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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. Let Central Bank 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.

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.

Q : What is the difference between a conventional and an FHA loan?
A : A conventional loan is not insured nor guaranteed by a federal government agency.

Q : What is a conforming loan?
A : A conventional loan eligible to be sold to Freddie Mac and Fannie Mae, provided that both the borrower and the property meet specific criteria.

Q : What is a jumbo loan?
A : It is a conventional loan in which the amount exceeds the maximum established by secondary market investors.

Q : I have been unemployed for a short time. Do I qualify?
A : You may qualify, but keep in mind that stability in employment and income is a factor examined over the previous two (2) year period.

Q : What is the difference between refinancing and a second mortgage?

A : Refinancing results in the full repayment of your existing first mortgage loan. A second mortgage becomes an additional obligation that does not replace your current first mortgage.

Q : The bank where I applied for a loan tells me that my property is located in a flood hazard area. Is flood insurance a requirement?

A : If it is determined that property is located in a flood hazard area, then flood insurance is required under federal regulations.

Q : Is there a difference between hazard insurance and mortgage insurance?
A : Hazard insurance protects both the owner and the bank against loss of property as a result of perils such as fire, hurricanes, and earthquakes. (The bank does not require content insurance under definition of property). Mortgage insurance allows higher loan-to-value financing as it provides the bank with insurance over a portion of the loan in the event the debtor defaults by not making payments.

Q : Some time ago I declared bankruptcy. How long should I wait to apply for new credit?
A : Details concerning your bankruptcy will appear on your credit report for seven years. This does not mean that during that time you will not be eligible for new credit. We will evaluate your mortgage loan application and advise you of your options if you provide the following information:

• Letter indicating the reasons for your bankruptcy, including supporting documentation;
• Copy of petition for bankruptcy as well as debts included;
• Copy of Discharge from the bankruptcy court


Mortgage Bankers Association of America Consumer Information
The Mortgage Bankers Association of America is the preeminent association representing the real estate finance industry. Their consumer information site contains several tools and guides to aid in purchasing or refinancing a home.

Federal Reserve Board Consumer Information
The Federal Reserve Board maintains a web page with consumer information, including a section on home mortgages. The section covers topics such as finding the best mortgage and understanding ARMs.

Homebuyer Education by Freddie Mac
Freddie Mac is a publicly held corporation chartered by Congress to increase the supply of funds that mortgage lenders, such as commercial banks, mortgage bankers, savings institutions and credit unions, can make available to homebuyers and multifamily investors. This Freddie Mac site offers a step-by-step tutorial on the home buying decision process and the mortgage application process.

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