Post by: cfabe on May 03, 2006, 07:37:34 AM
I'm initially meeting with a mortgage guy at a local bank my dad used and reccomended. He wants $350 up front for an application fee. Seems high to me, but what do I know. I'm going to probably have the same reactions to other fees in the process, too. In the pre-approval he mentioned a PMI of $61 a month because of my small downpayment. Agian I don't know if this is a reasonable cost.
The state of ohio has a first-time homebuyer grant program that lets you get a below-market rate mortgage, and this is what I'm planning on doing. So that may remove some of the 'shopping around' in terms of rate. At the moment the rate on this program loan is 5.70% on a fixed 30-year mortgage. Seems like a good deal to me. I asked about any restrictions or catches and have not been told of any yet.
I've been trying to research this online and I'm not coming up with any information that's detailed enough to make me comfortable with my understanding of the process. Any tips, links, suggestions would be appreciated.
Chris
Post by: Shalako on May 03, 2006, 07:55:51 AM
http://www.armedpolitesociety.com/viewtopic.php?id=2583
I'm also buying a home now and went with the 30-yr fixed product to eliminate the risky interest only and ARM loans. I plan to stay at the new place for at least 10 years so I think a 30-yr is a good deal. Sorry I'm not an expert so can't answer your questions about fees. In case it helps, here's a run-down of my loan package:
first mortgage: 30-yr fixed at 6.775 on 80%
second mortgage: 30-yr fixed (due in 15 yrs) at 8.2% on 20%
No down payment, no PMI, but I am impounding my taxes and insurance.
Closing costs: 1% of total to loan broker, $5500 to title company covers title search & paperwork, set up the impound account, half of May mortgage and all of June mortgage.
The only other fee was $325 out of my pocket to the home inspector.
Post by: garrettwc on May 03, 2006, 07:58:39 AM
Spend some time here and do some reading.
Bankrate.com's Mortgage Tutorial
Post by: Brad Johnson on May 03, 2006, 08:05:16 AM
But, you're already under contract so let's start there.
Unless there is some overriding good thing about the Ohio grant program, I'd stick with a conventional, fixed-rate, low-down-payment mortgage. It's simple, easy to calculate, and you know exactly what you're getting. Insist on a Good Faith Estimate up front. If the lender won't give you one, go somewhere else.
And don't get caught up in the "Rate Game". Lenders can monkey the rates just like car salesmen can monkey trade-in prices. That low interest rate might sound good, but at what cost? Keep in mind that an 1/8th point difference on a fixed-rate $100K loan only makes an $8 difference in your monthly payment. If they charge you a 1% buydown ($1000 up front) for that 1/8th point rate drop, that's a $96 a year savings. At that rate it will take 10.5 years for the monthly savings to justify the up-front fee. Chances are you will have moved long before then.
In general terms...
Be prepared for the loan to cost you somewhere in the neighborhood of 1% of the loan value - possibly less, given the competition in the mortgage market these days. And by cost I mean the fees charged directly by the lender, and other than actual expenses (actual expenses are outside services like appraisals, surveys, etc). The lender may call their fees all kinds of things - Processing, Origination, Documentation, etc. - but they are still just direct charges from you to the lender. Don't be surprised if they insist on a couple hundred bucks up front. Tell they you will be happy to as long as they provide a Good Faith Estimate for you to examine before making your decision whether or not to use them.
Expect the actual expenses, insurance, and misc assorted other "stuff" associated with buying the house to add up to 3.5-4% (give or take half a percent, depending on the market in your area). All this will be detailed on your Good Faith Estimate. Some lenders and loan programs will allow you to roll this into the loan, but be careful. If you roll in costs outside of the actual value of the home it puts you upside down immediately. If you are forced to sell the home in the next few years, you will end up paying out of pocket to do so.
Hope this helps!
Brad
Post by: K Frame on May 03, 2006, 08:06:33 AM
Credit union.
