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?

Fixed Rate Mortgages

Fixed-rate mortgages feature a non-changing interest rate. With a fixed-rate loan, the principal and interest portion of your monthly mortgage payment do not change; however, real estate taxes and homeowners insurance costs may change from year to year, resulting in a higher or lower monthly payment.

Advantages: Fixed-rate mortgages are beneficial for you if your income is not rising rapidly, and you want the comfort of knowing the principal and interest portion of your mortgage payment will not change.

Disadvantages: The downside of fixed-rate mortgages is that they typically have a higher interest rate than non-fixed-rate mortgages.

Adjustable Rate Mortgages

You assume some of the interest-rate risk that the lender normally assumes on a fixed-rate mortgage. For taking this risk, you would usually receive a lower initial interest rate than the fixed-rate mortgage’s interest rate.

Advantages: A lower interest rate means a lower monthly payment. The point at which the payment can be changed varies by the program you choose. It can range from one month to more than five years. Typically, the shorter the period before a change can occur, the lower the initial interest rate. Non-fixed-rate mortgages are a possible option for borrowers who are comfortable with their ability to handle payment increases.

Disadvantages: The trade-off with the non-fixed-rate mortgage is that, beyond increasing costs for taxes and homeowners insurance, the interest portion of your monthly payment also increases.

Amortizing vs. interest-only mortgages?

To keep monthly payments as low as possible, some lenders offer interest-only mortgages. These loans typically do not require any principal payments for a set period of time. Typical interest-only time periods are 5, 7 and 10 years.

Advantages and disadvantages: Since you are not paying off any principal, your monthly mortgage payment will be lower. The downside is that you are not building equity. Also, depending on the loan structure, you may face a very significant payment increase once the loan begins to amortize (the time your payments must be sufficient to cover both principal and interest).

What Refinance options are available?

Refinance

A borrower would want to refinance his current mortgage to in essence lower his monthly payment and take advantage of lower rates. A refinance is also done so as to lower the amortization of one’s current loan. As an example – Assume a person had a 30 year mortgage whereby he paid 5 years on it – They may want to take advantage of utilizing a 15 year fixed and save 10 years of payments while at the same time lower their rate

Cash Out Refinace

This product is utilized to take cash (based on the equity available) from one’s home – This is done for a multitude of reasons- Renovate a home, pay off high interest debt, investment opportunity, etc –

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. Liberty Mortgage Lending II can help you evaluate your choices and help you make the most appropriate decision.

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:

• 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.

Common Contingencies in Real Estate

In many real estate transactions, the term ‘contingency’ may come up. A contingency is a clause that is added to the contract that gives either party the right to back out of the contract under certain circumstances that must be negotiated between the buyer and seller. Essentially, a contingency clause allows either the buyer or the seller to back out of the sale without any kind of repercussions or breach of contract.

Below is a list of the 3 most common contingencies that could come up in your next home sale or purchase.

• Appraisal Contingency: For those home purchases that require funding, an appraisal is required to determine the overall value of the home. The lender won’t lend more than what a home appraises at, so should an appraisal come in lower than asking price, a problem arises. If a buyer doesn’t have the cash to make up the difference, the lender won’t loan more money to cover the difference. Because of this, an appraisal contingency is helpful: it allows the buyers to back out of a deal if the appraisal price is not as high as the purchase price, or it allows the buyer and seller to re-negotiate the purchase price, giving the buyer the ability to back out of the deal if the seller declines to come down in the total price of the property.
• Financing Contingency: The buyer is responsible for funding the home purchase, whether it be with cash, mortgage loan or some kind of other funding. If the purchase is dependent on financing a loan, then a financing contingency will likely be included in the contract. A financing contingency helps protect the buyer should the loan not come through. A financing contingency can also include other details regarding the purchase, like the type of loan, the amount of the down payment, loan term and even the interest rate. This is an important contingency in that it protects the buyer, allowing him/her to walk away from the deal without any repercussions or loss of earnest deposit, which is incredibly valuable to the buyer.
• Home Sale Contingency: For those buyers who are also selling their own home, a home sale contingency is usually inserted into the contract. Basically, this contingency is “I want to buy your house, but I can’t until my house sells.” Properties listed as “under contract” or “contingent offer” likely have a home sale contingency on them. The homes are still open for offers, but the contingency clause will likely have a stated amount of time for the original offer maker to sell his/her home before the seller can accept new offers.