Forum Thread

Questions about FHA loan, will greatly appreciate feedback.

duguefl 1,956 941 October 4, 2015 at 10:31 PM
Deal
Score
0
3,893 Views

Thread Details

We're finally thinking about getting a house. Next year in summer. Looking at the loan types we would probably go for the FHA loan with its low down payment and our fair credit. We haven't talked to many lenders yet but from what I researched so far it looks like the minimum credit score should be 580 to qualify for 3.5% down, is that correct? or does it have to be a lot higher in reality? Ours is around 600. Will anyone give us a loan with that score? Also on a $200,000 house we would need about $7,000 of down payment right? How much would the closing costs be? Sorry for the newbie questions, we will be first-time home owners. Can they be added to the cost of the mortgage or do they have to be paid upfront? I assume our interest rate will be high but in after a while once our credit is straightened up we should be able to refinance is that correct? Also how much income they're looking at for a $200,000 mortgage? We have some debt. Maybe $10,000 in credit card and about $5000 on our car. Thanks a lot.

19 Comments

1 2

Sign up for a Slickdeals account to remove this ad.

Joined Feb 2004
L10: Grand Master
6,953 Posts
944 Reputation
#2
Quote from duguefl View Post :
We're finally thinking about getting a house. Next year in summer. Looking at the loan types we would probably go for the FHA loan with its low down payment and our fair credit. We haven't talked to many lenders yet but from what I researched so far it looks like the minimum credit score should be 580 to qualify for 3.5% down, is that correct? or does it have to be a lot higher in reality? Ours is around 600. Will anyone give us a loan with that score? Also on a $200,000 house we would need about $7,000 of down payment right? How much would the closing costs be? Sorry for the newbie questions, we will be first-time home owners. Can they be added to the cost of the mortgage or do they have to be paid upfront? I assume our interest rate will be high but in after a while once our credit is straightened up we should be able to refinance is that correct? Also how much income they're looking at for a $200,000 mortgage? We have some debt. Maybe $10,000 in credit card and about $5000 on our car. Thanks a lot.
3.5% of $200k is $7k, yes. You'll probably be able to get a loan, but your rate will be high. Spend the next ~9 months focused on paying off your debt and improving your credit score, and you'll be in a much better position as far as rates are concerned.

Closing costs vary by location, but I'd ballpark about $10k on a $200k house. You'll need property taxes, home insurance, doc fees, points (if any), appraisal, loan origination, and more. In some places, the sellers will pay some of them (if asked), while in other places that's unheard of. Some lenders will roll your closing costs in to the loan, while others won't.

As far as income, lenders look to keep your monthly mortgage payment under 45% of your income, although in actuality it should be no more than 25-30%. On a $200k house, your payment could be ~$1800 (given your credit score and PMI, but will also depend on taxes, etc). This means your lender will want to see at least $4k in income each month ($48k per year), but you really should have closer to $7k per month (~$85k per year) so you don't wind up house poor.
Reply Helpful Comment? 0 0
Marshall: Have the rest of you guys figured out by now that mmathis is the smartest guy on SlickDeals?
Joined May 2013
L6: Expert
1,956 Posts
941 Reputation
Original Poster
#3
Quote from mmathis View Post :
3.5% of $200k is $7k, yes. You'll probably be able to get a loan, but your rate will be high. Spend the next ~9 months focused on paying off your debt and improving your credit score, and you'll be in a much better position as far as rates are concerned.

Closing costs vary by location, but I'd ballpark about $10k on a $200k house. You'll need property taxes, home insurance, doc fees, points (if any), appraisal, loan origination, and more. In some places, the sellers will pay some of them (if asked), while in other places that's unheard of. Some lenders will roll your closing costs in to the loan, while others won't.

