Frequently Asked Questions
Q. HOW EXPENSIVE OF A HOUSE CAN I AFFORD?
A. The short answer is that you can afford to buy a house that
costs approximately two and a half times your yearly income. The
long answer is that while the two and a half times income rule
is a good starting point, the truth is that lenders look at your
entire financial picture before deciding how much they will lend
you, and different lenders may have different criteria. This means
some lenders may allow you to buy a larger house than other lenders.
The moral: best to shop around.
Q. WHAT IS THE BEST WAY TO SHOP FOR A MORTGAGE LOAN?
A. There is no one best way to answer this question. However,
shopping online is a quick and convenient way to get an idea of
what is available and derive some idea of the variations you can
expect in rates and terms. Keep in mind, the rates and terms quoted
to you initially online may be modified later depending on your
credit history and other factors.
Q. CAN I GET A MORTGAGE IF I HAVE TROUBLE VERIFYING MY INCOME?
A. A lot of people have trouble verifying their income and many,
though not necessarily all, lenders make an allowance for this.
However, be forewarned that mortgages issued without income verification
are typically issued at a higher interest rate, or require additional
points to be paid, or require a larger down payment.
Q. WHAT EXACTLY ARE “POINTS”?
A. To begin with, a “point” is one percent of the
amount of the loan of which you are requesting. So if your loan
is for $200,000 then one point would equal $2,000. Points are
a prepayment of interest on your loan. The more points you pay
on a loan the lower you can negotiate your interest rate, the
fewer points the higher your interest rate.
Q. WHAT IF I’VE DECLARED BANKRUPTCY? WILL I STILL BE ABLE
TO GET A MORTGAGE? A. The short answer is “Yes.” However,
most lenders will be hesitant to offer you a mortgage for the
first two years following a bankruptcy and you may have problems
getting a mortgage for three years following a foreclosure. Remember,
too, that while you may be able to get a home loan, interest rates,
points, and down payment requirements are most often based on
your credit history. Therefore, a bankruptcy or foreclosure or
late payments on other loans can all increase your costs.
Q. IS THIS THE RIGHT TIME FOR ME TO REFINANCE?
A. It used to be that it didn’t pay to refinance a mortgage
unless interest rates had dropped by at least two percentage points.
However, with all of the options in fee payments today it often
makes sense to refinance a loan if interest rates drop by as little
as one percent. Just as important as the degree to which interest
rates have fallen is the question of how long you intend to live
in your home.
You’ll have to run all the numbers to see exactly when
your “break-even point,” the time when your monthly
savings from the new loan will pay off all of the fees associated
with getting the new loan. Yet, generally speaking, it is necessary
for you to plan to live in your home for at least two to three
years for a refinance to make economic sense.
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