Lanes- Frequently Asked Questions

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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 (adjustable rate mortgage)? 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

Q :	How do I know how much house I can afford?
A :	Generally speaking, a typical buyer can afford to purchase a home with a value of two or three times their annual household income. However, the amount of home that one can afford also depends upon one's employment history, credit history, current savings, debts, and the amount of down payment one is willing to make. Buyers may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value. More importantly we want to make sure the home purchased is affordable to our buyer's personal life style, NOT JUST what the lender says one can afford. Please give me a call and I can help you determine what limits should be set for your home purchase. We want to make sure you are happy with your home purchase, not just now, but long into the future as well.

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 (adjustable rate mortgage)?
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 (profit margin). Two commonly used indices are the One-Year Treasury Bill and the London InterBank Offering Rate (LIBOR). The Cost of Funds of the 11th District Federal Home Loan Bank (COFI) use to be popular for adjustable loans but is not typically used for new origiantions at this time. Loans based on this index typically allowed for negative amortization and huge payment increases after the first couple of years and were a large part of the mortgage meltdown of recent years.

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. Rich Lanes of Cobalt 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 several parts: Principal & Interest: Repayment on the amount borrowed with interest charged. The amortized payment is usually set with a payment schedule such that the loan will be paid off in its entirety at the end of the loan term. Property Taxes: Property taxes are typically 1 - 1.25% per year. Taxes need to be paid in semi annual payments to the County and can either be paid directly by the consumer or by the lender if the homeowner would rather make monthly installments into the lender's escrow/impound account. Some loans require monthly installments to an impound account. Property insurance: Insurance is required to rebuild the home in event of damage and to replace replace personal articles within the home. As with taxes, insurance can either be paid directly to the insurance company by the consumer or can be paid monthly to the lender's impund account. Some loans require monthly installments to an impound account. Mortgage Insurance: For FHA loans and conventional loans > 80% of value mortgage insurance is typically required. This is paid in monthly installments and protects the lender against loss in event of default. HOA Dues: Some homes are part of an association such as a condominium or a planned unit development/PUD. Dues are typically paid directly to the association by the homeowner on a monthly basis.

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 Inspections and warrantees: During the purchase process a buyer will typically need to front money for home inspections and an appraisal Non-Recurring Closing Costs: 1 time fees/costs associated with the purchase or refinance of a home. This is collected at closing. Recurring Closing Costs: At closing interest taxes and insurance are collected at closing.