As far as income, lenders look to keep your monthly mortgage payment under 45% of your income, although in actuality it should be no more than 25-30%. On a $200k house, your payment could be ~$1800 (given your credit score and PMI, but will also depend on taxes, etc). This means your lender will want to see at least $4k in income each month ($48k per year), but you really should have closer to $7k per month (~$85k per year) so you don't wind up house poor.
thanks so much for a reply. we live in houston too, would you have any hints on that? i mean probably the further you go away from the 610 loop the lower the prices will get? or any outstanding realtors that maybe you know of? what about all the new developments that sound too good to be true? they probably have a catch don't they? so all those monthly mortgage estimates that you see on zillow are wrong? i assume they are too low because they don't include the taxes, insurance and etc.? a payment of $1800 is a bit much. I'm still in school and most of the people i know also rent like us, so i only know of a few people who have a house, their payments are around $1200 a month but it means they probably had a better credit score at the time of buying? or a less expensive house? that's what i tell my husband that I don't wanna get a house just for the sake of getting a house, i don't mind living in the apartments but if we gonna get a house i want a nice house in a safe neighborhood. but he is just tired of renting, he says that money spent on rent is basically money that we threw away, our current rent is about $1100 a month, so if the house payment was about the same or little more it would make sense of course to get a house instead of renting. thanks again for your advice.
Reply Helpful Comment? 0 0
#4
Quote from duguefl View Post :
thanks so much for a reply. we live in houston too, would you have any hints on that? i mean probably the further you go away from the 610 loop the lower the prices will get? or any outstanding realtors that maybe you know of? what about all the new developments that sound too good to be true? they probably have a catch don't they? so all those monthly mortgage estimates that you see on zillow are wrong? i assume they are too low because they don't include the taxes, insurance and etc.? a payment of $1800 is a bit much. I'm still in school and most of the people i know also rent like us, so i only know of a few people who have a house, their payments are around $1200 a month but it means they probably had a better credit score at the time of buying? or a less expensive house? that's what i tell my husband that I don't wanna get a house just for the sake of getting a house, i don't mind living in the apartments but if we gonna get a house i want a nice house in a safe neighborhood. but he is just tired of renting, he says that money spent on rent is basically money that we threw away, our current rent is about $1100 a month, so if the house payment was about the same or little more it would make sense of course to get a house instead of renting. thanks again for your advice.
You are definitely in the "get your credit score and savings up first before you buy" classification. You should not be purchasing a home in the next year.

Get a savings built up and get your credit score closer to 700.

Just because renting doesn't build you equity doesn't mean it is bad when you compare it to the horrible choice of buying a home too early because of emotion and a home you cannot afford.

I generally prescribe to the ratio of house to gross income. I believe that 2x your gross income is a house you can afford. 2.5x is doable but can stretch it. 3x just seems too much to me although a lot of people will say you can do it (but I often find they are house poor). So at $200,000 for a house your income should be $100,000. You should also have limited debt before home purchase so ABSOLUTELY no credit card debt and your car debt really should be gone or extremely limited (I say none but that is me).

Utilize credit karma to watch your credit scores and what areas you need to improve on. DO NOT CARRY DEBT ON CREDIT CARDS. That should be eliminated immediately as fast as you can. Don't even have a conversation about a home until your debt is gone. Then have a savings conversation, then have a home conversation. The end.
Reply Helpful Comment? 0 0
Joined May 2004
Are Ya Feelin Lucky PUnk?
4,948 Posts
729 Reputation
#5
zillow is wrong, also dont forget hoa dues if any as well as pmi.
Reply Helpful Comment? 0 0
You've got to ask yourself one question: Do I feel lucky? Well, do ya, punk?" "Dirty" Harry Callahan, Dirty Harry -- 1971
Joined Feb 2004
L10: Grand Master
6,953 Posts
944 Reputation
#6
Quote from duguefl View Post :
thanks so much for a reply. we live in houston too, would you have any hints on that? i mean probably the further you go away from the 610 loop the lower the prices will get? or any outstanding realtors that maybe you know of? what about all the new developments that sound too good to be true? they probably have a catch don't they? so all those monthly mortgage estimates that you see on zillow are wrong? i assume they are too low because they don't include the taxes, insurance and etc.? a payment of $1800 is a bit much. I'm still in school and most of the people i know also rent like us, so i only know of a few people who have a house, their payments are around $1200 a month but it means they probably had a better credit score at the time of buying? or a less expensive house? that's what i tell my husband that I don't wanna get a house just for the sake of getting a house, i don't mind living in the apartments but if we gonna get a house i want a nice house in a safe neighborhood.
In the Houston area, it's pretty typical for the seller to pay 3% of the buyer's closing costs, so that helps. And yeah, in general the further from 610 you get the lower the house price. Suburbs are almost always cheaper than downtown, in just about every city. What areas are you looking at?

