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Level 3 Approval ??? What's that?


Erika
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We went to see our mortgage broker. The good news is that they pulled our credit for the second time on Friday and we've brought our scores up considerably since the first pull in August. The even better news was that I pulled our MyFico's that same day and the scores they pulled up are up to 40 pointes higher for my husband. The not so good news is that they were about 20 points lower for me.

So, the final pull before closing came in at

Husband: 614

Me: 553

I am the primary wage earner. I make $65K /year, husband earns $48K/year.

We have 5% down, but our broker was going to look into 80/20 programs for us just to check. I've read enough to know it won't be possible, so it's a moot point.

My question is this: She mentioned that in August we had a "Level 3" approval and now that we've raised our scores, she think she can get us up another level. I've never heard this terminology before. What is she talking about?

And... with those middles does anyone know what we're looking at, round-about, for an interest rate on a 95% LTV mortgage?

Thanks!

Erika

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The expanded level initiative makes it possible for borrowers with past credit issues to get a conventional loan although with rates ranging up to around 1.5% over what you would get without a level. EA3 is the highest risk grade that is eligible for FNMA delivery. It is a wonderful program if you do not have to pay mortgage insurance.

With a low credit score and a high LTV your biggest concern is not usually the rate, but what the mortgage insurance will cost. A- MI rates are usually based on credit score even if you get a reduced level. It can be astronomical on expanded programs. If you can qualify for FHA that is often the way to go, or failing that you can usually find a cost effective alternative in the subprime world utilizing no-mi rates.

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Thank you for the helpful response, Choiceworthy.

Unfortunately, our house is about $100K more than the max allowed for FHA financing. I hope they can get us a good rate. I've budgeted the payment into our monthly figures using the average mortgage rate that MyFico gives us for our scores - 8.34%.

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100k over FHA limits in most of NM would put you in the neighborhood of 270k. With that size loan with an EA3 approval you should be able to get a 30yr rate closer to 7%. The mortgage insurance (per MGIC quote) would be 2.9% with a credit score of 553. If you could get the determining credit score up to 575 it would reduce the MI to around 1.8%.

Please understand the numbers are making a lot of assumptions and are very much guesswork. Going by them, though, you would need to figure a combined rate (rate plus MI) to be pushing 10% for budgeting purposes.

You can often beat the cost by purchasing with a 2/28 or 3/27 subprime ARM that builds the MI into the rate which is often much lower. During the fixed period the intention is to rebuild your credit then refinance when you can get more favorable terms. There is many other things to consider and it is not for everyone but it is food for thought.

Alternatively, you could consider purchasing in Santa Fe county. They have much higher FHA limits :)

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Wow - you're good :) purchase price on our house is $269,500

We're putting 5% down.

So, if I understand you correctly, if I use this calculator to figure out our monthly payment: http://www.mortgage-calc.com/mortgage/howmuchafford.html , I should input 10%?

Ouch.

Doable, but ouch.

:cool:

We'll definitely be refinancing as fast as we can get our scores up for a better deal.

Erika

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It is all just rough guestimates. You actually cannot add the MI and rate together like that for an accurate number. When I split the numbers and input them properly the final sum is actually about eighty bucks higher corresponding closer to 10.5% overall.

The point is the mortgage insurance is a determining factor in some situations and that is not usually negotiable. Hopefully your lender has a better rates available than MGIC for your situation and hopefully the 7% guess on the rate was on the high side so you can get into the sixes, especially if you are being charged loan origination fees or other points.

That calculator is pretty quick and handy but they should have a field for inputting the hazard insurance. Do not forget to add that to the yearly tax estimate field for budgeting.

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