Which mortgage option to choose?

[Whalesharks]

So here's the deal:

We have asked the Seller to pay Closing (including Escrow & everything...).

House was for sale at $139,900. We had to offer $144,900 to include everything.

Deal was made. We also have no reserves and not great credit, so we have been

working w/ a Broker to get a mortgage that we qualify for. We are also getting 100% financing.

My current Credit scores: 673, 673, 671.

My Significant others': 636, 627, 589

We are due to close next week.

So finally here are the mortgage options my Broker said are offered:

He says: "Rates on a straight 100 have gone up significantly over the past 3 weeks, and you are looking at 8.55% interest rate, w/ a monthly payment of $1523. This also accounts for the fact we have no reserves, etc.

Other options he gives:

- An 80/20 with the 80 part being a 30-yr. fixed at 7% and the 20 part being a 15 yr. w/ Balloon at 9.875%. This monthly payment will be $1426. He is pushing this one and says to me, "You will not stay in that house 15 yrs...blah blah blah....

- Or, The 80/20 same as above but w/ NO Balloon, and the payment goes up to $1458 a month.

All these loans he says have a 5 year pre-payment penalty. They supposedly do not have PMI.

What to do? I feel frustrated. We are supposed to close next Tuesday, and I need to give him an answer on which option I choose by tomorrow morning.

I really want the safest option for me of course, the fixed rate loan. But I also don't want to pay more than $1500/month, and the Broker noted that, saying it would be "ridiculous to pay $1523 for this loan"....however, I feel it's ridiculous to go w/ the more risky loans....and I'm NOT looking to move in 5 or 7 or even 10 yrs, unless my life changes drastically....

I have lived in apartments for 15 yrs. and need space for my family....so I feel a Fixed rate loan would be best...but 8.55% seems high for us as well...although I know they are putting us in the high risk factor and also probably adding points for the realtor and broker fees, I guess. I don't know.

Does someone have any advice or enlightenment here? I'm really at a loss of what to do.

Thanks....

[firstsource]

My suggestion would be to go the 80/20 with no balloon payment.

I think that this lender has what is called a "soft Prepay", which means that you can not refinance within the first 5 years with out a hefty penalty. If you sell after the first year, there is no penalty.

Charles

[Whalesharks]

You don't think the 8.55% interest rate for the fixed, and the 7% and 9.875% rates for the 80/20 are a bit steep, esp. for my scores?

Or would that seem reasonable since I am not paying any down (except the $500 Earnest $ I paid and $50 option fee), nor any closing, nor any escrow, and don't have any reserves, etc?...

But I already agreed to pay $5000 more than the asking price on the house so that the Seller could pay all closing and set up Escrow.

Shouldn't there be a way to work at least between a 7-8% interest rate? Most people think that 6.7% right now is high. I feel like an idiot to have to go between 7 - 10%.

Am I wrong here?

[mike111]

The 80/20 is better than paying PMI, even though second loan has higher interest, but monthly payment is lower.

8%+ seem high for your credit score? I bought a new home last month (which is still being built), and was told I qualify for the best interest rate, quoted 5.375 or something like that. My middle score is about 670. I asked for a 5/1 arm loan.

Some one suggested if one's credit is not the best, an ARM loan maybe better as the interest is lower, you can refinance when your credit improves down the road.

You don't think the 8.55% interest rate for the fixed, and the 7% and 9.875% rates for the 80/20 are a bit steep, esp. for my scores?

Or would that seem reasonable since I am not paying any down (except the $500 Earnest $ I paid and $50 option fee), nor any closing, nor any escrow, and don't have any reserves, etc?...

But I already agreed to pay $5000 more than the asking price on the house so that the Seller could pay all closing and set up Escrow.

Shouldn't there be a way to work at least between a 7-8% interest rate? Most people think that 6.7% right now is high. I feel like an idiot to have to go between 7 - 10%.

Am I wrong here?

[AaronE]

MI (or as it is often known PMI) is not tax deductable. So from a tax standpoint the 2nd mortgage makes more sense.

Personally, I know people tend to refinance every 5-7 years reguardless if they stay in the home. That is because our situations change during the life of the loan. Frankly it is my feeling that the conventional 30 year fixed mortgage has become obsolite (with some of the newer options like the 30 year fixed which is I/O for the first 10).

I would go with the 80/20 with the 30/15 CE 2nd. If you wanted to pay extra on the 2nd you could (read the prepayment terms). They are cheap to redo a 2nd and who knows you may want to pull out equity later for projects and improvements.

I do dislike prepayment penalties BTW, but seems like you do not have an option there.

ALSO: ARMs have become less of a deal, not counting the buy downs, with the recent flattening of the yield curve. You better check into the rate on that 5/1 unless you locked.

[mike111]

Since I won't be closing on the house until at least march next year, I assume I can't lock the interest rate yet? how far out can one start locking on the rate? Since I had to go with builder's lender ($7000 incensive), I guess I don't really have much of a choice here.

why is ARM less of a deal now? In any case I thought the interest rate she was quoted seem quite high.

[AaronE]

first off do you really think they are just giving you $7k off? It's got to be comming from somewhere.