Post by: cfabe on May 03, 2006, 08:18:01 AM
Good points about the "rate game". I plan to stay in this house perhaps 5 years.
As far as I've been able to find out the Ohio program IS still a conventional loan. I know it doesn't require any additional inspections like an FHA loan.
Post by: Brad Johnson on May 03, 2006, 08:29:35 AM
Is the Ohio program one where you make application to a state agency for a grant that gets released if you stay in the house for X number of years? If so, Texas used to have a similar program that was pretty good. However, it had no effect on the loan rate. That, and the the plethora of 100% loans available now, pretty much killed the program. I haven't seen it used for several years.
Brad
Post by: roo_ster on May 03, 2006, 09:17:02 AM
There are numerous fees/points, etc that a lender can try to slap on. A quick & dirty way is to compare Loan A's APR** to Loan B's APR. Another way is to compare a loan's APR to its rate unencumbered by all the fees/etc.
For example, my mortgage*** loan's unencumbered rate was X.YZ%, before any fees/etc. Its APR was X.YZ3% or some such. A difference of .003%. What that means is that the fees/etc were pretty minimal. The difference in some loans can be substantial.
I am very anti-fee/points. I expect to have to move around the nation and the time it would take to make back the points in lower payments (especially if discounted for inflation) will likely be longer than I'll be in the house.
* Yes, not foolproof. That is why it is quick & dirty.
** Annual Percentage Rating. How much per year is the loan costing your WITH fees, etc.
*** Disabled veteran VA loan. We got moved in under, uhhh, very favorable terms.
Post by: TarpleyG on May 03, 2006, 09:41:51 AM
Greg
Post by: Brad Johnson on May 03, 2006, 10:06:15 AM
About the only companies I know that hold their mortgages in-house are Bank of America, Countrywide, and Wells Fargo. Pretty much everyone else is a broker, even credit unions (although they do give a slight rate discount for members).
Brad
Post by: TarpleyG on May 03, 2006, 10:14:05 AM
Greg
Post by: The Rabbi on May 03, 2006, 12:13:02 PM
Post by: cfabe on May 03, 2006, 01:57:00 PM
You know the ditech.com commercial where the banker says "now i'll just add up the cloing costs" and the calculator tape starts flying? That's what i'm afraid of.
Post by: CatsDieNow on May 04, 2006, 03:34:21 AM
I shopped online for my mortgage broker. Got a good rate a couple years ago (4.75!!) and my mortgage was promptly sold to a big lender. They should tell you the closing costs up front, if they aren't sure then they are playing games and go someplace else.
Post by: The Rabbi on May 04, 2006, 05:37:40 AM
Quote
Basically, it is $60 a month that does nothing but insure the lender in case you walk out on the mortgage.
Actually another way to look at it is that it is a way for people who are incapable of saving money to buy a house. PMI is a good example of what I always say about insurance: it is there to take risks you are not able or cannot afford to take.You can avoid PMI by piggy-backing a 1st and 2nd mortgage (80% + 15%). Yeah, the rate on the second is higher but the interest is tax deductible and in some cases it comes out cheaper and once it is paid off you are done--no having to go back and re-fi or argue about what your house is worth.
Post by: Otherguy Overby on May 04, 2006, 07:29:13 AM
These days people rarely pay off their loans, they sell and move or refinance first. Most home buyers tend to max things out. It's actually good advice to buy as much home as you can. So, in the early years of a loan the slightly lowered payments from paying interest only are much more important than betting you might actually pay the loan off in 30 years.
Roughly, how a mortgage broker/banker makes money is getting money at one rate and lending it to you at a higher rate. The broker keeps the difference in a lump sum... IOW, if he has a money source for 6 percent money and sells you a loan at 7 percent, he might be making 8 points on the deal plus what he gets from you.
