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How is an index and margin used in an ARM?
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).
How do I know how much house I can afford?
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.
What is the difference between a fixed-rate loan and an adjustable-rate loan?
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.
How do I know which type of mortgage is best for me?
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. Contempo Lending, Inc. can help you evaluate your choices and help you make the most appropriate decision.
What does my mortgage payment include?
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.
How much cash will I need to purchase a home?
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
INDIAN LAND LEASE
How Often Do I Renew the Lease?
Lease land typically consists of a long-term land lease that is commonly renewed well in advance of their expiration dates. However each lease is unique and should be reviewed for the specific terms affecting a particular property. Typically, Indian Lease land properties have increased/decreased in value at the same rate as Fee Simple land (land that is not lease land).
What is the Price of the Lease Per Year?
The price of a lease can vary. It can be between $1400 to over $6000 per year depending on the property. Some lease payments are paid annually; others are divided and paid monthly.
Are There Financial Benefits to Lease Land vs. Fee Simple?
The primary difference between buying land and leasing it is obvious; lease land reduces the cost of a home by 20 to 30% on average. Once a structure is built the land beneath it can be of no other use to the homeowner. So, by owning on leased land, the homeowner gets the use of the land without the capital outlay – and can afford a far more luxurious home for less money. Furthermore, since no one actually owns a home until the loan is paid off, most so-called “land owners” don’t really own their property for 30 years.
Prices are traditionally 15% to 20% less for comparable properties on fee land.
Due to the price, the amount of the property taxes are less then fee land as you are typically only paying taxes based on the purchase price of the structure, not the land. This is not guaranteed, however. For more information, you can research the tax information with the Country of Riverside tax assessor.
Won’t the value of my real estate climb faster if I own the land?
While many things determine resale values, all available figures indicated that the resale of homes on leased land have climbed in the exact proportion as other homes in the same areas. The condition in which you keep your home has far more influence on its resale value than the fact it is or is not on lease land.
When Did Indian Lease Land Begin?
There is a long history, so here’s some of the backstory. In 1876, Pacific Railroad laid the tracks between Los Angeles and Yuma, Arizona. The U.S. government deeded the Agua Caliente 52,000 acres throughout the Coachella Valley (6,700 acres lay within the city of Palm Springs). The government gave the railroad a checkerboard of every square mile of land for 10 miles on either side of the railroad right-of-way. The Agua Caliente tribe got the non-Pacific Railroad owned squares. The city of Palm Springs is built on a “checkerboard” consisting of alternating Indian and non-Indian land.
What About Lease Land in Palm Springs?
Some of the best neighborhoods are on lease land in Palm Springs. It is estimated that over 23,000 residential properties are located on Indian lease land. The lease gives the homeowner the right to the property for the duration of the lease. The Bureau of Indian Affairs is the administrator for most Indian leases. Typically, a homeowner will deal with the appointed property management company or Bureau of Indian Affairs office.
Are Mortgages Available on Lease Land?
Yes, mortgages are available on lease land. Depending on the lease, some leases have minimal down payment requirements and other specific conditions, however it is possible to get a loan on lease land. Interests rates tend to be the same for Lease and Fee Simple land.
Why do some people compare a home on lease land to a variable annuity life insurance policy?
Probably because it is easier to understand. Just as a variable annuity gives you the possibility of gaining from both fixed interest rates and asset appreciation, a home purchased on leased land gives you a monthly savings along with the possibility of home appreciation.
It can be an investment hedge whether home prices are rising or falling. During an “up” period, your home will increase in price. in a “down” period, the dollars you did not spend on land, but invested in a fixed interest savings, could continue to increase.
Today building on lease land is no longer an advantage reserved for business and investment buyers. Now, in Palm Springs, it is something any home buyer can enjoy.
What about my children or heirs? Can I pass a leasehold estate on to them?
Of course, you can give or sell your home on leased land just as easily as on fee land. However if you are concerned about your heirs 65 years from now, there are four realistic questions you should ask yourself:
- Will they really want a 65 year old home when the average life of most California residences is estimated at less then 50 years?
- Considering that most residences change ownership about every five years (which would be more then 10 turns of ownership during the life of your lease) is the home really likely to stay in your family for 65 years?
- If you have a savings of $206/month (2,472 per year) by leasing land vs. purchasing, over the life of a 65 year lease, your savings would total $160,680 even it if earned no interest. If you kept this monthly savings in an account paying 10% annual interest, your savings would exceed $1,250,000 over 65 years (and even more if interest were compounded monthly). Wouldn’t that be a better way to take care of your heirs?
- What happens at the end of the lease? Since there is no legal restriction prohibiting the Lease Holder from selling their land, you or your heirs may have the option to purchase if you wish to do so. However, most probably, you would be offered a new lease based on conditions existing at that time; there would be no financial advantage to taking the land back.
If you would like to learn more about the Indian lease land, please contact the bureau of Indian Affairs, TESA Branch in Palm Springs at (760) 416 3289
Presented courtesy of Financial Title Company. None of the above statements can be guaranteed. Before you get into a transaction on Indian lease land, you should read and review all contracts, leases and information about the specific lease as all leases are unique. We recommend you consult with your accountant, attorney and tax advisor prior to making any purchases on Lease OR Fee land.