Question about Mortgage Offers

[tazunemono]

FIrst off, many thanks to everyone on this board for helping me get to the point I'm at now, deciding on multiple loan offers (this time last year I had a 580 Equifax score). That being said, I am in need of help again. I am weighing the following loans for a $137,950 house:

First Omni Mortgage

30 year 80/20 loan, $878.53/mo @5.8% and 7.769%, with $2,174 closing costs

First Liberty FInancial

30 year fixed $827.08/mo @ 6.066% with $970 closing costs

Advisors Mortgage

30 year fixed $838.20/mo 6.125% with $752 closing costs

Republic Bank

30 year fixed $920.40/mo 6.500% with $299 closing costs

I didn't include all the ARM offers....This post has interesting and compelling reasons to avoid an ARM loan:

http://www.debt-consolidation-credit-repair-service.com/forums/showthread.php?t=265607

My wife and I have $2500 in cash saved, with $500 to use as a good faith deposit with our contract. We would like a $0 down loan as this is our first house. Can anyone give me the pros/cons of these loan choices? We definently don't want an ARM loan. All of our friends with ARM's are dealing with scrambling to sell/refinance their houses.

Question: What would be a fair offer? I know for a fact that the couple selling this house are doing so because they have a 3 year ARM loan, I checked public records for their mortage papers. Their rate is scheduled to up to 9% in July. They purchased the house in 2004 for $122,000. Assuming a $5000 fudge factor, they are asking for $10,950+fudge factor over what they paid, which seems reasonable based on the house condition and appreciation.

This house has been on the market one (1) day, and we love it. Should I ask them to pay 1 point towards closing if we pay full price? Should I offer $132,750 and pay closing out of my pocket? The last house I put a contract on sold to a higher bidder (this market is crazy! I bid $139 for a $135K house and was rejected!) This freaks me out because I'm afraid it will scare them off and make them wait for another offer. I'm so green, please advise! We'd like to close in 30-45 days......................

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Equifax 670

Other scores - probably lower, I need to check!

[jq26]

First Omni Mortgage

30 year 80/20 loan, $878.53/mo @5.8% and 7.769%, with $2,174 closing costs

First Liberty FInancial

30 year fixed $827.08/mo @ 6.066% with $970 closing costs

Advisors Mortgage

30 year fixed $838.20/mo 6.125% with $752 closing costs

Republic Bank

30 year fixed $920.40/mo 6.500% with $299 closing costs

Question: I know for a fact that the couple selling this house are doing so because they have a 3 year ARM loan, I checked public records for their mortage papers. Their rate is scheduled to up to 9% in July. They purchased the house in 2004 for $122,000. Assuming a $5000 fudge factor, they are asking for $10,950+fudge factor over what they paid, which seems reasonable based on the house condition and appreciation.

This house has been on the market one (1) day, and we love it. The last house I put a contract on sold to a higher bidder (this market is crazy! I bid $139 for a $135K house and was rejected!) This freaks me out because I'm afraid it will scare them off and make them wait for another offer. I'm so green, please advise! We'd like to close in 30-45 days......................

Q: Can anyone give me the pros/cons of these loan choices?

A: First off, the 80/20 blended rate is 6.19%. No PMI is required for this type of loan. If there are no additional costs for the First Liberty or Advisors 30 year fixed 100% financed loans, then clearly they are better (better rate than 6.19 with much less at closing). However, have you factored in mortgage insurance costs? Without putting cash down the lender won't likely lend to you unless their interest in the property is insured in case of default.

Assuming, for some reason, NO PMI is required for the First Liberty or Advisors loan, then the best deal is between those two loans. First Liberty will be the cheapest in the long run if you are staying in the home for more than 24 months ((970-752)/9 = 24). Advisors if you are staying short-term.

If however, you are required to pay monthly mortgage insurance on these two loans, then you need to add that monthly amount to the payment before comparing costs against the First Omni 80/20 (which does not require PMI).

Q: What would be a fair offer? Should I ask them to pay 1 point towards closing if we pay full price? Should I offer $132,750 and pay closing out of my pocket?

A: There is no 'fair' offer. Price is set by markets. It totally depends on if it is a buyer's market or seller's market in your area. If it is really strong seller's market, then avoid a bidding war and put in an offer close to ask if you think it is worth the ask or if you really want it. If it is a strong buyer's market then go as low as you can. What is fair is what the seller is willing to bare. If they are over a barrel and cannot sell, put in a ridiculously low offer and feel them out. They will likely counteroffer and you can negotiate from there. What they paid for property before is irrelevant. Housing markets can go down in value too and if that's the case, then it is possible the 'fairest' price is a loss.

Quite honestly, it looks like you need seller's assist for some of closing (real estate transfer taxes, escrow of property tax and insurance, mortgage fees, appraisal, termite inspection, etc.) From the numbers you have listed above, it doesn't seem you are including any of these other closing costs that are above and beyond the bank fees. So it may be best to negotiate closing costs to be paid by the seller in if you are trying to keep costs down.

Good luck with your bids!