Post by: Brad Johnson on May 04, 2006, 07:31:47 AM
As far as Ditech is concered, my experience with them has been less than stellar (in other words, it sucked). And their "no fee" mortgage is a joke. Find a good local lender that you feel comfortable with.
The lender - any lender - is required by federal law to give you a "Good Faith Estimate" that outlines all of their exact fees along with the other anticipated out-of-pocket closing expenses. This includes your down payment and third-party costs like appraisals, escrow set-asides, and homeowner's insurance. It will be itemized. If they refuse, go somewhere else. Understand that they may required a credit report before they will issue the GFE. Just make sure that all you sign is a credit report release and not a client rep or loan app agreement. And pulling a full tri-merge credit report should cost you no more than $25-$30 (the actual cost to the lender is about $20 for a two-person report). If they want to charge more, that's usually indicative the the rest of their fees will be similarly high.
And always remember ... If is sounds too good to be true, it probably is.
Brad
Post by: CatsDieNow on May 04, 2006, 08:25:19 AM
PMI is still crap, you can rationalize it however you like.
Post by: Shalako on May 04, 2006, 08:52:19 AM
By the time I could save up 20% ($70k), the cost of my property would probably go up by close to 20% anyway. That's estimating a 5 year timeframe.
I'd rather buy now and gain that money in equity.
Post by: richyoung on May 04, 2006, 09:30:47 AM
Quote from: Shalako
Yeah, I'm not paying PMI, even with 100% financing.
By the time I could save up 20% ($70k), the cost of my property would probably go up by close to 20% anyway. That's estimating a 5 year timeframe.
I'd rather buy now and gain that money in equity.
HOW? Please spill the beans...
By the time I could save up 20% ($70k), the cost of my property would probably go up by close to 20% anyway. That's estimating a 5 year timeframe.
I'd rather buy now and gain that money in equity.
Post by: mtnbkr on May 04, 2006, 09:52:33 AM
Chris
Post by: Shalako on May 04, 2006, 09:55:09 AM
I skipped the downpayment by getting a second mortgage right off the bat. The interest rate is higher than a normal second mortgage but its only on 20% of the total purchase price.
My loan broker did the calculation for me to show me how much my monthly cost would be with a 100% first mortgage and PMI. Since the interest rate would be higher on a 100% first than a 80% first, the monthly cost came out the same or higher then my 80/20 plan and the PMI is not tax deductible.
The other part of my post about equity going up by 20% in five years is pure speculation. Although, here in Sacramento, home values went up by something like 17% a year for the past 3 years. 20% in five years might not be too much of a stretch if the trend continues.
Post by: TarpleyG on May 04, 2006, 09:58:56 AM
Quote
HOW? Please spill the beans...
We didn't pay PMI on our last house and we only put about 10% down. Don't ask me how but we didn't pay it.Greg
Post by: Brad Johnson on May 04, 2006, 10:19:14 AM
Quote
PMI is still crap, you can rationalize it however you like.
As long as you are using someone else's money, you live by their rules.Quote
Yeah, I'm not paying PMI, even with 100% financing.
Is your mortgage FHA insured? If so, then you don't pay full monthly pop for PMI. You pay most of it up front. On the closing statement it would have been labeled "Mortgage Insurance Premium" and would have been about 1.5% of the loan value. There is still a slight monthly premium built into your payment but it is minimal. Look on your payment breakout. If there is an amount labeled MIP (not PMI) that's your remaining monthly mortgage insurance premium.Also, if you took out a straight bank note you may not be paying MI, but you will normally be paying higher interest. It just about offsets.
Greg, just guessing on how you got around PMI at 10% down - about the only way I can think of is if your house appraised at 10% or more over contract price. That would have given you an automatice up-front 90% LTV. Putting 10% down would have put you at 80% LTV and gotten you around PMI.
Brad
Post by: Monkeyleg on May 04, 2006, 01:30:20 PM
Post by: cfabe on May 04, 2006, 03:50:50 PM
122k principal, 0% down, 30 year fixed at 5.70%. No second mortgage, PMI is $60 a month.
