Garden City Mortgage
1225 Franklin Avenue - Garden City, NY 11530 (516) 747-2500
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What is a Credit Score? Answer |
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How do I know how much house I can afford? Answer |
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What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer |
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How is an index and margin used in an ARM? Answer |
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How do I know which type of mortgage is best for me? Answer |
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What does my mortgage payment include? Answer |
| 7. |
How much cash will I need to purchase a home? Answer |
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What is a Credit Score? |
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Before deciding on what terms lenders will offer you on a mortgage they will want to determine your "Risk Profile". They will want to know two things about you: your ability to pay back the loan and your willingness to pay back the loan. For the first, they look at your debt to income ratio. For the second, they will review your credit report. The most widely used credit scores are from Experian (formerly TRW), Transunion and Equifax. Based on all 3 credit bureau scores, you will have a low, middle and high score which is between 350 (High Risk) and 850 (Low Risk). The higher the score the better. All lenders use the middle score from the three bureaus for the basis of risk. Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount or demographic factors like gender, race, nationality or marital status. In fact, the fact that they don't consider demographic factors is why they were invented in the first place. "Profiling" was as dirty a word when credit scores were invented as it is now. Credit scoring was developed as a way to consider only what was relevant to somebody's willingness to repay a loan, not their demographics. Past delinquencies, late payment behavior, current debt levels, length of credit history, types of credit and number of inquiries on your credit report are all considered in credit scoring. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score. Different portions of your credit history are given different weights. Thirty five percent of your credit score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren't as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is based on your pursuit of new credit. Credit reports pulled against your Social Security number result in "credit inquiries" appearing on your credit report as potential new credit granted. Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage. You may be able to get approved using what is known as "alternative" credit, that is using cable, phone or utility bills in conjunction with a landlords letter to show a credit history. This may not always be acceptable to every lender though.
What can you do about your credit score? Unfortunately, not much. Since the score is based on a lifetime of credit history, it is difficult to make a significant change in the number with a quick fix. The most important thing is to know your credit score and to ensure that your credit history is correct. Conveniently Fair Issac & Company (FICO) has created a website www.myfico.com that let's you do just that. For a small fee you can quickly get your credit scores from all three reporting agencies, along with a copy of your credit report. Also available is some helpful information and tools that help you analyze what actions might have the greatest impact on your score. Each of the credit services offers similar services on their websites: www.equifax.com, www.experian.com and www.transunion.com.
Armed with this information, you will be a more informed consumer and better positioned to obtain the most favorable mortgage available to you. |
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How do I know how much house I can afford? |
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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. |
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What is the difference between a fixed-rate loan and an adjustable-rate loan? |
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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. |
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How is an index and margin used in an ARM? |
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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). |
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How do I know which type of mortgage is best for me? |
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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. Garden City Equities Inc can help you evaluate your choices and help you make the most appropriate decision. |
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What does my mortgage payment include? |
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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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How much cash will I need to purchase a home? |
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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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