Awesome, thank you. Then I'll just make the first payment on the 1st of April just to be sure. Then maybe set up recurring automated payments for the end of the month or something.
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Mortgages - 101 and Pro-Tips |OT
- Thread starter Hokahey
- Start date
Awesome, thank you. Then I'll just make the first payment on the 1st of April just to be sure. Then maybe set up recurring automated payments for the end of the month or something.
my mortgage is with chase and is technically due the first of every month. our banker at chase advised us to pay between the 1st and the 15th. i basically pay mine on the 5th.
Would be a long shot, but I would see if by chance Chase were offering any kind of discount for enrolling in auto-pay. We used to use that all the time as a selling point to try to get home equity loans over the line.
As for auto-pay itself, I've always done it that way just for the discipline of it. For my bills that don't vary from month to month, it's one less thing for me to be concerned with. I always advocated in any of the personal finance threads that the best thing you can do is develop a system that works for you and stick to it. For me, it was auto-pay for all my fixed bills and 1x per month scheduling the bills that change (utilities, credit cards, etc etc).
My wife and I just got approved for $380,000 to buy our new house. Hoping to come close to putting 20% down with the sale of our current house and additional cash we have to put down. I'm more worried about finding a new house than selling ours. Our real estate agent think our house will sell within a couple days, given the neighborhood we live in and the price point.
This is the most stressful point in our marriage than I can ever recall.
This is the most stressful point in our marriage than I can ever recall.
So I have a few thousand in "spare" cash. I'm tempted to put it toward my 3.x% (16 of 20 years remaining) mortgage, but I could contribute more to my Roth IRA instead. I know historically the market offers better returns (and I love the flexibility of the Roth IRA), but reducing the mortgage interest I'm paying ($10K this year) is also really attractive in the short term.
Any thoughts? (I'll be itemizing my deductions.)
Any thoughts? (I'll be itemizing my deductions.)
In my money order of operations I Max retirement accounts first. If you are itemizing, your 3.x rate is effectively much lower because of the mortgage interest deduction. That just doesn't compete with long term market returns. If you barely skate by making mortgage payments maybe you build in some buffer, but it doesn't sound like that's the situation you are in.
Hey Hokahey , thanks for this fantastic thread. I'm a complete beginner and I've read everything and feel like I have a better understanding of what's going on, but I'd still like to ask a few more questions if you don't mind.
So with regard to shopping around, my wife has sent a preliminary inquiry to her credit union and we also have three recommended loan officers from the realtor.
1. At this point should I just reach out to all of them and ask them what they can offer?
2. I guess my fear is that I'll get multiple credit checks at once and screw myself over somehow. When does a credit check happen in this process - prequalification or preapproval? Or both?
3. And is blatantly shopping around common/encouraged or will the loan officers become upset about this or otherwise not give me the time of day since I'm not so much a guaranteed customer?
4. What information should I have readily at hand? I've got the value of the houses we're looking at generally, I've got our DTI ratio, credit scores, and amount of downpayment. I think that's everything I'll need at least for a first phone call.
I just want to make sure I'm abundantly prepared for this but I've honestly no idea how any of it works. So again, thank you for this thread. It's been an amazing resource and much better than the general info I've found elsewhere.
So with regard to shopping around, my wife has sent a preliminary inquiry to her credit union and we also have three recommended loan officers from the realtor.
1. At this point should I just reach out to all of them and ask them what they can offer?
2. I guess my fear is that I'll get multiple credit checks at once and screw myself over somehow. When does a credit check happen in this process - prequalification or preapproval? Or both?
3. And is blatantly shopping around common/encouraged or will the loan officers become upset about this or otherwise not give me the time of day since I'm not so much a guaranteed customer?
4. What information should I have readily at hand? I've got the value of the houses we're looking at generally, I've got our DTI ratio, credit scores, and amount of downpayment. I think that's everything I'll need at least for a first phone call.
I just want to make sure I'm abundantly prepared for this but I've honestly no idea how any of it works. So again, thank you for this thread. It's been an amazing resource and much better than the general info I've found elsewhere.
I've always been one to look at interests and compare them. 3.x is pretty damn low for mortgages
OP
OP
Thanks for the kind words! I had long wanted to create a thread like this and was happy to finally find time to do it.
You should absolutely shop around. But don't just shop on price. Find someone that sounds competent and takes their time understanding the entirety of your circumstances. Also, until you have an accepted offer, rate and pricing make no difference because you can't lock in until you have a property under contract.
Any loan officer worth their salt should have zero issues with you shopping around. It's what almost everyone does.
As long as all of the inquiries are made within 30 days, there is no hit to your credit. But if you are pre-approved for one lender there is no reason to have any other lender pull your credit. You can still shop around and talk to people that sound like they know what they are doing 2 gauge who you want to work with, and then shop price once you have an accepted contract. No one has to pull credit to quote you a rate no matter what they say.
