Mortgages?

Nathans_Dad · Nathans_Dad's Garage

Ok, the wife and I are starting to look at our mortgage options. Our current home was financed with an FHA mortgage (it was our first house) and we had to pay PMI. I have vowed to never pay that PMI again. What a crock.

So, I am looking at either a 0% down loan or something like an 80/15/5. If our current house sells at close to what the realtor thinks it will, we should have enough to pay up to 15% down on our new home, although I would like to keep the downpayment as small as possible.

I am looking at Bank of America currently, since that is where we have our other accounts. Anyone have any experiences good or bad with mortgage lenders? Any advice on loan types to look at?

legion · 12-19-2006, 09:37 AM

Subscribed.

I'm in exactly the same boat. I did an FHA AmeriDream loan with what amounted to 100% financing.

Based on the minimum I think my house would sell for, I'd walk away with 12% equity, but that would drop to 5.5% after realtor comissions on a sale.

The wife and I want a bigger place, but I don't want to take a leap until the number work in a worse-case scenario. The good thing is the longer we wait, the better the numbers get (more equity and hopefully more capital gains).

Gene Wilkes · 12-19-2006, 09:42 AM

Subscribed! Got a 2nd w/ARM that needs to go away!

notfarnow · 12-19-2006, 09:55 AM

FHA?
PMI?

WTF? Not familiar with these acronyms. We have 4 or 5 letter acronyms up here, because we like to complicate things.

Nathans_Dad · Nathans_Dad's Garage

FHA=Federal Housing Assistance--loan that is through the government to assist first time buyers. Easy to qualify for, but you have to pay PMI unless you have 20% down.

PMI=Private Mortgage Insurance--basically an insurance policy that the lender will require you to take out on the home to insure them if you default on the loan. My PMI amounted to about $150 per month on a $150k mortgage. The problem with PMI is that you get nothing out of it, it just goes into a hole. If you get an 80/15/5 loan the interest on the 15% second mortgage is at least tax deductible and you gain some equity as well.

To me so far, the 80/15/5 looks like a good option. Basically you have a primary mortgage for 80% of the price of the home (avoiding the PMI), then you take out a second mortgage on the home for 15% of the value and you pay 5% down. From what I understand the interest rate on the 15% second mortgage is a little higher than your primary mortgage, but it still beats paying PMI in my opinion.

If our house sells for what the realtor wants to list it for, we COULD pay 20% down if we put everything from the sale of our existing house down on the new house. But, my opinion on the topic is that the price of your house will appreciate independent of how much equity you have in the house. Therefore, it makes sense to place as little into your house as possible and put the rest into an investment that WILL grow based on how much you have invested, like a mutual fund. That's the plan anyhow, I'll let you know how it works out in 20 years...

id10t · 12-19-2006, 10:02 AM

notfarnow - PMI == insurance, usually only needed if you put less than 20% down.

jorian · 12-19-2006, 10:12 AM

PMI is mortgage default insurance. With 100% financing the lender will be upside down if there is a foreclosure because there is no equity. In Canada the lender requires this insurance if you put down less than 25%. In Canada there are 2 insurers, CMHC and Genworth (formerly GE). You don't really get "nothing" out of PMI because it allows you to get into the housing market without a downpayment. In a rising market this cost can be offset by the increase in value of your property. In a declining market it could mean you owe more than your house is worth.

notfarnow · 12-19-2006, 10:22 AM

Gotcha, thanks. Equivalent to CMHC in canuckistanian.

FenderGuy · 12-19-2006, 10:29 AM

Quote:

Originally posted by jorian
With 100% financing the lender will be upside down if there is a foreclosure because there is no equity.

That's called leverage, banks love it when the consumer is upside and have equity in the house, and they will foreclose all day with these types. When the lender is upside, they are more willing to make a deal then foreclose.

Nathans_Dad I would suggest you go to a Mortgage broker, more loans with them then a B of A, plus they have more options for you .

http://www.freepoint.web-loans.com/default.aspx
The above link is my from company that I work for, it's interesting reading

FenderGuy · 12-19-2006, 10:33 AM

Quote:

Originally posted by jorian
In a rising market this cost can be offset by the increase in value of your property. In a declining market it could mean you owe more than your house is worth.

I agree with this but the latter is only a matter of waiting it out, with the right loan most people stay in their loans at least 5 years and during this time the market has had some time to bounce back

on-ramp · 12-19-2006, 10:33 AM

It is not a coincidence the words "dead" and "murder" are found in the definition of Mortgage:

Main Entry: 1mort·gage
Pronunciation: 'mor-gij
Function: noun
Etymology: Middle English morgage, from Anglo-French mortgage, from mort dead (from Latin mortuus) + gage gage -- more at MURDER
1 : a conveyance of or lien against property (as for securing a loan) that becomes void upon payment or performance according to stipulated terms
2 a : the instrument evidencing the mortgage b : the state of the property so mortgaged c : the interest of the mortgagee in such property

KFC911 · 12-19-2006, 10:34 AM

I used to work for two of the largest banks (including one bought out by BOA), and neither can touch the rates that a good Credit Union will provide. Now that CU rules are relaxed (as to who can join), you might want to check one out as I think they will offer better rates than just about anyone...

juan ruiz · juan ruiz's Garage

which Credit Union you can suggest ?

Nathans_Dad · Nathans_Dad's Garage

FenderGuy, any mortgage brokers that you recommend? Should I do this online or find one locally?

I went with a lender I found online last time and wasn't terribly pleased with the service. They screwed up my loan and almost ended up not being ready to close on time. I really want this loan to go smoothly, we plan on staying in this house for a while (8-10 years at least) so I also want to get a great rate.

id10t · 12-19-2006, 11:09 AM

juan - where in Fl are you?

Gene Wilkes · 12-19-2006, 11:13 AM

Juan,
Florida Aircraft Federal Credit Union is a good one. WPB, FL

jorian · 12-19-2006, 11:23 AM

Use a local mortgage broker that you can meet with. The broker doesn't get paid if the loan doesn't fund. A good broker will rely on your referral to find their next client so their service to you is critical.

Caveat: I'm a mortgage guy and I work 100% on referral. Unfortunately I don't know any in SA.

Nathans_Dad · Nathans_Dad's Garage

Anyone have an opinion on the various forms of mortgages out there? ARM vs fixed rate, etc?

I personally think the interest only loans are a ticking time bomb so I will stay away from that one...just MHO.

id10t · 12-19-2006, 12:09 PM

Nathans_Dad - adjustable can kill ya too...

Nathans_Dad · Nathans_Dad's Garage

Agreed, but it does depend on your situation. For example, we knew going in that we were only going to live in our current house for 4 years. A 5 year ARM would have saved us some money in interest vs. the 30 year fixed that we got through the FHA.

Like I said, I made several mistakes in my first mortgage and am looking to not make the same mistakes this time....