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When completing an FHA loan, the "prepayment penalty" box must be checked on the TIL. The reason for this is that FHA only accepts payoffs on the 1st of the month. If it is paid off on the 10th for whatever reason, they will charge the 9 days interest, and they consider this a prepayment penalty, although it is not.
FHA loans do not carry the standard prepayment penalty that you are thinking of, just as I explained above. You are almost always better off with a fixed rate. you never know what will happen in a few years, and it is nice to have that payment fixed. Good luck!!
Thanks David for explaining that. My LO explained it to me and I didnt get it the first time (or second). Now I understand. So basically, if I pay off the loan or sale the house...I need to do it on the 1st?
Thanks David for explaining that. My LO explained it to me and I didnt get it the first time (or second). Now I understand. So basically, if I pay off the loan or sale the house...I need to do it on the 1st?
Well... it just means you end up paying a few days extra interest if you pay it after the first. But if you wait until the first of the following month... the extra payment and interest for the month would probably be about the same.
Its a small price to pay though... nothing huge to worry about if you ever get to the point where you can actually pay off the mortgage.
Well... it just means you end up paying a few days extra interest if you pay it after the first. But if you wait until the first of the following month... the extra payment and interest for the month would probably be about the same.
Its a small price to pay though... nothing huge to worry about if you ever get to the point where you can actually pay off the mortgage.
so does this stipulation apply to selling the house or only paying off the mortgage?
so does this stipulation apply to selling the house or only paying off the mortgage?
thanks for the advice...keep them coming
Its the same. Lender doesn't care where the money is coming from... whether you are paying it off with your own cash or because of selling the home. Same goes if you are refinancing it with a new loan.
Hi Im closing in mid-December and I need to decide which loan product is the best. Total cost of home is $136,284. I prefer a fixed rate loan but Im optimistic that I will either refinance or sell before the ARM could adjust past 7.25%. Do I need to shop around more? Please give me your thoughts/advice. Thanks!
Loan # 1
State Employees Credit Union
$131,833 (builder incentive subtracts $5,451.00 off total price)
2/1 ARM 100% LTV (cannot adjust more than 1% every 2 years; cannot increase/decrease more than 8% over term of loan)
5.25% initial rate
no origination
no PMI
no downpayment
$1,000 closing cost factored into loan
PITI and hoa fees = $935.00/month (2 yrs later 6.25%=$1019.00, 4 years later 7.25%=$1,106)
Loan # 2
CTX Mortgage
$133,847 (builder incentive includes paid CC)
fixed rate fha
6.00%
3% down = $4088.52
$1,652 mortgage insurance factored into loan
PITI and HOA = 1,045.39
first of all, there is nothing wrong with going with an adjustable rate mortgage, but i am not a fan of the 2 year arm or even a 3 year arm. If you want a lower rate and payment, ask about a 5/1 arm. The benefit of going with a 5 year arm over a 2 year arm is the obvious you have 3 more years before the rate will adjust.
Secondly, if there is your first home, odds show that you will sell it in under 5 years. So a 5 year arm will probably last at the fixed rate long after you sell. Also, the 5 year arm allows for 5 years to pass before your rate adjusts, so if we have a down turn you can ride out the storm. If it is not your first home, you will still probably sell it in around 6 years which is the average time a person keeps a home.
Good luck whatever you decide, but you are at least getting some good information so you can make an informed decision. Most people will say you are crazy to go with the arm, only do a fixed, and that is the safest thing you can do. Its also much safer to never leave your home, but how many people do that? But there is nothing wrong with playing it safe.
Ask your lender about a 5 year arm, post back the details and several people can evaluate to see if the savings are worth it. If you only get a .25% lower rate then the fixed, i would play safe. If your rate is .50% below the fixed then the arm might be the way to go.
first of all, there is nothing wrong with going with an adjustable rate mortgage, but i am not a fan of the 2 year arm or even a 3 year arm. If you want a lower rate and payment, ask about a 5/1 arm. The benefit of going with a 5 year arm over a 2 year arm is the obvious you have 3 more years before the rate will adjust.
