Hello there! First post on CreditNet. Please welcome me. I am trying to get my first home and just got my first good faith estimate from a lender. I was wondering if this was a good deal or I should keep shopping around and was hoping you guys would advise. First of all, my scores with all 3 CRA's average 630. My debt to income ratio is only 14%. The lender is suggesting an 80/20 program, as I have little money to put down and can only afford closing costs and a little reserve money. These are the main numbers: Sales Price = $145,000 Base Loan * Amount = $116,000 * Interest Rate = 6.95% * Term = 30 years * Monthly Principal & Interest = $768 Second Loan (downpayment) * Amount = $29,000 * Interest Rate = ? * Term = 30 years (I think) * Monthly Principal & Interest = $290 Closing Costs = $4900 Good thing is I have no PMI! They also do not require me to escrow my taxes. They also told me the first mortgage is some type of ARM that will go variable after 2 years. This scares me, as interest rates should be higher in 2 years and refinancing might not be the best choice, especially when I'd have to pay closing costs again. Someone suggested that I tried FHA, even though I have to pay a relatively high PMI. They told me I could pay it for a year or two and then get a home equity loan to complete the 20% downpayment and stop paying it. What do you guys think? Is the deal they are giving me a good one based on my credit score? Will FHA give me a good faith estimate? Should I shop around, maybe starting with the lowest rate banks currently on BankRate.com? Is the sky blue? Again, I'm a total newbie at this, so please excuse the questions that make no sense. Thanking you all in advance!
Couple of points. (1) FHA requires you pay PMI through the life of the loan. You cannot get rid of it. You can later refinance to a conventional loan, but you are stuck with PMI as long as you carry the FHA loan. The upside is that they require only 3% downpayment. (2) Choosing an ARM is not really a bad deal, unless you plan to stay in the same neighborhood and the same house for a long long time. That's not normally true anymore; a 7/1 ARM should suit a majority of people with its low monthly payment (which is calculated based on a 30 year amortization schedule), and a fixed rate for a relatively long period. (3) Be VERY careful about carrying a 80/20 loan. The second loan, in most instances, is a Home Equity Line of Credit ... which is the equivalent of a giant credit card. You are starting out by maxing out this giant credit card, so your debt-to-credit-limit ratios are going to tank as soon as this HELOC hits your reports. You are never going to be able to refinance until you pay it off completely .... you might get jacked on your other credit card interest rates who get alarmed to see a sudden drop in your FICO scores. In no time you will be wishing that you had accepted PMI instead .... (4) Your closing costs seem to be a tad on the higher side, especially with reference to the mortgage amount. About $3000 is what I'd expect to be the norm ... you are paying almost 60% higher. Are you sure you are not paying points ? You are already being screwed on the interest rate due to lower FICO score, why get screwed on closing costs too ?
Thanks a lot! Very informative post. Are you suggesting I go with an FHA loan in my circumstances? I really can't pay more than $7000 between downpayment and closing costs. God, I would hate paying that relatively high non-tax-deductible PMI for the life of the loan! Say I go with the 80-20. How long do you think it would take me to bring my scores down to a point where I could refinance? By the way, based on your question and re-reading my estimate, I just realized they are indeed charging me discount points, specifically 1.5 points, as it says $1740, which is 1.5% of the loan amount. Should I pay this upfront if I can in order to reduce my rate? I am not planning to stay in that property for more than 2-3 years. Thank you again.
Re: Re: Please advise a first time buyer A few comments based on my experience... The benefit of an ARM is the low interest rate you get for the duration of the ARM. A rate of 6.95% on a 2 year ARM WITH 1.5 points seems outrageous given the scores you have. You can get an 80/20 loan with the second being a home equity LOAN (not a HELOC). This shows on your CRs as a 2nd mortgage and does not damage your scores. I would recommend you call around and do some comparison shopping! Jennifer
Re: Re: Please advise a first time buyer All I am saying about FHA loan is that it's not that bad an option as you think it is. FHA rates are usually lower, so what you lose by paying PMI, you gain by getting a lower interest rate than conventional. This is true especially for subprime loans. By the way, your score you said is 630; do you have money to pay down your existing balances? Go to bankrate.com, and use their FICO simulator to get a rough estimate of how much your FICO raises, if you pay down your balances .... Current prime rate for a 3/1 ARM is 4.25% from my credit union; you are paying almost one and half times that! Borrow from a source that does not show up on your reports -- 401(k)? Your friends? ... as long as you pay down balances and get your scores over the hump (say, over 650), you can qualify for prime rate loan. Paying 1.5 points when you are planning to stay only for 3 years in the house? That's insane. Insist on paying zero points, and cut down your closing costs from 4900 to 3200 -- that's more reasonable. About your question with going with 80-20 ... how long do you think it'd take you to repay $29,000 ? Think 30 years if you don't make any additional payments. If you are in a position to make additional payments besides the regular mortgage payment, why aren't you going with PMI for now and cancel later ??
