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1. How do I know how much house I can afford? Answer
2. How much cash will I need to purchase a home? Answer
3. How do I know which type of mortgage is best for me? Answer
4. What does a lender look at to approve my loan? Answer
5.  How do I know what my loan rate will be? Answer
6.  What is a "good faith" estimate and why is it important? Answer
7. What does my mortgage payment include? Answer
8. What is PMI? Answer
9.  Why is the loan-to-value ratio important? Answer
10. What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer
11. How is an index and margin used in an ARM? Answer

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 : 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
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    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. Security Bank Mortgage can help you evaluate your choices and help you make the most appropriate decision.
     
    Q : What does a lender look at to approve my loan?
    A :  There are three elements that are at the center of any loan approval.  These are:

    • Credit - your credit history.
    • Collateral - the value of the property securing the loan (your house).
    • Capacity - your financial ability to repay the debt.

    These three items create a portrait of the potential borrower's risk - that is, whether or not he/she will repay the loan.  If the risk seems too high the lender will be reluctant to make the loan.  Depending on the degree of risk, a lender may elect to charge higher rates or decline to make the loan.  However, if the potential borrower has weaknesses in one area, but is strong in the other two this may effect the level of risk.  These are sometimes call "compensating factors".  A mortgage specialist can evaluate your unique situation. 

     

     
    Q :  How do I know what my loan rate will be?
    A : Rates vary primarily based on the type and purpose of the loan, your credit history and income, the loan amount, and the value of the property. 

    Rates can also be "bought down" by paying "points".  One point equals 1 percent of the loan amount.  Points are paid when the loan closes, generally speaking points are fees added onto loans.

     

     
    Q :  What is a "good faith" estimate and why is it important?
    A : A good faith estimate is a document that provides the borrower with an estimate of the fees you can expect to pay to close your loan.  It is an important tool in comparing one lender to another!  A reputable lender will do their best to give you a detailed estimate of the fees you can expect and will be willing to tell you how they arrived at these estimates.  These estimates  will include not only closing costs, but prepaid fees (such as escrows) as well. 

    Compare good faith estimates if you are considering more than one lender and ask questions!

     

     

     

     
    Q : What does my mortgage payment include?
    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 : What is PMI?
    A : Private Mortgage Insurance (PMI) is usually mandatory for loans when the ratio of the loan amount to the value of the subject property is greater than 80 percent; that is 80.01 percent or more of the property is being paid for by the loan.  This is known as the loan-to-value ratio, or LTV.  Basically, the lower your loan-to-value ratio, the higher your equity in the property will be.  You can think of equity as the part of the property you actually own.  The more equity a borrower has in the property, the lower the risk of default.  Therefore, Private Mortgage Insurance (PMI) must be paid for lower equity (high LTV) loans to safeguard the lender from possible loan defaults.
     
    Q :  Why is the loan-to-value ratio important?
    A :  Your loan-to-value ratio (LTV) shows your equity in the property.  One way to think of equity if that it is the amount of money you'd receive if you sold the property at its valued price, less what you'd have to return to your lender to repay the loan.  Example:  $100,000 value minus $60,000 to repay loan = $40,000. equity.  Your LTV and equity are crucial because lenders consider the higher the LTV (and the lower the equity) the higher the risk of a borrower defaulting on their loan. 
     
    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).