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 does Pre-Qualification mean? Answer
8. What is a Pre-Approval? Answer
9. What is an Escrow Account? Answer
10. What is an APR? Answer
11. What are the Closing Costs, and how are they calculated? Answer
12. What is a Balloon Mortgage? Answer
13. What is PITI? Answer
14. What is PMI and do I have to have it? Answer
15. What is Truth-In-Lending? 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. The Southern Federal Credit Union 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 does Pre-Qualification mean?
    A : A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.
     
    Q : What is a Pre-Approval?
    A : A commitment by a lender to extend credit provided that specific conditions are met.
     
    Q : What is an Escrow Account?
    A : Generally, a portion of the monthly mortgage payment is held in an "escrow account" by the lender to pay for the yearly property taxes and homeowners insurance premiums.
     
    Q : What is an APR?
    A : The Annual Percentage Rate refers to the total cost of the loan, expressed as a yearly rate.  Some (not all) of the fees your charged along with the interest are included in the calcuation.  The APR is an effective interest rate--not the actual interest rate.  Your monthly payments will be based on the actual interest rate, the amount you borrow and ther term of the loan.
     
    Q : What are the Closing Costs, and how are they calculated?
    A : Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property.  Also called "settelement costs".  They are usually determined by the size of the loan.
     
    Q : What is a Balloon Mortgage?
    A : A mortgage with periodic payments tht do not fully amortize the loan.  The outstanding balance of the mortgage is due in a lump sum at the end of the term.
     
    Q : What is PITI?
    A : An acronym for payments to the lender to cover Principal, Interest, Taxes and Insurance.
     
    Q : What is PMI and do I have to have it?
    A : Insurance written by a private company to protect the lender against loss caused by mortgage default.  If you finance over 80% of the value of the property, you may have to purchase PMI.
     
    Q : What is Truth-In-Lending?
    A : A federal law that requires lenders to fully disclose in writing, the terms and conditions of a mortgage, including the APR and other charges.