Frequently Asked Questions
1. How do I know what I can afford? Answer
2. What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer
3. How is an index and 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. What documents will I need to provide for a mortgage? Answer
8. What should I avoid doing during the mortgage process? Answer
Q : How do I know what 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 may also be able to take advantage of special loan programs.
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 throughout the life of the loan. With an adjustable-rate mortgage (ARM), the interest rate 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 are likely to 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. Diamond Residential Mortgage Corporation can help you evaluate your choices and assist you in making the most appropriate decision.
Q : What does my mortgage payment include?
A : For most homeowners, a monthly mortgage payment consists of 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 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 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
- All Borrowers
- Last 2 years tax returns, all pages
- Last 2 years W2’s and 1099’s if applicable
- Paystubs for the last 30 days
- Most recent 2 months of bank statements
- Employment history for the last two years
- Asset/ Investment statements: Checking, Savings, 401k, Stocks, Mutual Funds, etc.
- Residency history over the last two years
- Photo identification (valid Driver’s License or Passport)
- Check or credit card information for appraisal fee
- SELF-EMPLOYED BORROWERS
- Copies of most recent 2 years 1040s or business tax returns (with all schedules)
- Year to date profit & loss statement and balance sheet
- Copy of business license
- VETERAN BORROWERS
- Veteran DD214 or Veteran Reservists DD256.
- COMMON DOCUMENTS WHICH MAY BE REQUIRED IF APPLICABLE
- For Refinances: Copy of Note, Deed of Trust or Mortgage, and Homeowner’s Insurance information
- Previous Bankruptcy: Copies of Petition and Discharge, including supporting schedules A—K
- Divorce Decree and Property Settlement if applicable
- Relocation Agreement: If relocation move is financed by employer, i.e. buyout agreement plus documentation outlining company paid closing costs benefits
Q: What should I avoid doing during the mortgage process?
- DON’T APPLY FOR NEW CREDIT OF ANY KIND - If you apply for a credit card, your credit report will be pulled, and this will have an adverse effect on your credit score. Co-signing a loan will also lower your credit score.
- DON’T PAY OFF COLLECTIONS OR CHARGE-OFFS - Don’t pay off collections unless it is required by the lender to secure the loan.
- DON’T CLOSE CREDIT CARD ACCOUNTS - If you close a credit card account, it can affect your ratio of debt to available credit. This ratio can hurt your credit score. Consult your Diamond Residential Mortgage Consultant for more details about this issue.
- DON’T MAX OUT OR OVERCHARGE CREDIT CARDS - Overcharging your credit cards can have a negative impact on your credit score. Once you are engaged in the loan process, try to keep your credit cards well below the available limit.
- DON’T CONSOLIDATE DEBT TO ONE OR TWO CARDS - Changing your ratio of debt to available credit will complicate your loan process.
- DON’T RAISE RED FLAGS TO THE UNDERWRITER - When applying for a loan, drastic measures such as changing your name, address, or occupation are discouraged. These are important underwriting considerations.
- DON’T FALL BEHIND ON EXISTING ACCOUNTS - One 30-day late payment on any existing loan can negatively impact your credit score.