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1. How do I know how much house I can afford? Answer
2. What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer
3. How is an index and margin used in an ARM? Answer
4. How do I know which type of mortgage is best for me? Answer
5. What does my mortgage payment include? Answer
6. How much cash will I need to purchase a home? Answer
7. What are discount points? Answer
8. How much should my closing costs be? Answer
9. What is the purpose of a credit report? Answer
10. What is the difference between Conventional and FHA loans? Answer
11. What is a FHA Reverse Mortgage Program? Answer
12. What is a HARP? 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 : 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).
 
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. Express Mortgage Decisions Inc can help you evaluate your choices and help you make the most appropriate decision.
 
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 : 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 : What are discount points?
    A : Lenders generally charge discount points for the following purposes. 1 discount point equals 1 percent of the loan amount. Discount points are used to lower the interest rate. The discount fee is normally charged as a line item on your HUD or settlement statement at the time of closing.
     
    Q : How much should my closing costs be?
    A : Your closing costs depend on the type of loan you decide is best for you. Depending on your home state, you normally pay the following amounts. • Origination Fee: 1% of the loan amount - cost of establishing a loan • Discount Points: Used to lower the interest rate (refer to Discount Points section above) • Appraisal Fee: Dependent on the house size • Credit Report Fee: Charge for pulling your credit report from the credit bureaus (Refer to Credit Report question in this FAQS section) • Underwriting Fee: Payment to the end investor for services provided • Processing Fee: Payment to the lender for services provided • Flood Certification Fee: Certification that your property is not in the 100 yr. flood zone • Title Charge: Payment to the title company for closing your loan • Title Policy: 1% of purchase price depending on the state (the seller normally pays) • Recording Fee: Payment for filing fees depending on the state Many of these costs are third party charges and cannot be negotiated by you or the lender.
     
    Q : What is the purpose of a credit report?
    A : An important key point a loan officer considers when helping you decide which lender/program is best for you is to view your credit. The purpose of this report is to pull your credit history from each of the three major credit-reporting agencies: Equifax, Experian, and Trans Union. Your lender is required to use outside companies to acquire your credit report, as they are impartial to the findings on your credit report. Your account balances and account history on your report are verified. You will be provided with a "credit score”.
     
    Q : What is the difference between Conventional and FHA loans?
    A : There are many differences between conventional and FHA loans. In this portion we will outline some of the major differences for you. On FHA loans, the minimum down payment is 3.5%. On a conventional loan, the down payment must be at least 5%. Additionally, the money on a conventional loan must be "seasoned" (60 days in the bank) prior to purchasing the home or be proceeds from the sale of your existing home. A FHA loan requires an upfront Mortgage Insurance payment; a Conventional loan does not. Both do require monthly Mortgage Insurance premiums based on the LTV. The taxes will be the same on either type of loan. A common mistake is that people believe is their taxes will vary depending on the loan they choose. The title company that closes the loan submits the taxes directly to the lender. If you reside in an attorney state, your representation is the one who orders the tax certificate from the appraisal district. Taxes reported to the lender will be included in your monthly loan payment. There is no mark-up or service charge over and above the actual tax amount. Homeowner's insurance works the same as taxes. You pay the lender for your policy amount on a monthly basis. The lender will escrow this amount and send it to your insurance company at the end of the year when renewal is due. Interest rate differences will vary depending on the lender you choose. Most importantly, ALWAYS ask for the lowest rate for the type of loan you are obtaining. The principal and interest portion of the payment is calculated by configuring the loan amount (MIP rolled into the balance on FHA) and term into an amortization schedule to calculate the payment amount. Ask your Supreme Lending representative for additional information on conventional and FHA loans.
     
    Q : What is a FHA Reverse Mortgage Program?
    A : • Homeowners, 62 and older who have paid off their mortgages or have only small mortgage balances remaining are eligible to participate in HUD's reverse mortgage program. The program allows homeowners to borrow against the equity in their homes. • Credit, income or assets are not evaluated, or required, to qualify for this loan program. • Homeowners can receive payments in a lump sum, on a monthly basis (for a fixed term or for as long as they live in the home), or on an occasional basis as a line of credit. Homeowners whose circumstances change can restructure their payment options. • Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the borrower lives in the home. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to the homeowner or to his or her survivors. If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall.
     
    Q : What is a HARP?
    A : If you're not behind on your mortgage payments but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through MHA's Home Affordable Refinance Program (HARP). HARP is designed to help you get a new, more affordable, more stable mortgage. HARP refinance loans require a loan application and underwriting process, and refinance fees will apply. You may be eligible for HARP if you meet all of the following criteria: The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae. The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009. The current loan-to-value (LTV) ratio must be greater than 80%. The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.