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
|
