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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? 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 determines my credit score? 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. North Star Home Lending 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 determines my credit score?
    A :

     


    Payment History determines 35% of your credit score, with the most emphasis given to recent activity.  Your payment history includes: <?xml:namespace prxml:namespace prefix = o /><?xml:namespace prefix = u1 /><?xml:namespace pre

    · Any bankruptcies, judgments, liens, collections, suits, and wage garnishment

    · Types of credit and payment information

    · Number of accounts paid as agreed

    · Late payment information - number of past due items, how long the items have been past due


    Amounts Owed accounts for 30% of your credit score, and includes such things as:

     

    · Total amount owed to all

    · Amount owed on specific types of accounts (credit cards, installments, etc)

    · How many accounts show balances how much you have paid down on installment

    · How much available credit you have

    · How much you have paid down on installment loans

     

    Length of Credit makes up about 15% of a person's credit score, with information about:

     

    · When your credit file was established

    · How long individual credit accounts have been

    · Age of the oldest account, and the average age of all accounts

    · How long it has been since certain accounts have been used 

     

    New Credit Accounts determine about 10% of your credit score, with the relevant information being:

     

    · How many of your accounts are new

    · The ratio of new accounts to established

    · How long has it been since a new credit account was established

    · How many credit inquiries have been made on your credit

    · How long has it been since these inquiries were made 

     

    Types of Credit in Use determines approximately 10% of your credit score.  A mixture of account types generally scores better than reports with only revolving accounts, such as credit cards.  Types of credit include:

     

    · Credit cards

    · Installment

    · Mortgage loans

    · Finance company accounts retail