FAQ
What’s the Difference Between a Broker and a Bank?
What’s the Deal with Credit?
How Much House Can I Afford?
How Much Cash will I Need to Purchase a Home?
What Kind of Paperwork Do I Need to Give You?
What is the Difference Between a Fixed-Rate Loan and an Adjustable-Rate Loan?
How is an Index and Margin Used in an ARM?
We Want to Help our Kids Get Into Their First Home, Should We Co-Sign?
We are Thinking About Buying a Vacation Home, Will I Pay More for Financing a Second Home?
What’s the Difference Between a Broker and a Bank?
Choice, flexibility and service for starters. While banks are great for your daily transactions when it comes to home loans they are very limited in the programs they offer. As brokers we are constantly updated with the latest offerings from a number of banks that are doing business in a highly competitive environment. This competition assures that you are getting the best possible deal out there. Buying a home is a big deal, particularly if it’s your first. There’s always a heightened level of anticipation and trepidation surrounding the process and one of our biggest responsibilities is to be there for you when you need us. Since each of us essentially runs our own business, we are not limited to “Banker’s hours”. You can typically get a hold of us 7 days a week at most any hour (cell phones are great aren’t they!) to get your questions answered.
What’s the Deal with Credit?
This is a big question and can’t be answered adequately in this forum and really deserves a more detailed discussion which would be happy to do over the phone, just gives us a ring. But in general, Credit is the most important component of the four major components of a real estate transaction. There are two areas of a Credit; the report and the score.
Credit Report
We pull what is called a tri-merge report. This report pulls the findings from the three major credit repositories, Transunion, Experian and Equifax. Each of these companies use proprietary formulas in which they take your credit history and evaluate your risk based. The findings are expressed in an index known as a Credit Score.
Credit Score
A credit score is a numeric index ranging from 350 – 850. This score specifies your propensity to manage debt. The higher the score the more likely you are to pay back your debt and therefore more willing to lend you money.
In short, having a high credit score is certainly a strong foundation for getting a home loan and will offer you the best possible rates, but don’t despair if you have a couple of credit challenges, they can typically be overcome.
How Much House Can I 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.
How Much Cash will I Need to Purchase a Home?
The amount of cash that is necessary depends on a number of items and it is possible to do it with $0. Generally speaking, though, there are four components to consider:
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 the processing of the loan and Pre-paid items.
Reserves: Typically 2 – 6 months of your monthly payment
What Kind of Paperwork Do I Need to Give You?
For what’s referred to as full documentation loans (these are the most common):- Last year’s W-2s for all borrowers on loan
- Current pay stubs for 1 month
- Most recent asset statements (401K, IRA, Money Markets – all pages)
- Two month’s most recent bank statements (all pages)
- Current mortgage or rental information
- Insurance agent name and number for homeowner’s policy
There are cases, particularly with self employed individuals or those that hold a number of assets, when the tax returns become significantly more complicated. In these situations we will explore the feasibility of a ‘stated or limited’ documentation loans. The process is the same we simply don’t have to document what we present to the lender. Because of the increased risk of this the rates on these types of loan is typically higher but this all depends on how the other factors of the equation work together. The best way to figure this out is to give us a call.
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).
We Want to Help our Kids Get Into Their First Home, Should We Co-Sign?
No. This is a terribly risky proposition that puts your credit at risk and out of your control. There are a lot of ways to help people buy houses without this level of risk.
We are Thinking About Buying a Vacation Home, Will I Pay More for Financing a Second Home?
Assuming you’re a good credit risk, second home financing is priced the same as a primary residence.
There is however an increase in investment (rental) property. There is a distinct difference between a second home and a rental property. The difference is risk and lenders mitigate risk through rate.