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any experience with the conventional 97 mortgage?

Ero 2,885 980 July 26, 2016 at 11:47 AM
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I'm looking at some properties but don't have enough to cover the 20% traditional down payment + closing costs + reno/furniture, etc that comes with buying a new home.

I was considering doing the conventional 97 mortgage, and throwing any leftover money after all the above at the principal. In the price range I'm looking at, when all is said and done I should have about 15% equity in the property; and should be able to get to 20% needed to drop the PMI within the 12 months (for which I'd need to have the PMI anyway). My understanding is for my situation the Con-97 is better than FHA.

People's knee-jerk reaction will be to say I'm overextending my $, bbut I'm considering this option rather than just saving up the 20% over the next few months because paying rent equivalent to a mortgage payment + the potential of rates going up by the time I have the 20%, buying a home in this way actually seems like a money saver.

I don't really know what I need to be asking here because I'm so new to the process, and this is going to be my first home.
I guess one thing is whether sellers will be more hesitant to accept an offer with a conventional 97?
The other question is more asking for recommendations on which lenders to look at. My understanding is the big banks are often not competitive with their rates and closing prices.
What other things should I know? I'm new to this and taking the time to do the research before jumping in.

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1

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#2
I'm not going to give you advice on what to do so I'm just going to answer your questions

Quote :
any experience with the conventional 97 mortgage?
No

Quote :
whether sellers will be more hesitant to accept an offer with a conventional 97?
It depends on the market in your area and how competitive it is amongst buyers. Every seller is different so it depends. When I sold my home I was hesitant to have my home held up from a buyer that had 0% down from a special program (not a VA loan) here in California that I never heard of in my life. She ended up buying my home and was able to close within the 30 days. I had offers from cash buyers and typical 20%ers that never went through.


Quote :
asking for recommendations on which lenders to look at.
Shop around. In my opinion many of the online based lenders usually offer the most competitive rates, however it doesn't mean others have no gotten even better offers from various banks/credit unions/brokers. However as a first time home buyer you may want to deal with someone in-person. Get multiple quotes and compare. Understand that with only 3% down and depending on your credit score you will not be getting offers as good as someone with 30% down with a excellent credit score/history.

Quote :
What other things should I know?
I don't know what you know or don't know, but be patient and do your homework inside and out. Be extra frugal since as you know the extra money is necessary when you're talking furnishing/reno.
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#3
Quote from boingyman View Post :
I'm not going to give you advice on what to do so I'm just going to answer your questions


No


It depends on the market in your area and how competitive it is amongst buyers. Every seller is different so it depends. When I sold my home I was hesitant to have my home held up from a buyer that had 0% down from a special program (not a VA loan) here in California that I never heard of in my life. She ended up buying my home and was able to close within the 30 days. I had offers from cash buyers and typical 20%ers that never went through.



Shop around. In my opinion many of the online based lenders usually offer the most competitive rates, however it doesn't mean others have no gotten even better offers from various banks/credit unions/brokers. However as a first time home buyer you may want to deal with someone in-person. Get multiple quotes and compare. Understand that with only 3% down and depending on your credit score you will not be getting offers as good as someone with 30% down with a excellent credit score/history.


I don't know what you know or don't know, but be patient and do your homework inside and out. Be extra frugal since as you know the extra money is necessary when you're talking furnishing/reno.
Thank you for the well thought out answers. I'm totally fine with you giving me advice as well! That's mainly the reason I laid out my logic for seeking the lower down mortgage, so if there's a massive hole in my logic somewhere, the good folks here could call me out on my BS Smilie

Regarding rates - it's your belief/understanding that even with excellent credit, going lower than 20% down I would most likely not get a top tier rate? That'd be a compelling point to wait a bit and get the full 20%!

one tihng I'd like to clarify though, whey you say
Quote :
When I sold my home I was hesitant to have my home held up from a buyer that had 0% down from a special program (not a VA loan) here in California that I never heard of in my life.
By 'held up' do you mean that you'd accept the offer and then the financing would fall through on the buyer's end? If at the point I'm making an offer I'm pre-approved for a mortgage, would that alleviate such concerns on the seller's side?
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#4
Quote from Ero View Post :
That's mainly the reason I laid out my logic for seeking the lower down mortgage, so if there's a massive hole in my logic somewhere, the good folks here could call me out on my BS Smilie
So you don't have enough down to buy a home so you want to basically put it all on credit. What could go wrong. It's 2007 all over again Whee

That said, best of luck!
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#5
I don't understand how someone can say you can't afford something just because you don't put down 20%

If the cash flow is there, go for it. The only issue is lost money on the insurance and interest on the higher amount.

