80/20 Loans

[madeline]

Hi all. I have read with interest the posts and answers by the experts at this forum.

I have a good FICO of 745, but will only have money for closing costs when I am ready to buy within the next 6 months. I was told an 80/20 is the best option for me.

Just curious what your thoughts are.

[kensmith]

An 80/20 is much better than a straight 100% loan as you will avoid mortgage insurance. Also many/most times the 20% second will be interest only which will help keep you payment lower. You should have no issues getting the mortgage with a 745 score.

You might also want to consider having the seller pay one point (1%) to cover some or all of your closing costs. If you only have that little bit of money set aside it might be smarter to keep it to the side for a rainy day or those unexpected little things you want to do when you move in. You should always keep some sort of a reserve when buying a home.

[sierra11b]

Good advice.

And even if your income is not up to par to get the appropriate DTI, you can go stated income with that type of FICO. Of course, this depends on your career and scenario. Your LO should be able to answer any questions on that.

[AZLender]

I would go with a 3/1 ARM on the first, with your credit you are looking at a rate of 6.125% with $1,050 in closing costs, if it's a Full Doc, O/O, SFR, Primary and a Closed End Second 30 due in 15 @ 6.875%. By doing this you will allow yourself enough time to decide how long you plan on staying in that particular property (avg. time is 7 yrs). If you plan to stay for a long period of time I would consolidate your 1st & 2nd mortgages in to one loan at or below 80% LTV avoiding PMI. Depending on the appreciation rate in your area will determine when you will be able to do this. Here in AZ, we appreciated at a rate of 48% in 2005, #1 in the country.

[AaronSOLD]

I would go with a 3/1 ARM on the first, with your credit you are looking at a rate of 6.125% with $1,050 in closing costs, if it's a Full Doc, O/O, SFR, Primary and a Closed End Second 30 due in 15 @ 6.875%. By doing this you will allow yourself enough time to decide how long you plan on staying in that particular property (avg. time is 7 yrs). If you plan to stay for a long period of time I would consolidate your 1st & 2nd mortgages in to one loan at or below 80% LTV avoiding PMI. Depending on the appreciation rate in your area will determine when you will be able to do this. Here in AZ, we appreciated at a rate of 48% in 2005, #1 in the country.

Yeah, I doubt the reader would get O/O (Owner Occupied) SFR (Single Family Residence) , or closed end second 30 due in 15 (is that a equity loan w/30 yr payment schedule but balloon in 15?)

If memory serves me right, the yield curve is so flat right now that a 5 year ARM (first 5 years of the loan is at a fixed rate) is almost as cheap as a 3yr. I wouldn't do less than a 5yr because 3 years comes quick and refinancing at the rates 3 years from now will not be anywhere as good as they are now.

[AZLender]

Depends on which wholesaler you are dealing with, but yes they are about an 1/8 to 1/4% difference. Nobody knows where rates will be in 3 to 5 years Nostradamus! You should know what a closed end second 30/15 is if you are in the business. Nevermind, you're a realtor. A 30 due in 15 is fixed, it is not tied to prime. Seems to me you are taking on the whole sky is falling approach the Federal Reserve has been on for 5+ years now. Eventually they are bound to get it right. Just haven't been to successful up to this point. Bottom line. Nobody knows.

[AaronSOLD]

Kinda snotty, but you didn't actually say what a closed end is. Maybe I call it something else. It would be nice to have it explained as opposed to held over my head. Also, the original poster to this thread is not in this business, so I think they'd appreciate it as well.

Rates were higher than this through most of history. If you look at the last 50 years, I think we've seen rates this low for 3-5 of those years... 10% of that time period. I can't see the future but it is easy to understand the past.

.25% x $200,000 = approx $500/yr in extra interest. So it costs $1500 over 3 years to have a loan locked for 5 years instead of 3. Find me a refi (including closing fees, taxes, etc.) that can get even close to that (without rolling it into the loan). If you can get it at 1/8 percent (which is fairly common from the quotes I see) you are paying $750 to lock the term in for 5 years instead of 3.... the rates can bounce 1/8th on a daily basis... That works out to less than $21 per month.

I've been in my first home for 5 years now... never thought I would stay so long when I bought... but I think it is better to hedge your bets for the future by paying slightly more in your rate for a longer term. Think of it as insurance...

[AZLender]

Didn't mean to come accross snotty. Sorry if I offended you. I have a very sarcastic personality. You have to take into consideration where we as an economy were at during the period of extremely high rates. There are a number of factors that affect mortgage interest rates daily, whether it be consumer confidence, corporate borrowing, faster inflation, consumer price indecies, Federal Reserve meeting minutes, Ben Bernankes statements, oil prices, import and export, jobless claims, the list goes on and on. The chances of rates seeing the levels they were at during that particular period are about as likely as you gaining 6% interest on your checking account.

[HouseboyMike]

I believe that a closed end second can't receive a line increase without doing a refi.
I believe that the economy has a mind of its own and the Fed can only damage it.
I believe it's past my bedtime, and I'm going to have nightmares tonight that jimmy carter runs for a 2nd term and wins, causing rates to jump to 16%. lol

[AZLender]

A Closed End Second is not a credit line nor is it tied to prime. It is Fixed at a much lower rate, depending on the CLTV, and for the loan amount needed.

Jimmy Carter, LOL! Not funny!