Your mortgage payment is comprised of 4 (or 5) parts - principal, interest, taxes, and insurance (homeowners and PMI). The figures given on zillow indicate they do not include taxes and insurance, and are estimates only (of course) and typically assume 20% down (so no PMI) and good credit (so the best interest rate). For someone with a 600 credit score and only 3.5% down, those estimates will be quite low. And, keep in mind that while the principal and interest are fixed (assuming a fixed-rate mortgage), the taxes and insurance are not and will in general go up each year. Your $1800 payment now might be $2k in a couple years.

Find out what the property taxes are in the area you're looking (they'll range from ~1.5% up to ~4%), and ask friends what they pay for homeowners insurance. You can then plug those into an online mortgage calculator to figure out your monthly payment for various house prices, down payments, and interest rates.

If your friends are paying $1200 per month, they could have had better credit, put more money down, bought a cheaper house, bought in an area with low taxes, got great insurance rates, don't pay PMI, or a combination of the above.

Quote :
but he is just tired of renting, he says that money spent on rent is basically money that we threw away, our current rent is about $1100 a month, so if the house payment was about the same or little more it would make sense of course to get a house instead of renting. thanks again for your advice.
You may not build equity while renting, but you also don't spend money on paint, appliances, a new roof, lawn care, etc. Be prepared to spend / save more than just your monthly mortgage payment on a house, because you can't just call the landlord when something breaks. The break even point (financially) for renting vs buying is a mortgage payment that's less than your rent, because of those extra costs.
Reply Helpful Comment? 0 0
#7
Quote from mmathis View Post :

You may not build equity while renting, but you also don't spend money on paint, appliances, a new roof, lawn care, etc. Be prepared to spend / save more than just your monthly mortgage payment on a house, because you can't just call the landlord when something breaks. The break even point (financially) for renting vs buying is a mortgage payment that's less than your rent, because of those extra costs.

It should be noted though that landlords are going to pass the cost of maintenance and taxes over to their tenants in the form of rent\increased rent if need be. There is no free lunch. So yes, you do not pay for lawn care directly, you pay for it indirectly. No self respecting land lord is not going to pass costs onto the tenant. If their taxes increase, they will increase rents up to what the market will bear in the area for instance.

Calculating the break even point is actually more complicated as you have to factor in the tax deduction for property taxes and mortgage interest as well. That becomes a function of your income level, any other deductions you have and also on your time horizon in the home (i.e., how long you plan on staying). The deeper you get into a mortgage the less is the interest and the more the principal so your tax situation may change...same if you plan to pre-pay the mortgage directly to principal...add in that most people earn more as they get older and more experienced. In the end, consulting with a tax pro is advised if one is trying to determine which is better, rent vs own. Not advocating either as it becomes very much a function of one's own situation imo, but you have to compare the bottom line after the tax man gets his cut.
Reply Helpful Comment? 0 0
#8
Quote from YanksIn2009 View Post :
It should be noted though that landlords are going to pass the cost of maintenance and taxes over to their tenants in the form of rent\increased rent if need be. There is no free lunch. So yes, you do not pay for lawn care directly, you pay for it indirectly. No self respecting land lord is not going to pass costs onto the tenant. If their taxes increase, they will increase rents up to what the market will bear in the area for instance.

