Loan particulars: need some honest answers.

DaveyC · Joined: 16 Aug 2005 Posts: 1

I have been reading and found a lot of information on these forums and I am thankful to have run across the information here. The question that I have relates to a loan that I have been approved for for my home let me relay my situation and I just want to see if my Loan Officer is doing a good job on payment and rate for my situation.

My mean credit score is 667.
I have been employed with the same employer for 1 year 4 months.
In the same industry for nearly 5 years.
Annual income is roughly 45k
My DTI is below 50%
I am only 21 years old and single (if that matters)

I am a First Time Home Buyer, however I am purchasing the home from my father and it appraises for 150,000 but the amount I need to purchase the home from him is only 130,000 plus I would like to build in closing costs.

My Lender has me approved at 6.5% on an interest only with a 2 year prepay penalty and the rate locked for that term as well. That is on a 90% first mrtg only with the excess equity gifted as down.

I am curious if this seems in line with the current market or if I am getting screwed. The loan officer is a friend of a friend but I think that rate seems high for my situation and on an interest only. Any comment or help would be very appreciated.

Haplo · Joined: 20 Jan 2005 Posts: 2406 Location: Springfield, IL

Why are you going with an interest only, if you don't mind me asking?

It's not going to be a very large difference in payment really. One thing you might consider is having a gift done from your father in the form the equity. This would allow you to have the higher value, instead of the 130,000 being your cap. (I.E. he sells it to you for 150,000, gifts you 17,000 and pays 3,000 to your closing costs/prepaids.) It requires a different type of loan program, and most likely not on an interest only.

How many options did your friends friend discuss with you? Or did they just say 'here's the product for you!' Does he know that you're purchasing from your father?

Personally it sounds pretty suspect to me. 2 year arm sounds like a sub-prime product (at least none of our prime products are 2. 1 to 3 and then up from there.) You're probably getting hit with a pre-payment penalty, unless it's illegal in your state.

My next question would be, how many points is he requiring you to have in order to get that 6.5% rate? What state are you in?

dsickler · Posted: Wed Aug 17, 2005 2:53 am Post subject:

Haplo wrote: Why are you going with an interest only, if you don't mind me asking?

It's not going to be a very large difference in payment really. One thing you might consider is having a gift done from your father in the form the equity. This would allow you to have the higher value, instead of the 130,000 being your cap. (I.E. he sells it to you for 150,000, gifts you 17,000 and pays 3,000 to your closing costs/prepaids.) It requires a different type of loan program, and most likely not on an interest only.

How many options did your friends friend discuss with you? Or did they just say 'here's the product for you!' Does he know that you're purchasing from your father?

Personally it sounds pretty suspect to me. 2 year arm sounds like a sub-prime product (at least none of our prime products are 2. 1 to 3 and then up from there.) You're probably getting hit with a pre-payment penalty, unless it's illegal in your state.

My next question would be, how many points is he requiring you to have in order to get that 6.5% rate? What state are you in?

I would stick to haplo's advice, with the exception on one thing. What's wrong with interest only? On a P.I. payment, he would be paying about $821 dollars. On an Int. Only, $704. That's $117 difference, over 2 years would be $2,808. Plus if he's in a state where the interest is tax deductable, that means his whole payment is tax deductable.

As I've mentioned before, the more principle you pay, and the more equity in the house, the more you lose control of that equity. However if you keep the equity separated, in a safe liquid side fund, you maintain control of that equity, and also allow that equity to earn interest. Where it won't in the equity of the house.

On a side note, if you decided not to take my advice, you could apply that $117 towards your loan, which would probably pay it down more than if he just got a regular P.I. fixed loan.

My point, If you go with Int. Only, either SAVE the difference, or apply it to your balance, but don't just blow the money.

David
"Slickler" :wink:

Haplo · Joined: 20 Jan 2005 Posts: 2406 Location: Springfield, IL

I believe that I/O has their place and that's why I asked why he is going I/O. An uninformed borrower going with an I/O loan is a very bad thing.

m2c · Joined: 03 Aug 2005 Posts: 764

It’s VERY unusual to use mean FICO score in our industry. Do you have a “wild” distribution of scores? Perhaps this is what’s driving product selection.

