?
An Adjustable Rate Mortgage allows payments increase or decrease on a regular schedule with chang. es in interest rates; increases subject to limits. The different types of Adjustable Rate Mortgages are linked to a specific index or margin (i.e. Libor, Treasury Bill, MTA, COFI, COSI, etc.)

13. What are the advantages of an Adjustable Rate Mortgage?
Generally, Adjustable Rate Mortgages offer lower initial interest rates, allowing for lower monthly mortgage payments. Additionally, since the payment and interest rate are generally lower than fixed rate mortgages, the borrower is usually able to qualify for a larger loan amount.

14. Who would be an appropriate borrower for a fixed rate mortgage?

  • Someone who is able to absorb interest rate increases depending on fluctuating conditions in the market
  • Someone who wants to take advantage of reduced rates
  • Someone who is interested in paying a loan off early in the term (through a sale or refinance)

15. What is a Hybrid Adjustable Rate Mortgage (ARM)?
A Hybrid ARM combines advantages of both fixed and adjustable rate mortgages and:

  • Are fixed during the initial 3, 5, 7, 10 year period
  • Become adjustable after the fixed period expires
  • Offer interest only options


16. What are the advantages of a Hybrid ARM?
Generally, a Hybrid ARM offers lower initial interest rates, lower monthly payments and enable the borrower to qualify for a larger loan amount.

17. Who would be an appropriate borrower for a Hybrid ARM?

  • Someone who is not expecting to live in the home for longer than the fixed period of time
  • Someone who expects to need access to equity for a major purchase such as college tuition or remodel project before the end of the fixed period
  • Someone who is able to absorb interest rate increases and/or wants to take advantage of reduce rates (relative to a 30 Year Fixed Rate mortgage) during the initial fixed period

18. What is an Option Adjustable Rate Mortgage (ARM)?
An Option ARM offers multiple payment choices to the borrower and extends minimum fixed payments starting with rate as low as 1.25% (for the first year)

19. What payment options does the Option ARM offer?

  • Minimum payment (based on the start rate, can result in negative amortization)
  • Interest only payment (variable rate based on index plus a margin the lender provides)
  • 30 year fully amortized payment (principal plus interest payment)
  • 15 year fully amortized payment (principal plus interest payment)

20. What are the advantages of an Option ARM?

  • Flexible payments, meeting the needs of people whose income fluctuates from month to month
  • Lower initial interest rates
  • Lower monthly payments
  • Flexibility for borrower to make choices with their cash flow
  • May allow borrower to qualify for a larger loan amount

21. Who would be an appropriate borrower for an Option ARM?

  • Someone who is able to absorb interest rate increases and/or wants to take advantage of reduce rates (relative to 30 Year Fixed Rate mortgage)
  • Someone who doesn’t mind having fluctuations in the monthly mortgage payment, depending on market conditions


 




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