Re: Re: Please advise a first time buyer Maybe I should reconsider FHA. You're right about the paying more for PMI and less for morgage. Thing is the PMI is not tax-deductible. In my case, though, it comes down to paying less every month, not getting more at the end of the year. Again, this does seem like a very good option. How would I go about getting an FHA loan, then? What lowers my score is 3 collection accounts that add up to well under $1000. Stupid, isn't it? More like careless. I was considering paying these and re-starting this process in about 1.5 months. In other words, I won't need to borrow money to pay these, or maybe some from the 401(k). See? I kinda knew that paying points wasn't good when you weren't staying for long. I knew I had read that somewhere. *LOL* You're really scaring me about the 80-20. Honestly, all I had read online about it was good. BankRate says the only downside is that if the property devaluates, you get screwed. None of the sites where I read about the 80-20 mentioned the problem with the open credit/scores. Once again, thank you for your advise. It's the first I receive other than from my realtor, and I'm not too sure whether to trust it or trash it. *LOL*
Re: Re: Re: Please advise a first time buyer Razor, I am *NOT* in the mortgage business. Nor am I a realtor. I do not know you. Whether you accept my advice or not makes no difference to me. For what it's worth, I am a software professional. Whatever advice I give you, is from my own house buying experience. Your lender, on the other hand, gets paid on a commission basis. The more loans he closes, the more commission he gets. So does your realtor. The sooner you decide on buying a house, the sooner (s)he gets commissions. That said, I'll leave it to your decision whether to trust or trash my advice. Go to: http://www.fhalibrary.com/ for more information. They should be able to suggest an FHA lender in your neighborhood. Also, I think I am mistaken about PMI; if you are choosing a loan term of less than 15 years, once yor loan/purchase price ratio reaches 89%, your PMI gets automatically cancelled. ARMs, however, are considered the same as 30 year loans .... and you need to get loan/purchase price ratio to 78% for such loans. They are NOT forever. Seems this has changed in 2001, and I was providing REALLY outdated information. My apologies for that.
Misunderstanding Heh! When I said trust or trash his advise, I was referring to my realtor. Sorry about the misunderstanding. Thanks!!!!!!!!!
Re: Re: Re: Please advise a first time buyer Jennifer, Thank you. That really puts me back in 80-20 realm. I really didn't want to max out my credit and not be able to refinance ever. I guess I should contact my lender and see what they're offering. By the way, whatever that second loan is (the 20%), the rate is 11.6% @ 30 years. OUCH!
Re: Re: Re: Re: Please advise a first time buyer When my 2nd mortgage hit my credit, my FICO jumped up 24 points! I guess the algorithm liked the real estate accounts... 11.6% seems a bit high - have you talked to any other lenders? Jennifer
Sorry... mistake Good to hear! Sorry, I was calculating the piggyback loan @ 30 years when I really think it's @ 15, which would mean I got a 8.7% rate (while the first mortgage is 6.95%). Do you think those are good rates for a 630 score? No, this is the first time I get a mortgage and the first lender I talked to, recommended by my realtor. I know I should shop around, but I was afraid that would lower my credit score. Fortunately, I read that while I do it within a 30-day period, all inquiries count as one when affecting the score.
Re: Sorry... mistake I am not a mortgage expert so it is hard for me to say where you should be given the derogs on your CR. I can tell you what I ended up with though... I locked in mid-September and got a 80/10/10 with a 7/1 ARM at 4.75% and the 2nd mortgage was a home equity loan at 6.1% over 20 years. When they initially pulled our credit the scores ranged from 620-680 for DH and myself. After the LO helped get the derogs removed (via a rapid rescore - I had all the proof to remove 4 of the 5) the new scores were 691-760. I know the 2nd mortgage rate was based on the new scores - but we locked for the first before the scores had been updated. I can also tell you that all inquiries within 30 days for a mortgage are supposed to count as only one inquiry - however, I have had to place numerous phone calls to the CRAs to get them to make this happen... (Each pull was being counted as one.) You should also post your question on the mortgage forum at creditboards: (http://www.creditboards.com/phpBB2/viewforum.php?f=9) The mortgage guys over there are great and quick to respond with help! Jennifer
Re: Re: Re: Re: Re: Please advise a first time buyer I just refi'ed and when my old mortgage changed from open to close I lost 11 points. I do think fico likes mortgages. It shows stability. I wonder if landlords that own a lot of mortgaged rental property have really high scores?