It means you pay more but is no issue if you can afford it or not.

should someone rent for xx years more to get 20% or buy a house with 3% down with mtg-insurance for the same amount as their rent...or even more (within reason)

I'm buying at 3% (wait already did 19 years ago)
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for those that hate spelling mistakes www.walmarts.comCool

bulb save money by checking your insurance every 2 years (and not every 20)
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#6
Quote from stufine View Post :
I don't understand how someone can say you can't afford something just because you don't put down 20%

If the cash flow is there, go for it. The only issue is lost money on the insurance and interest on the higher amount.

It means you pay more but is no issue if you can afford it or not.

should someone rent for xx years more to get 20% or buy a house with 3% down with mtg-insurance for the same amount as their rent...or even more (within reason)

I'm buying at 3% (wait already did 19 years ago)
It's typically because people who can only scrounge up 3% don't have a rainy day fund near anything that is what should be considered comfortable/safe.

Cash flow is one thing but one thing it usually isn't is guaranteed...
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#7
Quote from LivninSC View Post :
It's typically because people who can only scrounge up 3% don't have a rainy day fund near anything that is what should be considered comfortable/safe.

Cash flow is one thing but one thing it usually isn't is guaranteed...
True, but nothing is.
I woke up one day and decided to buy a house...well the rental increase did, but the next couple weeks I was working 16hrs a day which at that time was take home around 1300 week. I could afford a more $$ house than I bought, but I liked the street and could do the improvements.

I had flow in, but the wife had a nice flow out.

Then 911 came. My rainy day fund was gone after months of no employment. (I had changed jobs after house purchase to self employed) I could make enough for the essentials, but the rest went down the tubes. Kept the wifes credit up and paid what was needed.

The what ifs can and will happen. I'm not waiting for them, If I wait, guaranteed something will happen.
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#8
Both Fannie Mae and Freddie Mac have conventional loan products for 97% LTV.
Fannie Mae's product is called Home Ready https://www.fanniemae.com/content...matrix.pdf

Freddie Mac's product is called Home Possible http://www.freddiemac.com/singlef...97_572.pdf

Each has slight differences in the qualifying guidelines but for the most part the consumer is rarely aware which product the loan originator is utilizing.

---------------------------------------------------------------------------------------------

In respect to a seller being more hesitant, generally speaking, sure, a seller would like to see a buyer put more money down; and in cases where they are fielding multiple offers this may come into play.
However, if you have been pre-approved for this conventional loan product you will be on better footing, especially when compared to a potential buyer utilizing FHA financing (as the FHA appraisal is more stringent than conventional appraisals).

I cannot stress enough that credit scores are key when evaluating any loan over 80% LTV as the Mortgage Insurance will vary greatly (depending on credit score and Loan To Value). It is always good to compare between 80%, 85%, 90%, 95% and 97% to see these differences. (Also, for those with low credit scores compare the conventional MI to FHA MI as a FHA product may offer better terms, despite FHA Mortgage Insurance being permanent on the higher LTV loans.)

Also, when it comes to conventional loans with Mortgage Insurance, realize that, even if your home quickly appreciates after closing, you will see in your closing documents that most lenders will have a requirement for Mortgage Insurance to be in place for a minimum of 2 years (24 months). The only way to remove MI prior would be to refinance (which will have costs associated.)

Each scenario is unique and (while I am admittedly biased) utilizing an experienced mortgage broker should prove very helpful as they have a variety of wholesale conduits available to meet the individuals needs (as well as delivering competitive loans with superior service).

-Adam
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-Adam
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#9
Quote from tiedyed1 View Post :
Both Fannie Mae and Freddie Mac have conventional loan products for 97% LTV.
Fannie Mae's product is called Home Ready https://www.fanniemae.com/content...matrix.pdf [fanniemae.com]

Freddie Mac's product is called Home Possible http://www.freddiemac.com/singlef...97_572.pdf [freddiemac.com]

Each has slight differences in the qualifying guidelines but for the most part the consumer is rarely aware which product the loan originator is utilizing.

---------------------------------------------------------------------------------------------

In respect to a seller being more hesitant, generally speaking, sure, a seller would like to see a buyer put more money down; and in cases where they are fielding multiple offers this may come into play.
However, if you have been pre-approved for this conventional loan product you will be on better footing, especially when compared to a potential buyer utilizing FHA financing (as the FHA appraisal is more stringent than conventional appraisals).

I cannot stress enough that credit scores are key when evaluating any loan over 80% LTV as the Mortgage Insurance will vary greatly (depending on credit score and Loan To Value). It is always good to compare between 80%, 85%, 90%, 95% and 97% to see these differences. (Also, for those with low credit scores compare the conventional MI to FHA MI as a FHA product may offer better terms, despite FHA Mortgage Insurance being permanent on the higher LTV loans.)

Also, when it comes to conventional loans with Mortgage Insurance, realize that, even if your home quickly appreciates after closing, you will see in your closing documents that most lenders will have a requirement for Mortgage Insurance to be in place for a minimum of 2 years (24 months). The only way to remove MI prior would be to refinance (which will have costs associated.)

