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.

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.

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).

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. Alston Mortgage can help you evaluate your choices and help you make the most appropriate decision.

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.

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

A:Annual Percentage Rate, or APR can be defined as the annual cost of a loan, expressed as a yearly rate. APR is designed to measure the "true cost of a loan," and to prevent lenders from hiding fees from you. Although the rules to compute APR are not clearly defined, the fees it generally includes are pre-paid interest, points, origination fees, and private mortgage insurance ( PMI), so APR will be slightly higher than the actual interest rate on the loan. However, different lenders calculate APR differently, so you want to be careful when you are shopping for your loan to make sure you understand what fees are computed. It can be more practical for you to compare lenders by the interest rate they offer for the same loan type and term, and then compare the applicable points and total closing fees.

A:APR stands for annual percentage rate and its purpose is to give borrowers a truer representation of the effective interest rate on their mortgage. APR factors in certain closing costs and fees and spreads these costs over the life of the mortgage, along with the note rate, to arrive at a more accurate annualized percentage rate than the note rate alone represents.

A:No one loan product is objectively better than another. The best mortgage for you depends on a variety of factors, including your financial situation and housing goals. Generally speaking, adjustable rate mortgages (ARMs) offer lower initial interest rates than fixed rate loans, but also have the potential to fluctuate every month, every six months, or every year, depending on the type of adjustable mortgage you get. An ARM therefore may be more attractive to homeowners who plan to sell their home in the timeframe before the adjustable rate surpasses a fixed-rate loan. On the other hand, homeowners who plan to remain in their home, or who want more stability in their rate and monthly payments, may find a longer-term 15, 20, or 30 year fixed rate more attractive. A fixed interest rate provides homeowners with a stable mortgage payment that does not change. Ask us about a adjustable, short term fixed, and long term fixed rate loan programs to see what can best help you with your individual goals.

A:Paying points is a way to reduce your interest rate when you purchase or refinance your home. In essence, you are paying up front for a lower interest rate to reduce your monthly payment over the life of your loan term. One point is equivalent to one percent of your loan amount, so one point on a $100,000 loan amount is equal to $1,000. As a general rule, it makes sense to pay points if you intend to keep your home for a long enough period of time where the savings in your monthly payment eventually makes up for the extra fees you pay up front. To find out if paying points makes sense for your situation, call one of our friendly Mortgage Bankers for a no-obligation, free quote.

A:Conforming loans have a well-established secondary market which is provided by the two government sponsored entities, Freddie Mac and Fannie Mae. A jumbo loan is any loan that exceeds the conforming loan amounts and the rates for these loans are typically higher than for conforming loans.

A: Let's start with the IRAs. Under the 1997 Taxpayer Relief Act, certain homeowners can withdraw up to $10,000 penalty free from an individual retirement account (IRA) for a down payment to purchase a principal residence (though you might have to pay income tax on the amount withdrawn). If you've got a Roth IRA, however, you must have had the account for five years to make tax-free withdrawals.

This $10,000 is a lifetime limit -- and the money must be used within 120 days of the date you receive it. The law limits use of this benefit to so-called "first-time homeowners" -- but generously defines these as people who haven't owned a house for the past two years. If a couple is buying a home, both must be first-time homeowners. Ask your tax accountant for more information, or check IRS rules at www.irs.gov.

If you have a 401(k), you have two options. One is to do a so-called hardship withdrawal -- but, because this would subject you to taxes and a 10% penalty, we recommend you avoid this.

You can also take an ordinary loan from your 401(k) plan without penalty, as long as you meet certain conditions and you promise to pay it back. Borrowing against your 401(k) offers several advantages:

• You, not a bank, receive the interest payments.
• The loan fees are usually less than what a bank would charge.
• The paperwork is less than would be required for a typical bank loan.

Keep in mind, however, that you'll need to repay the loan with after-tax dollars, and you'll forego the earnings on the 401(k) money you withdraw -- until it is paid back.

Ask your employer or plan administrator whether your plan allows loans. If it does, the maximum loan amount under the law is one-half of your vested balance in the plan, or $50,000, whichever is less. (If, however, you have less than $20,000 in your plan, your limit is the amount of your vested balance, but no more than $10,000.) Other conditions, including the maximum term, the minimum loan amount, the interest rate, and the applicable loan fees, are set by your employer. Any loan must be repaid in a "reasonable amount of time," although the Tax Code doesn't define what is reasonable.

Be sure to find out what happens if you leave your job before fully repaying a loan from your 401(k) plan. If a loan becomes due immediately on your departure, income tax penalties may apply to the outstanding balance -- but you may be able to avoid this hassle by repaying the loan before you leave the job.

A: Although loans were available to people putting less than 20% down during the real estate boom of the late 1990's and early 2000s, lenders have since become much more cautious. Even if you can afford high monthly mortgage payments and have a high credit score, you may have trouble finding a low (5% to 15%) or even no down payment loan -- and the one you find will likely require you to pay a higher interest rate and loan fees (points) than if you'd made a larger down payment.

Also, if you put down less than 20%, you may have to either pay for private mortgage insurance (PMI) or, to avoid PMI, take out two separate loans (a first mortgage and a second mortgage).

A:A safe bet is to buy a guaranteed-replacement-cost policy that will generally pay out 20-50% more than the face value of the policy to rebuild your home (this is also the preferred policy of lenders). A replacement-cost policy typically adjusts the amount of insurance each year to keep pace with rising construction costs in your area. It is important to note that local building codes require structures to be built to specific standards which could vary over time, if your home is severely damaged, you may be required to rebuild it to current codes. Even guaranteed-replacement-cost polices do not always cover this expense. However, many insurers offer an endorsement that will pay for the upgrading cost, it is a good idea to consider adding such an endorsement to your replacement-cost policy.