ARMs are getting to be less of a good deal because of the yield curve (the difference between long term and short term rates). For instance your ARM might go off of something like the LIBOR or CMT 30 year rates go off of the 10 year bond. Short term rates have been ticking up while long term rates have remained fairly stable. In some instances the 7/1 ARM was only an 1/8th better than the 30 year. The only exception to this, like I said before, are the buydowns. Buydowns on ARMs are better then on a 30 year of course.

As far as locking, ask them. Some places on a construction will let you do a year lock with a float down (it will cost you) but it's something to ask about at least.

[firstsource]

Basically there is no such thing as free lunch. What I mean by that is that ALL loans are structured to be 80% or less LTV, and when they are more than that, there is mortgage insurance to be paid. Many lenders offer a "no PMI" loan, but actually, it is because the lender has paid for it, and is just increasing the interest rate to take care of the extra cost. That is why your rate is so high for a single 100% loan.

So, most of the time it is more logical to go with a combo loan. Again, because the total LTV (CLTV or Combined Loan To Value) is 100%, it is a more risky loan to the lender. They know that the chances of a borrower "walking away" from a loan are greater if the borrower has nothing invested.

To figure the "real" rate, multiply the 1st by 4 and add the 2nd rate and divide by 5, so the figures are "weighted" properly. This gives you the blended/real rate, and in this case it is 7.58.

In most cases, I don't judge other Loan Officers rates, and don't quote them here, because there is much more to a loan approval than just scores. Assets, length of job history, rent history & etc, all factor in.

Charles

[ozzy866]

Thank you Charles.

If this is the correct formula my rate is really something like 7.75 if we deside to go with the 3 year prepay..Is this correct??

If we go with one year prepay will it be 8.25???

My offer from my mortgage guy is below

Home sale price $163,000

30 year 80% first mortgage $130,400 and an interest rate of 6.75 with a 3 year prepay penalty payment is $845/Month

or

Payment at 7.375 with a 12 month prepay penalty = $900/Month

Second mortgage 20% would be 11.75 % for 20 years and payment would be $353/Month

Total payment for 3yr prepay=$1,198/Month

Total payment for 1yr prepay=$1,253/Month

As I stated in another post we plan on refinancing to an FHA loan later.

Which way would you choose...the 3 year prepay or one year prepay and are my figures correct on the blended interest rates according to the info I have supplied?

[amortgageman]

I read your other post, and have to break the news that as long as the bankruptcy shows, you will never be able to qualify for an FHA loan with post BK deragatory.

Terms sound pretty decent for your credit scores.

The big question remaining is whether or not the second mortgage has a prepayment penalty. If it does then you may want to reconsider the one year prepayment, and match the two prepayment penalties together, because there is no use in buying a one year prepayment penalty, if the secind mortgage has a two or three year penalty.

Real estate has not appreciated in Indiana like the rest of the country, so don't go expecting alot of equity gain to bail out.

Also, you need to consider how much longer you wil be in CCCS, and add two years recovery to thst picture to get to the really good rates.

[ozzy866]

Thank you

I will find out about the second mortgage and prepay penalty if there is one.

Thanks again....OZ

[THE_PROSELITIGANT]

go with first franklin financial they are in ca they also service all united states their rates are as low as 6.35 on 80/20 and no prepay penalty in writing plus they fiance 103% guaranteed also you may tell this to your broker he will"""" indeed """" change his rates to very low !!! guaranteed .

the smae happened to my friend in florida who wanted to buy , I told him call FFF in ca, as soon as we get the rates low from FFF , we advised his broker that we found better deal in California throuh First Franklin Finance , he went berserk:) hehehe lol

he drop his rates like dropping dead:)

he said in same minute that he will match the same amount and no prepay penalty.

do not make mistake buying a house is long committment just like marriage ,know the details ins and outs.

take my advice i own tHREE houses.11111 LISTEN TO MY ADVICE

[Anonymous]

Real estate has not appreciated in Indiana like the rest of the country, so don't go expecting alot of equity gain to bail out.

THANK $DEITY !!!! Our property taxes here are bad enough.

I don't think I could handle real estate like out in Maryland where homes that were just high 2's (250-275K) in 2002 are now approaching 499K. Going up faster than unleaded fuel I tell you ...

and don't get me started on interest only mortgages.

[Hammer]

Grim,

What about interest only mortgages ???

[amortgageman]

HERE ITS ALL YOU HAVE TO IS CLICK ON

AND SET UP 24 HOURS SERVICE.FIRST FRANKLINE FINANCIAL WEBSITE Write it out..

Fist Franklin will automaically turn down a mortgage with post BK delinquincy, but ootherwise they are pretty decent.

[amortgageman]

What about interest only mortgages ???

There's good and there are bad. Just make sure you get the right one for the right reason.

[Anonymous]

I personally think interest only is up there on the evil scale. Not quite up there with payday lenders or title loans - but you get my point.

If you're in an area that is part of the "ballooning RE market" then you might come out OK on an interest only. But you're buying the equivalent of a Powerball ticket when you do so.

[firstsource]

One thing about First Franklin that I noticed is that their appraisal reviews are very tough. Or they are red-lining. The situation was that the appraisal was 123K and they gave it a max of 95K. The next lender's review gave the 123K value. Several others that I know had the same experience.

Charles

[firstsource]

There are so many 40 year fixed loans available now, that instead of doing the I/O loan, go with one of them.

Charles