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How do I know how much house I can afford?

Before you start looking at homes, you need to have some idea of what you can afford. As a general guide, you can purchase a home with a value of two or three times your annual household income, depending on your savings and debts. However, you may be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value.

Aren't there really just two kinds of mortgages: fixed and adjustable rate?

You could say that, because all mortgages fall into one of these two categories -- that is, the interest rate you pay is either the same (fixed) for the life of the mortgage, or it can change (adjust) over the life of the mortgage.

Fixed-Rate Mortgages

With this type of mortgage your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.

Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "bi-weekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.)

Adjustable-Rate Mortgages (ARMS)

These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage, and could allow you to buy a more expensive home.

However, the interest rate changes at specified intervals ( for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also.

There are also mortgages that combine aspects of fixed and adjustable rate mortgages - starting at a low fixed-rate for seven to ten years, for example, then adjusting to market conditions. Ask your loan officer about these and other special kinds of mortgages that fit your specific financial situation.

How do I know which type of mortgage is best for me?

There isn't a single, simple answer to this question. The right type of mortgage for you depends on many different factors:

• Your current financial picture;
• How you expect your finances to change;
• How long you intend to keep your house;
• And how comfortable you are with your mortgage payment changing from time to time.

For example, a 15-year fixed-rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. And an adjustable rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage -- but your payments could get higher when the interest rate changes.

The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with your loan officer.

Do they really need to know everything about me for the application?

It may seem that way -- but actually all your loan officer needs to know about you is your employment and finances, and information about the home your buying.

However, you will need to provide quite a few details about these topics, and your application process will go much more smoothly if you're prepared. Be sure to ask your loan officer what information you'll need to complete your application.

How much will my credit history affect my ability to get a mortgage?

Many home buyers are very worried about this issue. And everyone should be aware of the effects of their credit history. You can be better prepared if you get a copy of your credit report twice per year to review for inaccuracies or discrepancies.

If you have had credit problems, be prepared to discuss them honestly with your loan officer  and come to your application meeting with a written explanation. We know there can be legitimate reasons for credit problems, such as unemployment, illness or other financial difficulties. If you had a problem that's been corrected, and your payments have been on time for a year or more, your credit will probably be considered satisfactory.

How much will I need for the down payment?

It's probably less than you think. Many first-time buyers are surprised to learn there's no set answer to this question. Generally, though, your down payment can be anywhere from zero to twenty percent of the home's value. Down payments will depend on the loan program, your credit history, and your ability to document your income. Ask your loan officer for low and no down payment options.

What does my mortgage payment include?

For most homeowners, the monthly mortgage payments include three separate parts: a payment on the principal of the loan (that is, the amount borrowed); a payment on the interest; and payments into a special account (called an escrow account) that your lender maintains to pay for things like hazard insurance and property taxes. These elements are called P.I.T.I. (Principal-Interest-Taxes-Insurance).
 

If you have any other questions regarding the mortgage products and services offered by MFSC, please call our Information Center at 407-262-0470