What do you mean by “appraises for 150,000”? Has it actually been appraised or is this just a guess? You generally fit the profile for a gift-of-equity conforming loan EXCEPT you imply you have no liquidity or prefer not to use same in this transaction. Anything less than a 20% gift on the conforming side would require that you put 5% of your own money in the transaction. Perhaps the home is worth more. If the appraisal is high enough, sales agreement can call for a 20% gift plus closing costs. If you have a hang up on going with an ARM, a 5-1 conforming IO would be in the lower 5’s with no PPP.

Posting the APR in addition to rate would be helpful. A bit more difficult to weed through the noise on an adjustable (margin, index, and whether LO is calculating to full indexed rate), but it would give an indication. If this is a 2/28 ARM, I can’t believe the LO is charging points or an origination fee but who knows.

Hopefully there is no immediate time constraint on this transaction. It’s worth getting a second opinion. On the surface 6.5% for a 2/28 seems rich.

capnmorgan5555 · Joined: 29 Jan 2005 Posts: 29

Have you looked into FHA? I find that a lot of the time someone is being put into a subprime type loan could qualify for FHA financing and the reason they aren't being offered it is because the lender they are talking to doesn't do FHA loans.

Your situation seems to fit perfectly into the FHA profile- you should be able to get a rate around 6% for a 30 year fixed and keep your costs down and a gift from your father is not a problem.

Hope this helps.

m2c · Joined: 03 Aug 2005 Posts: 764

FHA is not a bad option to get around limited-gift issue. You’ll get a MUCH lower rate and much more benign maximum interest rate increases. Downside is you will be getting no immediate bang for the buck on your 90% LTV – still getting hit with a 1.50% hit on the front end for MIP. It’s financed but it’s still there. Also you might run into those nasty VCs, i.e., required repairs some of which seem illogical to homebuyers.

Worth looking into. If nothing else, your inquiries might prompt your current LO to, perhaps, "find" a lower interest rate for the same program he's assigned you to. Just a guess, but I suspect there's a lot of fat in his 6.50%. Nothing wrong with making money but "pigs get fat; hogs get slaughtered".

The Big Easy · Joined: 20 Jan 2005 Posts: 30

F H A
Gift Of Equity Program
Rates in the 5's (If you hurry)

chow · Posted: Wed Aug 17, 2005 3:21 pm Post subject:

I can hear my phones ringing now....I'm going to get a nerd speech from Haplo again.

All of you LO's-please drag out your All Reg's, your Underwriting tips, or whatever reference material you have. This is a blood relative-parent to child. With FHA, even the Up Front MIP can be paid by the seller-there is no 6% gift limit per-se. I'm telling you-the whole 20 grand, can be used by the seller to pay the buyers costs, Escrows- the whole whopping thing. Just find out what the seller wants to walk away with, and work the loan cost-backwords from there.

If you study Ameridream and use FHA, you can throw the unallowable buyer costs on the seller, then tack on the seller's costs, and go over the Ameridream limit, because the limit is for DPA's-not closing costs, or escrows.

Why anyone would do an 2/28 I/O with a parent/relative transaction is beyond me. Even Fannie and Freddie fixed products will allow a blood relative to go over 3% if you structure it right.

and Hogs do get slaughtered. :wink:

justin333 · Joined: 13 Aug 2005 Posts: 15 Location: connecticut

That's what i have FHA @ 5.75% 30 fixed with no prepayment penalty.

Haplo · Joined: 20 Jan 2005 Posts: 2406 Location: Springfield, IL

I'm not going to say anything on that one Chow, I thought I had mentioned that above already? Maybe I didn't...dunno. Will have to go back and check..

(edit) Dang, guess I didn't. I was thinkin it though!!!

Shoot...put me out to pasture, I'm starting to think like Chow....

chow · Posted: Fri Aug 19, 2005 9:06 pm Post subject:

dat's okay little bro...... Just keep it in check for the consumer's :lol:

You're starting to think like chow.....Is this a good thing-or a bad thing?

It could lead to some really cool interview skills.

My edit: :wink:

ahhhhhh, "Wells Fargone"

Beat 5 of you WWF people- 3 times, in one week.