Calculating the break even point is actually more complicated as you have to factor in the tax deduction for property taxes and mortgage interest as well. That becomes a function of your income level, any other deductions you have and also on your time horizon in the home (i.e., how long you plan on staying). The deeper you get into a mortgage the less is the interest and the more the principal so your tax situation may change...same if you plan to pre-pay the mortgage directly to principal...add in that most people earn more as they get older and more experienced. In the end, consulting with a tax pro is advised if one is trying to determine which is better, rent vs own. Not advocating either as it becomes very much a function of one's own situation imo, but you have to compare the bottom line after the tax man gets his cut.
Speaking of that

Insurance just went to 12,800.00
it was 10,500.00 last year
it was 5,600 4 years ago
Reply Helpful Comment? 0 0
for those that hate spelling mistakes www.walmarts.comCool

bulb save money by checking your insurance every 2 years (and not every 20)

Sign up for a Slickdeals account to remove this ad.

Joined Feb 2004
L10: Grand Master
6,953 Posts
944 Reputation
#9
Quote from YanksIn2009 View Post :
It should be noted though that landlords are going to pass the cost of maintenance and taxes over to their tenants in the form of rent\increased rent if need be. There is no free lunch. So yes, you do not pay for lawn care directly, you pay for it indirectly. No self respecting land lord is not going to pass costs onto the tenant. If their taxes increase, they will increase rents up to what the market will bear in the area for instance.
Very true, but the OP already knows what she pays for rent. Her reasoning that 'if her mortgage payment is the same or a little higher, then it makes sense to buy', does not account for the extra costs over renting associated with owning a home - nor the tax deductions as you correctly pointed out.
Reply Helpful Comment? 0 0
#10
Hi all.

First of all, there are lenders who will go down to a 500 credit score on FHA loans.
Technically, HUD guidelines state credit criteria based on credit history and not on score.
Lenders impose scores to stay in line with their risk levels, however, recently lenders have become cautious to impose 'overlays' to guidelines which may be construed as redlining, which is a big no-no and lenders can be hit with significant fines.

Not that I am saying a person with a 500 credit score should jump up and go buy a house; but HUD's FHA guidelines provide plenty fo lenders to offer FHA loan products to borrowers with <600 credit scores.

Depending on what has caused the current low scores will dictate how hard it may be to notably raise a low score in short time. Everyone's scenario is unique and must be analyzed individually.

Yes, FHA requires a minimum of 3.50% down payment.
If you are eligible for a VA loan you can obtain 100% financing (with no annual MI paid monthly).
Conventional loans have a 97% loan product, however, if your scores are low the MI premium will be higher than FHA.

Something less spoken of but very worthwhile within the Conventional loan product arena is Fannie Mae's My Community loan product (or Freddie Mac's Home Possible). If your income falls within certain criteria and credit is 640+ the MI premiums may be significantly reduced (compared to regular conventional or FHA in some cases) for those putting down less than 20% and incurring MI.

Closing costs indeed vary greatly between States.
Purchases are structured quite often with seller's concessions to reduce the out of pocket expenses beyond the down payment. Remember, in addition to the down payment you not only have closing costs but will also need additional funds to establish tax and insurance escrows (these are called prepaid expenses).
In addition to seller's concessions a lender rate credit may also come in handy to reduce your out of pocket; but this should be analyzed to confirm whether it is worthwhile and make sense. In some case the lowest rate is not always the best rate when obtaining a significant lender credit; in other cases (especially when your scope is to keep the loan for 8+ years) it may not make as much sense. But again, in some cases it is a necessity to get the numbers working for you.

I am admittedly biased, but utilizing an experienced Mortgage Broker will prove worthwhile to those who fall into areas not as cut and dry and obvious (which is a significant percentage). The mortgage broker has a multitude of wholesale conduits, understands guidelines and options and will take the time to educate you to the point you feel comfortable moving forward with the best option.

No, I am not licensed in TX, and those who have known me here over the years know I am not into self promotion and here to help my fellow SD brothers and sisters when I can.

-Adam
Reply Helpful Comment? 1 0
-Adam
Old Hippy & Mortgage Pro
Joined May 2013
L6: Expert
1,956 Posts
941 Reputation
Original Poster
#11
Quote from mmathis View Post :
In the Houston area, it's pretty typical for the seller to pay 3% of the buyer's closing costs, so that helps. And yeah, in general the further from 610 you get the lower the house price. Suburbs are almost always cheaper than downtown, in just about every city. What areas are you looking at?

