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1. How do I know how much house I can afford? Answer
2. When is the best time to talk to a mortgage lender? Answer
3. How do I know which type of mortgage is best for me? Answer
4. What does my mortgage payment include? Answer
5. How much cash will I need to purchase a home? Answer
6. What are points? Answer
7. How is an index and margin used in an ARM? Answer
8. What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer
9. How can I lower my current mortgage payment? 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 : When is the best time to talk to a mortgage lender?
A : You should talk to a mortgage lender before you begin looking for a home.  There are few things worse than, finding a great home and falling in love with it and then finding out you are unable to afford the home.  Your mortgage lender will work with you before you beginning looking at homes to determine how much house you can afford, inform you about special programs for first time home buyers, and offer suggestions that could make your home buying process easier for you.  In addition, the pre-approval letter that your mortgage lender will provide you, will give you buyers power when you go meet with a real estate agent.
 
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. Ellington Mortgage Company 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
  • Mortgage Insurance: Sometimes lenders will require that the borrower pay Private Mortgage Insurance (PMI) to protect the lender from losses in the event the borrower defaults on his or her mortgage.  Putting at least 20% down will eliminate PMI.
  • 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 are points?
    A : Points are fees that you can pay to the lender or mortgage broker on the loan.  One point is equal to 1% of the loan amount.  For example on a $100,000 loan, 1 point is equal to $1,000.  There are two different types of points: origination points and discount points.  Origination points are charged by the mortgage broker as a fee to process and approve your loan.  Discount points are charged to customers who wish to buy down their interest rate.
     
    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 : 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 can I lower my current mortgage payment?
    A : If you have a high fixed rate or a rising adjustable rate mortgage, refinancing your loan may be the way to go.  When refinancing, the new loan will pay off your original mortgage.  You will then have a new loan with a much lower interest rate.  In addition, as you gain more equity in your home, refinancing may also lower your Private Mortgage Insurance (PMI) payment.