Fees from the bank:
Loan origination 1% - $1220 - this is per the Ohio Housing Finance Agency, does not go to the bank
Appriasial - 300
Credit Review - 50
Document Prep - 225
Tax Service Fee - 79
Underwriting fee - 275
Flood Certificate - 16
Courier/Wire Fee - 40
OHFA Review fee - 20
Estimated Title Company Fees
Closing/Settlement Fee - 350 - seller pays half
Title insurance - 527 - seller pays half
EPA endorsement - 75
Recording fee - 195
Survey - 135
OHFA transfer fee - 150
Prepaid stuff at closing:
20 days interest, 2 months Homeowners ins, 2 months property tax, $821 total
Closing costs total: $3657 (of which the seller will pay 438)
With these costs the APR ends up being about 6.1%. The banker said that the rate on a normal 100%LTV loan without the Ohio program would be around 6.7%, and PMI would be at least twice as much.
On this versus a non-ohfa loan, the closing cost difference would be -$1220, and the payment would be about $140 a month more. So if I stayed in the house longer than 8.7 months, the OHFA is a better deal. Is this math right?
Comments?
Post by: Otherguy Overby on May 04, 2006, 03:54:33 PM
Institutional lenders like banks and credit unions generally don't require PMI if they plan to keep the loan in house.
Brad brought up FHA loans which have their own special kind of insurance that is a percentage tacked onto the loan amount at origination. In my day it was about 3 percent of the 110k loan max. It's probably significantly different now but still required. BTW, if the buyer sold the house or refied before the full term of the FHA loan a refund was due if one knew to collect it. I recall seeing late night TV money shows long ago charging a fee to do this...
Post by: The Rabbi on May 05, 2006, 05:36:56 AM
Post by: Brad Johnson on May 05, 2006, 05:53:52 AM
Brad
Post by: The Rabbi on May 05, 2006, 06:03:00 AM
But I agree that it looks like a good deal overall.
Post by: Brad Johnson on May 05, 2006, 06:09:59 AM
Brad
Post by: Otherguy Overby on May 05, 2006, 07:48:20 AM
Now one thing to be aware of is to really read all your estimates & ask questions. Next file those estimates away somewhere safe. When the sale is completed you'll get a form that's generally referred to as "Hud One" from whoever is the settlement agent, escrow officer or whatever. This is completing RESPA (Real Estate Settlement Procedures Act) and you take this form and compare it to the estimates you've filed away. Chances are they will mostly be in agreement. ALL costs are itemized and you'll personally see who all had their fingers in your RE purchase.
Many of the arguments about a transaction are over prorations and who has to pay for taxes & such depending on whether the bill has been paid and when it's due. Lenders tend not to put prorations in their "good faith" estimates...
About title insurance in another question, there are two parts: one to inspect and insure the title and one to warrant the buyer to the lender. Who pays the title part of this insurance depends on what's usually done in the area. The "Lender's" policiy is most always a buyer's cost.
Post by: cfabe on May 05, 2006, 07:54:03 AM
I should clarify that the 5.7% is the base rate on the loan, with all those fees the APR is around 6.1%, but still significantly lower than what I could get otherwise on a 100% LTV loan. Sounded like a good deal to me, thanks for the affirmation.
Post by: Brad Johnson on May 05, 2006, 08:01:24 AM
Quote
"Lenders tend not to put prorations in their "good faith" estimates..."
Good lenders do, crappy ones don't.cfabe, I presumed that was the case. The base rate (fixed balance APR) is the one to look at. The 6.1% APR first-year APR must be stated that way to show how the closing costs affect your actual APR. Luckily it's a one-shot deal. Some fed thought it would be a good idea but it really only serves to confuse people - they already know how big a check they're writing at the title company, and the GFE has already given you a line-item cost summary.
Brad