Each scenario is unique and (while I am admittedly biased) utilizing an experienced mortgage broker should prove very helpful as they have a variety of wholesale conduits available to meet the individuals needs (as well as delivering competitive loans with superior service).

-Adam
Adam's advice is always good for mortgage questions.

These types of questions are really difficult to provide what you want. Because the truth isn't always what you want to hear. The better case would be to have more money down, yes. But I think Adam hit this right that the real issue could be if the property would field multiple offers. If this is likely to be the case in your area, you could run into issues as better offers would appeal more to sellers.

The LTV is extremely important as is your credit score for qualifying with such high LTV. The one fact that no one likes to hear because their plan is bullet-proof is that often times people don't get the opportunity to refinance to remove mortgage insurance. If there is one lesson a lot of people have learned and that EVERYONE on this forum should heed, is that the best intentions don't often get followed -- life happens. If you are strapped for cash for the purchase now, you will likely still have some cash flow issues a year from now. I know, I know, everything will be different then because you have a plan. If I had a dime for every time I heard that and it fell through I'd be retired already.

I just had this conversation yesterday about "throwing away money at rent" and I told the person that it really isn't nearly as bleak as people make that out to be. You don't pay property taxes, homeowners insurance, repairs, MI, and other bills pertaining to ownership. You are able to save a lot more money renting and you spend a lot more than you budget when you own.

I always believe your local credit union is one of the best places to start. I have used mortgage brokers before and had positive experiences although I find that they tend to pad the deal a bit more than a credit union would -- my experiences only. You will find out pretty quickly based on a good conversation with your local credit union mortgage officer.

There are a lot of reasons buying a home with limited cash isn't the best idea. You obviously know that because of your post, the way it was worded, and the cautionary "you will knee-jerk tell me this..". I would suggest you don't just ignore that information that YOU already have. I personally believe too many people try to get into a house well before they are ready and those people are usually the ones that have a long financial struggle ahead of them (again best intentions don't really play into financial preparedness).

Digest version: really heed advice and talk to your local credit union mortgage officer.

Best of luck to you.
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#10
Quote from tiedyed1 View Post :
Both Fannie Mae and Freddie Mac have conventional loan products for 97% LTV.
Fannie Mae's product is called Home Ready https://www.fanniemae.com/content...matrix.pdf [fanniemae.com]

Freddie Mac's product is called Home Possible http://www.freddiemac.com/singlef...97_572.pdf [freddiemac.com]

Each has slight differences in the qualifying guidelines but for the most part the consumer is rarely aware which product the loan originator is utilizing.

---------------------------------------------------------------------------------------------

In respect to a seller being more hesitant, generally speaking, sure, a seller would like to see a buyer put more money down; and in cases where they are fielding multiple offers this may come into play.
However, if you have been pre-approved for this conventional loan product you will be on better footing, especially when compared to a potential buyer utilizing FHA financing (as the FHA appraisal is more stringent than conventional appraisals).

I cannot stress enough that credit scores are key when evaluating any loan over 80% LTV as the Mortgage Insurance will vary greatly (depending on credit score and Loan To Value). It is always good to compare between 80%, 85%, 90%, 95% and 97% to see these differences. (Also, for those with low credit scores compare the conventional MI to FHA MI as a FHA product may offer better terms, despite FHA Mortgage Insurance being permanent on the higher LTV loans.)

Also, when it comes to conventional loans with Mortgage Insurance, realize that, even if your home quickly appreciates after closing, you will see in your closing documents that most lenders will have a requirement for Mortgage Insurance to be in place for a minimum of 2 years (24 months). The only way to remove MI prior would be to refinance (which will have costs associated.)

Each scenario is unique and (while I am admittedly biased) utilizing an experienced mortgage broker should prove very helpful as they have a variety of wholesale conduits available to meet the individuals needs (as well as delivering competitive loans with superior service).

-Adam
Thank you Adam, that makes a lot of sense. In general my credit score and history is not something that I'm worried about being a problem. You bring up a good point to shop around between 80%, 85%, 90%, 95% and 97%. It hadn't occurred to me, but absolutely if I'm going to throw a bunch of money at the principal right after closing, I might as well get the 90 or 85% loan, and secure a potentially better rate, with the money going toward the principal all the same.


Is there an avenue that I can use to find a good mortgage broker near me? Something like Avvo but for mortgage professionals that you'd recommend?
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#11
Look at state subsidized mortgages, has income caps but very reasonable especially if single. I wanted to buy before the latest market upturn so looked at many options and ended up with a 5% down conventional with MCC [wikipedia.org]. Interest rate was fixed for all down payment percentages and credit score was a binary: approved or not. Programs vary greatly by state and county so do your local research.
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