Secondly, if there is your first home, odds show that you will sell it in under 5 years. So a 5 year arm will probably last at the fixed rate long after you sell. Also, the 5 year arm allows for 5 years to pass before your rate adjusts, so if we have a down turn you can ride out the storm. If it is not your first home, you will still probably sell it in around 6 years which is the average time a person keeps a home.
Good luck whatever you decide, but you are at least getting some good information so you can make an informed decision. Most people will say you are crazy to go with the arm, only do a fixed, and that is the safest thing you can do. Its also much safer to never leave your home, but how many people do that? But there is nothing wrong with playing it safe.
Ask your lender about a 5 year arm, post back the details and several people can evaluate to see if the savings are worth it. If you only get a .25% lower rate then the fixed, i would play safe. If your rate is .50% below the fixed then the arm might be the way to go.
The 5 year ARM is at 5.75% with 100% LTV and maximum term is 20 yrs.
Im leaning more towards fixed rate b/c I like the stability of knowing my payments. However, Im not thrilled about going with the builder's lender. Using the builder's lender Ill be paying more for the house over the life of the loan. I probably need to shop around some more.
Thanks for all the advice. Please keep them coming.
The FHA prepay has been debated by Compliance officers for years. David is correct, it must be included in the TIL as the entire month's interest could be due at payoff, not just to the date of receipt of the payoff. (HUD considers that a prepay, interest paid, but not incurred).
Another vote here for FHA. You can streamline it for a lower rate, should they go down to where it makes sense to refi, without regard to value. Option #1 is a guarantee to refi, requiring somewhere around 2% in closing costs (maybe more). And, if you were to refinance today under #1, you would be required to pay down your mortgage.
I'm brand new to this forum. I'm not sure how to post my own question, but I hope it with this message now:
Married couple, in our mid 50's wish to borrow 280,000 to self build a new home on the vacant lot in Hawaii we own free and clear. The lot is appraised at 310,000.
Our primary residence we currently live in is appraised at $390,000.
We have a first mortgage balance on this home of $95,000.
FICO score of 790. AGI of $46,000. Zero credit card debt.
Both employed by same employers for over 20 years.
What is the best instrument to borrow the $280,000 ?
Top of my head I think you are going to run into problems if the lot is more than the construction, or are you leaving out other assets that will be used to pay for the new construction?
Income is very low -- I don't see a way to finance the kind of debt you are contemplating. Is you "top line" number much larger? What is the source of your income?
Given situation as described I think you may have to sell current home, bank the proceeds. Find a rental build the new place...
If selling current home is not option you are going to have to get real creative or bring a lot more assets into the equation.
Aloha Mr. Everett and mahalo for your scrutiny. Discouraging as it was to read your analysis of our ambitious endeavor, we are still confident we will find a way to succeed with the plan.
Along these lines I am curious as to what "creative means" you might suggest I employ.
First please allow me to ask a few dumb questions and give you a little more information about our situation that may assist in any additional advice you wish to impart.
1. We have lived on the island of Kauai for over 35 years. Married for 30 years. I manage vacation rentals. She's a career waitress. Both job locations only 4 miles from home.
2. It is quite common for the land to be worth more than the structure in Hawaii.
3. Is the equity we have built in these two properties (appx. $600,000)
meaningless?
4. We are the budget masters of America here on this isolated island. Highest prices in the country on just about everything yet we have managed our small annual income wisely enough to purchase these properties, build and pay off our existing home and accrue a surplus of cash and investments in excess of $75,000. We are absolutely "non-consumers" living the simple life many people dream of. We literally live off the land, growing our own fruits and vegetables year 'round. (they don't call it the Garden Isle for nothing!) We simply don't spend. We save. Happily I might add!
5. I am a self builder capable of shaving 25% off the cost of a comparable contractor
built home. Once complete the estmated value of house and land in this subdivision will approach $900,000.
6. We intend to rent out our current home once we build and move into our new one realizing an additional $1500.00 per month income. An additional rental unit on the new home is also a probability.
7. A second mortgage through the family trust may be an option for a 10-15% down payment.
We thank you in advance for any thought you put into our problem and send our way.
Happy holidays. Mele Kalikimaka and Hau'oli Makahiki Hou. Wade & Celia Allee
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