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'eddie'
Edmond Aftandilians
Principal Broker
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

Q : How do I know how much house I can afford?
A : In general, a buyer’s total present monthly obligations (including auto payments and minimum credit card payments, but excluding expenses such as auto and health insurance) plus mortgage payments, property taxes, and homeowner’s Insurance should be no more than 45% of gross monthly income. (Debt to Income Ratio or DTI)

DTI can be increased up to 55%, depending on the loan program, the percentage of the down payment, liquid reserves, and FICO scores.

Term of the loan also effects the maximum amount a buyer will qualify for. A person looking for a 15 years fixed loan will qualify for a lesser loan amount compare to a 30 years loan, fixed for the first 7 years.

Finally, the trending interest rates are a huge factor in determining the max loan amount that a buyer will qualify for.

Assuming a couple’s present monthly obligations are 10% of their gross income, it would be safe to target a max loan amount that its payments, plus taxes and insurance will not exceed 35% of their gross income.

Based on current rate, if this couple was looking for a 15 years fixed loan, they would qualify for a loan equal to 3.5 times their gross annual income. If they wanted a 7 years fixed loan (7-1 arm) they would then qualify for a loan equal to 5.5 times their gross annual income.

Please contact us for a complete analysis of your situation and prequalification.
 
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. Mendocino Financial 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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