[tazunemono]

SO mortgage insurance would be needed on the 80/20 loan also? This is different from PMI? I know the 30 yr loans would require PMI until I have 20% equity in the house, but I thought the 80/20 loan wouldn't require PMI??? I suppose the closing costs on this type of mortgage are higher because there are 2 loans to close....

True, I didn't include other taxes and fees because they haven't been given to me yet. We did get these numbers for the Republic Bank (FHA) loan, and they totalled to around $4150 needed at closing to cover EVERYTHING. I am inquiring with the other lenders to see what then need.

Would it be fair to ask for $3000 or more towards closing? Seems like this would make our offer unattractive, especially compared to someone who pays their own costs. I have had several loan officers tell me to have the sellers pay the closing in full, however. I just don't know how to tell my agent to word the offer so it seems more attractive .....as I said, this is our first mortgage.

[jq26]

SO mortgage insurance would be needed on the 80/20 loan also? This is different from PMI? I know the 30 yr loans would require PMI until I have 20% equity in the house, but I thought the 80/20 loan wouldn't require PMI??? I suppose the closing costs on this type of mortgage are higher because there are 2 loans to close....

True, I didn't include other taxes and fees because they haven't been given to me yet. We did get these numbers for the Republic Bank (FHA) loan, and they totalled to around $4150 needed at closing to cover EVERYTHING. I am inquiring with the other lenders to see what then need.

Would it be fair to ask for $3000 or more towards closing? Seems like this would make our offer unattractive, especially compared to someone who pays their own costs. I have had several loan officers tell me to have the sellers pay the closing in full, however. I just don't know how to tell my agent to word the offer so it seems more attractive .....as I said, this is our first mortgage.

No PMI on the 80/20 loan. But did you factor in the PMI into the monthly payment for the three 100% financed single loans? If so, then go strictly by the numbers like I did above.

You have a buying agent that SHOULD have a good feel as to how strong the market is in your area and if the home will sell immediately or not. They are there to know how to present the offer so that they will be accepted by the seller. He/she is getting paid rather well, so let them earn their compensation.

From the looks of the total cash you have available at the moment, it seems you may have to have some seller assist involved to cover closing costs. In a strong seller's market, your best option may be to bid full price with a sizable seller's assist to cover closing. I tend to be more aggressive, so I personally would bid low and let them counter. But if you want the house, this could lead to other bids coming in higher and you losing out. Your broker should be hard at work figuring this all out as we speak.

Good luck-

[tazunemono]

We bid full price and asked the sellers to contribute $3500 to closing. We gave them until 12pm tomorrow (Thurs.) so I'll let you know what happened....

[jq26]

We bid full price and asked the sellers to contribute $3500 to closing. We gave them until 12pm tomorrow (Thurs.) so I'll let you know what happened....

The clock on my wall says 3:15pm, so no matter what timezone you are in the deadline has now passed. Are you now a soon-to-be homeowner????

[tazunemono]

Ah, yes...well they countered our offer with $2000 in closing costs paid and they keep the appliances. We walked, because we think we can do better. I was happy that they agreed in part to our closing costs, everyone is telling me to ask for more. No worries, we are looking at 4 houses this weekend. Still juggling financing offers. I didn't really want to split hairs over $1500, but with the lack of appliances and such the offer wasn't as sweet, plus we have a 2nd child due in July. I don't want to blow cash on the appliances or put them on a high interest credit card right now. Once a contract goes though I'll post more info. Thanks everyone for the help!

[mattandallismom]

True, I didn't include other taxes and fees because they haven't been given to me yet. We did get these numbers for the Republic Bank (FHA) loan, and they totalled to around $4150 needed at closing to cover EVERYTHING. I am inquiring with the other lenders to see what then need.

Would it be fair to ask for $3000 or more towards closing? Seems like this would make our offer unattractive, especially compared to someone who pays their own costs. I have had several loan officers tell me to have the sellers pay the closing in full, however. I just don't know how to tell my agent to word the offer so it seems more attractive .....as I said, this is our first mortgage.

Why are your closing costs so high through Republic? Be sure to check the origination fee on the good faith. That is the lenders fee above what they are receiving for the rate they give you. Trust me I learned this the hard way. I would ask the seller to pay closing costs. The worse they can say is no. It's usually something you can get them to pay especially with the market the way it is now, too much competition.

[woody]

i would say you want a loan with MI, as of january first it is tax deductable so there is no added benifit of two loans. also once you LTV is less than 80% you can have a drive by appraisal done and the PMI will be dropped off.

i saw you wrote some thing about an FHA loan this is great however many time they do not explain everything to you. the 2 down falls of FHA are you pay 1.5 up front mortgage insurance premuim this goes directly to FHA also you will have .5 MI(times .005 by your loan amount divide by 12 and thats the monthly) this can't be dropped off for 5 years no matter what your LTV. the up side is the .5 Mi is about half of a conventional loan also you rate will be lower with FHA because they make more in the back.

It seems from what i gathering you would have no problem obtaining a 100% loan (i am assuminging this it full doc)