At Mortgage Solutions of St. Louis LLC, we take the confusion out of securing a home loan. If you have first time home buyer questions, you’re in the right place. These are just a few frequently asked questions (and answers) we think you’ll find helpful.

Q: How do I determine how much home I can afford?
A: A: In general, you can purchase a home with a value of two to three times your annual household income. However, the amount you can borrow also depends on your employment history, credit history, current savings, debts, and the amount of down-payment you’re willing to make.

If you’re a first- time home buyer, you may qualify for special loan programs to purchase a home with a higher value.

Q: What is the difference between a fixed-rate loan and an adjustable-rate loan?
A: A: With a fixed-rate mortgage (FRM), the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest rate changes periodically in relation to an index.

While monthly payments for a fixed-rate home loan are relatively stable, payments on an ARM loan will likely change. There are advantages and disadvantages for each type of mortgage. Contact Mortgage Solutions of St. Louis for more mortgage adviceto learn more.

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 adjustable-rate mortgage. In general, the interest rate you pay is a combination of index rate and a pre-specified margin.

Three common indices include 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: 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.

Q: What does my mortgage payment include?
A: For most homeowners, monthly mortgage payments include three 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 you pay fees directly to the County Tax Assessor and property insurance company.

Don’t forget to contact us and ask about saving money on your homeowners insurance. Our insurance agency, The LaVigne Group, can help you find an insurance product to lower your homeowners premium and, ultimately, your mortgage payment.

Q: How much cash will I need to purchase a home?
A: The amount of cash you’ll need to purchase a home loan depends on the following items:

  • 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.

Contact us to learn more and speak with one of our experts to get additional help mortgage advice.