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First off, I know very little about the mortgage loan/real estate game.
My wife and I have applied for a loan from a small mortgage loan company (Perl Mortgage) in Yucca Valley.
Some info:
We are both first-time buyers
We will both be on the loan, myself as primary, my wife as co-borrower.
We both have an average FICO of 818.
We both have ZER0 debt other than current rent of $700 per month.
Neither of us has any leins, levey's, judgements, or financial responsibilities against us.
We plan to put 3% down on a 200,000 home.
We provided all of the necessary paperwork and were told we could easily be approved for a loan of up to 450,000 even though we don't need that much.
I asked him about an FHA loan and a Freddie/Fannie Mac 3% loan and he told us that we should go with a "Conventional" loan and that our 30 year fixed rate would be 4.2%.
Every time I check current rates on 30 year fixed mortgages I see anywhere from 3.89-4.0%
Questions:
Why is our conventional loan quoted at 4.2% instead of 3.8-4.0%? Am I getting hosed?
Should I consider an FHA loan or one of Freddie/Fannie Mac 3% loans?
How can I get the best rate/mortgage for us? Does the mortgage company have any reason to steer us toward a higher mortgage rate?
The conventional loan we're approved of has a PMI because it's lower than 20%.
When we asked about an FHA loan he said there would be a "loan fee" attached to it.
"Why is our conventional loan quoted at 4.2% instead of 3.8-4.0%? Am I getting hosed? "
If you are looking online, those quotes tend to be for a single family home in Florida with a 40% down payment. 4.25% is about where the market actually is right now. If you plan to shop lenders, get rate quotes on the same day, hopefully within the same hour, as we all go up and down together. Focus on trustworthiness and clarity right now, find a couple that reply to you in timely fashion, can walk and chew gum, and then let them know you are doing your due diligence.
Their suggestion for a Conventional loan is "better" for you because you are a high credit borrower and Conventional MI goes away eventually. BTW, I have no clue what a "Loan Fee" is, ask for greater clarity on that. They may be referencing up-front Mortgage insurance that is rolled into an FHA loan (along with that monthly Mi payment!)
Looking for no PMI: there are options for large up-front payments, but it's tough to put very little down and avoid MI. If you can get to a 5% down payment position, the MI for that house would be $87.30 per month. FHA would be $164, and would NEVER expire for the life of the loan.
Regarding 3% down Conventional, I haven't seen a Flex 97 in a while. There is a loan program that allows for zero down payment, Housing Finance | National Homebuyers Fund, Inc. | NHF - rates are a bit higher, understandably, as your out of pocket can literally be limited to the appraisal fee, if worked right.
That area in CA also has potential for a USDA loan, which allows for zero down, has awesome rates, and half of the MI component as FHA. Welcome . From their estimation of up to a $450k price, is your combined gross income about $72.000 - 75,000? I ask because USDA has max income caps.
It sounds like you are being "told" what you are going to do, instead of having all options explained thoroughly. Maybe give that lender a shot at doing a better job for you? I promise that 4.2%-ish on a conventional with 5% or less as a down payment is not bad at all. In fact, "overage," or over-charging above rate sheet for profit, is VERY dangerous for banks and is illegal, unless you are Movement Mortgage and don't know the law. Also, there is more revenue in Government loans such as FHA/VA than Conventional, so you are not being steered at all, from what I can tell.
FHA Mortage Insurance is so high it basically makes FHA loans the worst possible option for borrowers with good credit. Over a 30 year mortgage you could pay 25% of the home value in mortgage insurance.
Rates you see online are based on large down payments. When you want to put down minimums, you're a higher risk to them, so they charge you more for more money. In my market, 3% down conventional are alive and well. They have PMI, except some credit union programs don't.
Thank you Pfhtex and others for taking the time to respond.
Quote:
Pfhtex: From their estimation of up to a $450k price, is your combined gross income about $72.000 - 75,000? I ask because USDA has max income caps.
Our household income is roughly $92,000 gross. But we want to live way beneath our means so that we're not house poor. We like to take vacations. Our debt to income ratio is around 26%
Quote:
Pfhtex: BTW, I have no clue what a "Loan Fee" is, ask for greater clarity on that. They may be referencing up-front Mortgage insurance that is rolled into an FHA loan (along with that monthly Mi payment!)
My bad. I mistakenly referred to it as a "Loan Fee". Actually, from what I understand the FHA charges an "upfront premium" of the loan amount. This upfront premium is paid when the borrower gets the loan. It can be financed as part of the loan amount.
Annual premiums for FHA loans (From Bankrate.com)
15-year loan, down payment (or equity) of less than 10 percent: 0.7 percent
15-year loan, down payment (or equity) of 10 percent or more: 0.45 percent
30-year loan, down payment (or equity) of less than 5 percent: 0.85 percent
30-year loan, down payment (or equity) of 5 percent or more: 0.8 percent
Quote:
Pfhtex: 4.25% is about where the market actually is right now.... I promise that 4.2%-ish on a conventional with 5% or less as a down payment is not bad at all....
That is reassuring. Thanks!
Quote:
Brinson: FHA Mortage Insurance is so high it basically makes FHA loans the worst possible option for borrowers with good credit.
Maybe that's why he steered us toward a conventional loan(?)
Quote:
Falconhead: Rates you see online are based on large down payments. When you want to put down minimums, you're a higher risk to them, so they charge you more for more money.
That makes sense. More money lent = higher risk.
Lastly, I don't really understand how this Fannie Mae program works: "Conventional 97" Mortgage Requires Just 3% Down (Updated For 2015)
It looks like it just became available in 2015. Does Fannie Mae issue the loan or back the loan? Or does my local loan processor offer it? Is this something I should explore too or should I just stick with the conventional loan with 3-5% down @ a 4.2% mortgage rate?
Lastly, I don't really understand how this Fannie Mae program works: "Conventional 97" Mortgage Requires Just 3% Down (Updated For 2015)
It looks like it just became available in 2015. Does Fannie Mae issue the loan or back the loan? Or does my local loan processor offer it? Is this something I should explore too or should I just stick with the conventional loan with 3-5% down @ a 4.2% mortgage rate?
thanks again
The mortgage company you work with has to have the program for you to be able to get the program. Not every banker, bank, or broker has the same programs to offer.
The mortgage company you work with has to have the program for you to be able to get the program. Not every banker, bank, or broker has the same programs to offer.
Got it.
Are there any advantages to using this type of loan over a conventional for a buyer like myself?
I like the conventional option because if you go FHA, you are adding 2.75% to your loan balance right off the bat. The PMI on the Fannie loan is until the loan reaches 78% of the original purchase price, FHA is for life.
Does the mortgage company have any reason to steer us toward a higher mortgage rate?
thanks!
Hairfarm
Yes and no, yes to make more money, no, if they want to stay in business. Higher rates are typically a function of necessity especially when dealing with people that want to spend very little cash on their purchase.
IF you net 6K a month and HAVE only $6 down, you are not living way below your means, it is actually living pay check to paycheck. If you choose 3% down as an option rather than necessity then it is a different story.
The more you put down will reduce your monthly payments through different function, lower loan amount, lower rate, lower pmi payment.
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