|Here are some answers to some commonly asked
questions. If you have any questions that aren't listed, just click "Contact
Us" on the left. You can also contact Bay Financial Company by calling 650-685-5815
. You can email us at
I can't afford 20% to put down on a house?
Assuming you can qualify for higher monthly mortgage payments and have
an excellent credit history, you should be able to find a low
(0 -15%) down payment loan. However, you may have to pay a higher interest
rate and loan fees (points) than someone making a larger down payment.
What is private mortgage insurance(PMI)?
Private mortgage insurance (PMI) policies are designed to reimburse
a mortgage lender up to a certain amount if you default on your loan.
Most lenders require PMI on loans where the borrower makes a down payment
of less than 20%. Premiums are usually paid monthly or can be financed.
With the exception of some government and older loans, you may be able
to drop the mortgage insurance once your equity in the house reaches
22% and you've made timely mortgage payments. The Servicing Lender will
have the requirements for canceling the mortgage insurance.
Can I use some of my IRA or 401(k) plan for a down payment?
Under the 1997 Taxpayer Relief Act, first-time home buyers can withdraw
up to $10,000 penalty free from an individual retirement account (IRA)
for a down payment to purchase a principal residence. This $10,000 is
a lifetime limit. The law defines a first-time homeowner as someone who
hasn'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 http://www.irs.gov. Another source
of down payment money is a loan against your 401(k) plan. Ask your employer
or plan administrator if your plan allows for loans. If it does, the
maximum loan amount under the law is the one-half of your interest in
the plan or $50,000, whichever is less. Other conditions, including the
maximum term, the minimum loan amount, the interest rate and 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 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 upon
your departure, income tax penalties may apply to the outstanding balance.
What's the difference between a fixed and adjustable rate mortgage?
With a fixed rate mortgage, the interest rate and the amount you
pay each month remain the same over
the entire mortgage term, traditionally
15, 20 or 30 years. A number of variations
are available, including five- and
seven-year fixed rate loans with balloon
payments at the end. With an adjustable
rate mortgage (ARM), the interest rate
fluctuates according to the indexes.
Initial interest rates of ARMs are
typically offered at a discounted ("teaser")
interest rate lower than fixed rate
mortgage. Over time, when initial discounts
are filtered out, ARM rates will fluctuate
as general interest rates go up and
down. Different ARMs are tied to different
financial indexes, some of which fluctuate
up or down more quickly than others.
To avoid constant and drastic changes,
ARMs typically regulate (cap) how much
and how often the interest rate and/or
payments can change in a year and over
the life of the loan. A number of variations
are available for adjustable rate mortgages,
including hybrids that change from
a fixed to an adjustable rate after
a period of years.
Is a fixed or an adjustable rate mortgage better?
It depends. Because interest rates and mortgage options change often,
your choice of a fixed or adjustable rate mortgage should depend on:
the interest rates and mortgage options available when you're buying
a house your view of the future (generally, high inflation will mean
ARM rates will go up and lower inflation that they will fall), and how
willing you are to take a risk. When mortgage rates are low, a fixed
rate mortgage is the best bet for most buyers. Over the next five, ten
or thirty years, interest rates are more apt to go up than further down.
Even if rates could go a little lower in the short run, an ARM's teaser
rate will adjust up soon and you won't gain much. In the long run, ARMs
are likely to go up, meaning most buyers will be best off to lock in
a favorable fixed rate now and not take the risk of much higher rates
later. Keep in mind that lenders not only lend money to purchase homes;
they also lend money to refinance homes. If you take out a loan now,
and several years from now interest rates have dropped, refinancing will
probably make sense.