Best options for a small home loan

mrmonster · Joined: 02 Sep 2008 Posts: 3

My question involves small mortgage loan amounts. For example, I'm thinking of taking out a mortgage for about 60k (the house is selling for 160k, and I'm putting down 100k). In choosing the type of loan and term lengths, are there any special considerations for loans of such a relatively small amount, such as 60k?

Thanks

Infinite One · Posted: Tue Sep 02, 2008 2:18 pm Post subject:

Being that you're choosing to put such a large amount down I'm assuming you do not want the large monthly payments or like the rest of us..want the least amount of debt possible? The mortgage you go with on something of this size is again, going to be more of a preferance...How fast do you want to pay mortgage off, do you want interest only for now..etc..

m2c · Joined: 03 Aug 2005 Posts: 764

You’ll probably find this strange but if you walked into my office with this seemingly risk loan, I’d tell you to do yourself a favor and not use me or another broker. This is a bank or at a minimum, a mortgage banker loan. Servicing on a $60K loan is worth squat. Given wholesale fees and a decent profit for my time, I’d have to “charge up” so much that it would be ridiculous relative to the apparent risk.

Yes, I’ve done “stupid” stuff before -- $30K loan on a $300K purchase but I’ve “shorted” myself in hopes of catching the guy on the flip side when he “buys up” on the next purchase.

I’d look primarily at portfolio banks (if they exist anymore) or community banks. Latter tends to press “community values” and should salivate that this type of loan. A broker might work on a “cut commission” and you might pull a PIW but you’ll likely find a more appropriate deal elsewhere… and most brokers will suggest this.

mrmonster · Joined: 02 Sep 2008 Posts: 3

Thanks, and yeah, I'm going with a bank. Does a loan of this relatively small size affect any of hte considerations about whether to go for a, say, fixed or ARM?

m2c · Joined: 03 Aug 2005 Posts: 764

When fixed rates get below 7%, I generally ignore ARMs unless it’s a short-term move situation or there is a substantial teaser on the ARM. My guess is that the 3/1 or 5/1 ARMs are trading virtually on top of the fixed and teasers are a thing of the past. The reason for my 7% indifference threshold is that theoretical ARM movement is not “balanced”. For example with plus or minus caps of, say, 5 percentage points, the rate could go up to 12% but 2% is “far out”. Return on capital would be nil and the mortgage holder would be riding off the margin of 2.25% or 2.50%.

Notwithstanding my bias against ARMs right now, other factors might enter the picture. If you’re payment sensitive and have uneven flow of income, an ARM has the advantage of adjusting the payment rather than remaining loan term after a large principal payment. You might dovetail with some tax gamesmanship. With a $60K loan, you likely won’t be over the standard deduction to achieve that “all American dream of deductible interest/real estate taxes”. Yes, that’s sarcasm and think tax consequences should be down on the priority list when buying a home but …. Borrowing more with the safety value of obtaining a lower monthly payment via a principal application is “there” with an ARM.

Overall I’m 98% on the side of a fixed rate. Sadly I’d charge you 6.5% with 1 point and $300 in junk in today’s market. Not a pretty sight. Still remember it gets worse as you march towards November 1st when Fannie adds another 0.25 discount. Really it’s October first since 11/1 is an ON or after date – “window pricing” sucks so it’s got to be an October pool.

Take thee to a bank quickly and get the application going.

mrmonster · Joined: 02 Sep 2008 Posts: 3

Yep, application process in the works. I ended up deciding on the fixed 30. Thanks for your insights!

m2c · Joined: 03 Aug 2005 Posts: 764

You’ll probably find this strange but if you walked into my office with this seemingly risk loan, I’d tell you to do yourself a favor and not use me or another broker. This is a bank or at a minimum, a mortgage banker loan. Servicing on a $60K loan is worth squat. Given wholesale fees and a decent profit for my time, I’d have to “charge up” so much that it would be ridiculous relative to the apparent risk.

Yes, I’ve done “stupid” stuff before -- $30K loan on a $300K purchase but I’ve “shorted” myself in hopes of catching the guy on the flip side when he “buys up” on the next purchase.

I’d look primarily at portfolio banks (if they exist anymore) or community banks. Latter tends to press “community values” and should salivate that this type of loan. A broker might work on a “cut commission” and you might pull a PIW but you’ll likely find a more appropriate deal elsewhere… and most brokers will suggest this.

Infinite One · Posted: Thu Sep 04, 2008 1:45 pm Post subject:

What type of deal did you get yourself? I'm a lender and may be able to get you a better deal. Let me know if you have any problems or other questions. Good Luck!!