Your mortgage payment is comprised of 4 (or 5) parts - principal, interest, taxes, and insurance (homeowners and PMI). The figures given on zillow indicate they do not include taxes and insurance, and are estimates only (of course) and typically assume 20% down (so no PMI) and good credit (so the best interest rate). For someone with a 600 credit score and only 3.5% down, those estimates will be quite low. And, keep in mind that while the principal and interest are fixed (assuming a fixed-rate mortgage), the taxes and insurance are not and will in general go up each year. Your $1800 payment now might be $2k in a couple years.

Find out what the property taxes are in the area you're looking (they'll range from ~1.5% up to ~4%), and ask friends what they pay for homeowners insurance. You can then plug those into an online mortgage calculator to figure out your monthly payment for various house prices, down payments, and interest rates.

If your friends are paying $1200 per month, they could have had better credit, put more money down, bought a cheaper house, bought in an area with low taxes, got great insurance rates, don't pay PMI, or a combination of the above.



You may not build equity while renting, but you also don't spend money on paint, appliances, a new roof, lawn care, etc. Be prepared to spend / save more than just your monthly mortgage payment on a house, because you can't just call the landlord when something breaks. The break even point (financially) for renting vs buying is a mortgage payment that's less than your rent, because of those extra costs.
So I've been looking at houses in $150,000-$160,000 range now since $200,000 may not be smart or affordable. My husband likes Friendswood but I've been looking in Katy that's where I found a few nice looking houses around our new price range. My husband would have to transfer his job though if we move to Katy.
So the property taxes can be up to 4%? So they could be as high as 6K a year? That's a lot. I also researched that there is no first time homebuyer credit from IRS anymore. That would've helped a lot. Is there a chance they might bring it back?
If we go talk to somebody what's the best strategy? I mean what should we look for? Also since they will hard pull our credit should we go talk to a few people in the same day?
So it would make sense if we can get a house with the same or slightly less mortgage vs our rent?
Reply Helpful Comment? 0 0
Joined May 2013
L6: Expert
1,956 Posts
941 Reputation
Original Poster
#12
Thanks for your reply.
So you're saying it's better to get a conventional loan Fannie Mae' My Community loan than the FHA because of the lower MI? I will look into it. What's the main difference between them?
Why is the lowest rate not always the best rate?
Reply Helpful Comment? 0 0
#13
Quote from duguefl View Post :
Thanks for your reply.
So you're saying it's better to get a conventional loan Fannie Mae' My Community loan than the FHA because of the lower MI? I will look into it. What's the main difference between them?
Why is the lowest rate not always the best rate?
I can write a book to answer both of these questions but will try and summarize:

FANNIE MAE MY COMMUNITY: If you have credit scores 640+ and your income falls within the Median Income for your area you should compare FHA to the Fannie Mae My Community (or Freddie Mac's equivalent Home Possible).

a) FHA has a one time Up Front Mortgage Insurance Premium (UFMIP, 1.75% of the base loan amount) and Fannie and Freddie do not have any UFMIP.

b) while both have an Annual MI premium, paid monthly, you will find the Fannie MI premium to be less than the FHA.

c) For loans >90% the FHA Mortgage Insurance is permanent for the life of the loan; while Fannie's MI can be removed as early as two years into the loan if you have built up sufficient (20%) equity. Always check with your lender on the term of conventional MI as Chase has their own rules about this and I hear they are stipulating conventional MI must be kept in place for 5 years, while most stipulate a minimum of 2 years before you can remove MI.


THE LOWEST RATE MAY NOT ALWAYS THE BEST RATE: While this goes contrary to the way we think, and especially the way us Slick Dealers think, it is critical to measure the costs associated with any Note Rate. This is easier said than done as there are different areas the fees may be associated.

a) Standard Origination Costs: The word 'points' does not encompass the overall cost of a loan; as it is just one of a dozen possible ways to disclose lender origination fees. Origination, Discount, Administrative, Underwriting, Credit Report, Doc Prep, Tax Service, Flood Cert, and Appraisal Fee are all possible fees that may be imposed by the lender.

On refinances there are Title and Settlement Fees which a lender will quote which may also vary considerably. (Purchases will have these fees however customarily coming from the Title/Escrow Company handling the purchase.)

