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.
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.
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).
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. Texas Loan Star, Inc. can help you evaluate your choices and help you make the most appropriate decision.
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.
If your loan requires annual or monthly mortgage insurance (MI), this will also be a part of your monthly payment.
How much cash will I need to purchase a home?
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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Adjustable Rate Mortgage (ARM, Also Called Variable Rate Mortgage)
A mortgage with an interest rate that has a fixed rate period and then converts to floating rate that adjust periodically to reflect changes in market conditions. Your mortgage payments are adjusted up or down as the interest rate changes.
Annual Percentage Rate (APR)
An interest rate calculation that reflects the actual cost of a mortgage as a yearly rate. Because APR includes points and other costs, it’s usually higher than the advertised rate. The APR allows you to compare different mortgages based on rate offered and closing cost.
An estimate of the value of a home, made by a professional appraiser. On a purchase, the maximum amount of the mortgage is usually based on the lower of either the appraisal or the purchase price.
Closing Costs (Settlement Costs)
All the charges associated with getting your mortgage, including the origination fees, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, charges for credit reports and other costs. Costs of closing usually add up to 3 to 6 percent of the mortgage amount.
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on any home loans or liens on the property.
A special third-party account set up by the lender in which your funds are held to pay for taxes and insurance. “Escrow” can also refer to a third party who carries out the instructions of both the buyer and seller handles the paperwork at settlement such as a title company or attorney office.
Fixed Rate Mortgage
A mortgage with an interest rate that stays the same (fixed) for the life of the mortgage. Monthly payments for a fixed rate mortgage are very stable.
The fee paid for borrowing money, which pays the lender’s costs of funds plus a profit.
Shorthand for the separate parts of a typical monthly mortgage payment.
Points (Loan Discount Points)
Points are prepaid interest on your mortgage, charged by the lender at the time of closing. Each point is equal to one percent of the loan amount – that is, 2 points paid on a $100,000 mortgage would be $2000.
The expenses that are put into escrow at closing, usually including real estate taxes & insurance. This term also refers to interest paid in advance at closing. The interest paid covers the partial interest due the month of closing.
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of the mortgage.
Private Mortgage Insurance (PMI)
An insurance policy the borrower buys to protect the lender from non-payment of the loan. PMI policies are usually required for a loan with a Loan-To-Value (LTV) percentage in excess of 80%.
Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against a loss arising from disputes over ownership of a property.