Mortgage Related Questions

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 are an index and a 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. Is there money available for First-Time Homebuyers or for down-payment assistance? Answer

8. Do you have options for people with less-than-perfect credit or credit problems? Answer

9. When does it make sense to refinance? Answer

10. With construction financing, what is the difference between a one-close and a two-close? Answer

11. What are interest rates and closing costs? 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 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 are an index and a margin used in an ARM?
A: An index is an economic indicator that lenders use to set the interest rate for an ARM (Adjustable Rate Mortgage). Generally, the interest rate 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. We 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 deposited 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.
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, you will need to supply:

  • Earnest Money: The deposit that is paid 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
Q: Is there money available for First-Time Homebuyers or for down payment assistance?
A: Yes, depending on your income and location.  Call one of our loan officers for details.
Q: Do you have options for people with less-than-perfect credit or credit problems?
A: Yes, we do our best to look at every situation.  If we believe that your financial situation makes sense, and the loan can be funded, we will do everything we can to help you.  Please refer to our products page to learn about our Credit Builders Program, or contact one of our loan officers for more information.
Q: When does it make sense to refinance?
A: This is a great question.  Many people have heard that it only makes sense to refinance if you save at least two percentage points off of your current loan.  This is a general statement that can be very misleading.  It is important to calculate your break-even point and determine if you will be in the house long enough to justify the cost.  Most people are somewhere between six to thirty months when calculating a break-even analysis.  Many times, when more cost is involved, there is more savings over the long term, so it is a good idea to go over these options with your loan specialist.  Here is an example: Brian has two options, one saves him $200 per month but costs $3000 to close.  The second option only costs $1200 to close, but only saves him $100 per month.  The first option takes eighteen months to recoup the cost or break-even point. After that, Brian will save $200 additional per month for the rest of his loan term.  In option two, it only takes twelve months for Brian to break even, but he only saves $100 over the rest of the life of the loan.  Brian is planning on staying in the house for at least the next five years.  In this example, option one saves Brian an additional $3600 over the first five years, even though the closing costs were more.  It is important to calculate the break-even point in order to make an informed decision and save the most money possible.  Many people also consider shorter terms or debt-consolidation when refinancing to get out of debt quicker.  It is important when doing debt consolidation to make sure you aren’t just setting yourself up for additional debt at a later date.  Call one of our loan counselors for more details.
Q: With construction financing, what is the difference between a one-close and a two-close?
A: A One-Close Construction Loan only closes one time.  It is closed subject to appraisal and has a simple modification process at the end of construction.  These options usually come with a lock-loan feature up front and some type of float-down option at modification.  Some of the options allow for the permanent rate to be locked up front with no need for a float-down.  This option requires a little more paperwork up front, but is much less paperwork and hassle at the end of construction.  It also better protects the borrower, since it is closed up front with market data available at that time, plus a rate-lock protection feature.  Although harder to qualify for, this is one of your better options, when available.

A Two-Close Construction Loan involves a construction loan only for construction of the house. After the house is built, you must transfer to a permanent loan for your long-term financing.  The interim construction loan is obtained either by the borrower or by the builder. Either way, when the borrower needs a take-out letter for the permanent financing, that has been arranged.

Q: What are interest rates and closing costs?
A: This is a very important question. Keep in mind that shopping for a mortgage loan is not like buying a car.  Mortgage loans are very specific, and there is a considerable amount of data that must be obtained and verified, which can affect your interest rate and closing costs.  A quote for interest rate and closing costs will only be accurate if the proper information is obtained and verified, so be careful when looking at online quotes or other types of advertisements that usually quote the best-case scenario.  At Skyridge Lending, it is our goal to provide you with the most accurate information while getting you the best deal possible for your situation.  We don’t like any surprises at closing.

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Skyridge Lending, LLC
Toll Free: 833-skyridge / (833) 759-7434
Fax: 719-218-9364
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