So, always compare the costs associated with any quoted rate; as in the end while you think you got a great rate you very likely paid for it. More on this in a minute.

b) All Rates Are Available Every Day; and what changes daily (and sometimes multiple times a day in volatile markets) is the price of the Note Rate. In real time pricing there is rarely a true zero point (also known as 'par') price to a specific Note Rate; and there is either a cost or a lender credit associated with the specific rate.

A knowledgeable mortgage broker will show you the stack of rates available; based on a certain rate lock period. As everyone's scenario is unique, having choices can be very helpful to best suit a borrower's needs.

For example (and this is just for illustration purposes and does not constitute a quote)):

Loan Amount $250,000

RATE PRINCIPAL & INTEREST PRICE

3.75% 1157.79/mo $1610 (,644 discount fee)
3.875% 1175.59/mo $85 (.034 discount fee)
4.00% 1193.54/mo -$1462.50 (.585 lender credit)
4.125% 1211.62/mo -$3502.50 (1.401 lender credit)

Now, default thinking would lead one right to 3.875% at just about zero points.
However,
First, as discussed above, what other fees may be associated with this stack of pricing?
You must weigh the costs into the analysis!

Second, 3.875% sounds better than 4.00%, BUT, this is not about bragging rights and choosing the best option to suit your needs.

On a refinance do you want to pay closing costs out of your pocket? Or do you want the costs rolled into the new loan where you lose equity in your home? Most people simply opt to have the costs rolled into the new loan amount as they will not feel a thing, but depending on how long you are planning to keep this loan, evaluating a higher rate with a lender credit to absorb costs may be a very valid option.

This also goes for a purchase as well, as depending on how long you plan on keeping this loan, or if your assets are really tight and you really could use less out of pocket at the table, take a look at all options.

For example, on the example above:
The price difference between 3.875% and 4.125% is $3587.50
The difference in monthly payment is $36.03/mo
This means it would take 99.57 months, or 8.29 years for the break even point where the extra monthly payment exceeds the credit you received at closing. Over 8 years, and that is not taking into account that the extra $36/mo is tax deductible, so it really is not costing you that much.

For many, this is where they may realize that the lowest rate was not the best rate for their individual needs.

Again, I cannot stress enough that, between their transaction and their individual profile, everyone is unique, and a knowledgeable and experienced Mortgage Broker can provide you all options to choose what is best for you.

Hope you find this information helpful;
-Adam
Reply Helpful Comment? 1 0
Joined Feb 2004
L10: Grand Master
6,953 Posts
944 Reputation
#14
Quote from duguefl View Post :
So the property taxes can be up to 4%? So they could be as high as 6K a year? That's a lot. I also researched that there is no first time homebuyer credit from IRS anymore. That would've helped a lot. Is there a chance they might bring it back?
If we go talk to somebody what's the best strategy? I mean what should we look for? Also since they will hard pull our credit should we go talk to a few people in the same day?
So it would make sense if we can get a house with the same or slightly less mortgage vs our rent?
Yeah, newer areas can have really high property taxes, and Katy is one of those areas (Friendswood may be too, though I'm not as familiar with that area). We have "utility districts", in which the builders develop infrastructure (e.g., water) for a new development and are paid back as property taxes each year. Then you've got city and county taxes, school taxes, etc. If you live near a river, there may also be a tax to maintain a levee. Look on zillow for some houses in the Katy and Friendswood areas, and it should indicate the current tax rate, or the amount of the most recent tax payment. Taking a quick look at a house in Katy, the total rate for 2014 was 3.38% - definitely not unusual for that area.
Reply Helpful Comment? 0 0
#15
Quote from tiedyed1 View Post :
I can write a book to answer both of these questions but will try and summarize:

FANNIE MAE MY COMMUNITY: If you have credit scores 640+ and your income falls within the Median Income for your area you should compare FHA to the Fannie Mae My Community (or Freddie Mac's equivalent Home Possible).

a) FHA has a one time Up Front Mortgage Insurance Premium (UFMIP, 1.75% of the base loan amount) and Fannie and Freddie do not have any UFMIP.

b) while both have an Annual MI premium, paid monthly, you will find the Fannie MI premium to be less than the FHA.

c) For loans >90% the FHA Mortgage Insurance is permanent for the life of the loan; while Fannie's MI can be removed as early as two years into the loan if you have built up sufficient (20%) equity. Always check with your lender on the term of conventional MI as Chase has their own rules about this and I hear they are stipulating conventional MI must be kept in place for 5 years, while most stipulate a minimum of 2 years before you can remove MI.


THE LOWEST RATE MAY NOT ALWAYS THE BEST RATE: While this goes contrary to the way we think, and especially the way us Slick Dealers think, it is critical to measure the costs associated with any Note Rate. This is easier said than done as there are different areas the fees may be associated.

a) Standard Origination Costs: The word 'points' does not encompass the overall cost of a loan; as it is just one of a dozen possible ways to disclose lender origination fees. Origination, Discount, Administrative, Underwriting, Credit Report, Doc Prep, Tax Service, Flood Cert, and Appraisal Fee are all possible fees that may be imposed by the lender.

On refinances there are Title and Settlement Fees which a lender will quote which may also vary considerably. (Purchases will have these fees however customarily coming from the Title/Escrow Company handling the purchase.)

So, always compare the costs associated with any quoted rate; as in the end while you think you got a great rate you very likely paid for it. More on this in a minute.

b) All Rates Are Available Every Day; and what changes daily (and sometimes multiple times a day in volatile markets) is the price of the Note Rate. In real time pricing there is rarely a true zero point (also known as 'par') price to a specific Note Rate; and there is either a cost or a lender credit associated with the specific rate.

A knowledgeable mortgage broker will show you the stack of rates available; based on a certain rate lock period. As everyone's scenario is unique, having choices can be very helpful to best suit a borrower's needs.

For example (and this is just for illustration purposes and does not constitute a quote)):

Loan Amount $250,000

RATE PRINCIPAL & INTEREST PRICE

3.75% 1157.79/mo $1610 (,644 discount fee)
3.875% 1175.59/mo $85 (.034 discount fee)
4.00% 1193.54/mo -$1462.50 (.585 lender credit)
4.125% 1211.62/mo -$3502.50 (1.401 lender credit)

Now, default thinking would lead one right to 3.875% at just about zero points.
However,
First, as discussed above, what other fees may be associated with this stack of pricing?
You must weigh the costs into the analysis!

Second, 3.875% sounds better than 4.00%, BUT, this is not about bragging rights and choosing the best option to suit your needs.

On a refinance do you want to pay closing costs out of your pocket? Or do you want the costs rolled into the new loan where you lose equity in your home? Most people simply opt to have the costs rolled into the new loan amount as they will not feel a thing, but depending on how long you are planning to keep this loan, evaluating a higher rate with a lender credit to absorb costs may be a very valid option.

This also goes for a purchase as well, as depending on how long you plan on keeping this loan, or if your assets are really tight and you really could use less out of pocket at the table, take a look at all options.

For example, on the example above:
The price difference between 3.875% and 4.125% is $3587.50
The difference in monthly payment is $36.03/mo
This means it would take 99.57 months, or 8.29 years for the break even point where the extra monthly payment exceeds the credit you received at closing. Over 8 years, and that is not taking into account that the extra $36/mo is tax deductible, so it really is not costing you that much.

For many, this is where they may realize that the lowest rate was not the best rate for their individual needs.

Again, I cannot stress enough that, between their transaction and their individual profile, everyone is unique, and a knowledgeable and experienced Mortgage Broker can provide you all options to choose what is best for you.

Hope you find this information helpful;
-Adam
This is a little confusing Adam!!!
Reply Helpful Comment? 0 0
Page 1 of 2
1 2
Join the Conversation
Add a Comment
 
Copyright 1999 - 2016. Slickdeals, LLC. All Rights Reserved. Copyright / Infringement Policy  •  Privacy Policy  •  Terms of Service  •  Acceptable Use Policy (Rules)  •  Interest-Based Ads
Link Copied to Clipboard