Good luck my friend! Let me know if you have any additional questions.
OP
OP
It most definitely can be. Let me know if I can be of any assistance and feel free to message me at anytime.
So to make sure I got this down, I should just tell them what my credit score is and not agree to a credit check until I've found who I want to work with and want to actually start getting the loan pre-approved. Is that right?
Appreciate it! It's great to have you as a resource on these forums for this type of subject matter :)
OP
OP
Not exactly. You are definitely going to want to get an official pre-approval from someone. No matter how confident you are in your ability to be approved, you need to be certain. So I would definitely find someone you feel good about to take that application and get things started, but you don't have to feel like you can't keep shopping after that.
OP
OP
I'm really happy to be a resource for people. I don't believe in karma per se, but I definitely believe that the more helpful and good you are to people the more you will get that in return. I built my entire business off of that philosophy and it is working out great!
Thank you, Hokahey, for this thread! Your time, effort, and knowledge on this topic is much appreciated.
I have been searching on and off for the past two years to find my first home to buy, but I live in Southern California where no half decent-looking single-family home seems to be under 500k. I have a budget myself, need a co-buyer, and other gift contributions from other supportive family members just to meet the down payment. I'd like to put down at least 20% to avoid PMI but if I am overly concerned about meeting the down payment (and factoring in closing cost, title, escrow, etc.), could there be better options for me to possibly put down 10 or 15%, accept the PMI that I can reasonably afford to pay that might even be cheaper depending on the rate? You touched on that on the OT and I'm sure I'll need to confer with my realtor and loan officer. It's just that I keep hearing from all sides to always put down 20%, no exceptions, blah blah blah. That would mean I would need to be in frugal mode for at least the next 5 years to meet that.
My realtor did tell me we can always explore other options including something called an 80/10/10? Do you think that is an acceptable option for certain home buyers? I guess I'm also concerned about being blindsided down the line by something I didn't pay attention to with these alternative options.
I have been searching on and off for the past two years to find my first home to buy, but I live in Southern California where no half decent-looking single-family home seems to be under 500k. I have a budget myself, need a co-buyer, and other gift contributions from other supportive family members just to meet the down payment. I'd like to put down at least 20% to avoid PMI but if I am overly concerned about meeting the down payment (and factoring in closing cost, title, escrow, etc.), could there be better options for me to possibly put down 10 or 15%, accept the PMI that I can reasonably afford to pay that might even be cheaper depending on the rate? You touched on that on the OT and I'm sure I'll need to confer with my realtor and loan officer. It's just that I keep hearing from all sides to always put down 20%, no exceptions, blah blah blah. That would mean I would need to be in frugal mode for at least the next 5 years to meet that.
My realtor did tell me we can always explore other options including something called an 80/10/10? Do you think that is an acceptable option for certain home buyers? I guess I'm also concerned about being blindsided down the line by something I didn't pay attention to with these alternative options.
80/10/10 refers to you putting down 10% in cash and then doing a HELOC for the other 10%. I can't remember why we avoided this, but the HELOC is usually at a higher interest rate and has to be paid off in 10-15 years pending the terms.
We did 10% down on our place, despite having 20%, b/c we didn't want to fully liquidate our savings. We still got a 30 year fixed, traditional mortgage but we just have to pay PMI until we reach 20% loan-to-home value which is around 6-7 years. We can afford to pay more than our mortgage, so we are, to help push that up more.
I should also clarify that at the time interest rates were still around 3.4-3.5 so it was easier to make the calls on not doing 80/10/10 and just doing 10% down.
OP
OP
The whole have to put down 20% thing is completely overblown. In fact, you can at times get a better rate by putting less down, like 19%, making one payment and then having the PMI drop off. But that depends on your loan officer and who does your loan. That's why you have to work with someone that knows how to really manage this process.
Beyond all of that, there are loan programs out there that allow you to put as little as 1% down. Some states even have 100% financing. PMI is not the boogeyman people make it out to be. And different lenders can give you cheaper options. I have dirt cheap PMI, and if you get the right interest rate, you could be paying less than if you put down 20%.
Also, if you put down the full 20% and then have to finance other things in your life because you don't have any money, the financing is likely to cost more on a credit card that it is on the mortgage.
I know that's a lot to think about and take in so feel free to reach out to me personally if you have any additional questions.
This is the kind of stuff your loan officer should really be proactively advising you on. If they are not, there's a good chance you're working with the wrong person.
OP
OP
And yes, all of this. Don't do an 80 10 10. That 10% on the HELOC is going to be on an adjustable rate and will kick your ass at some point.
I cannot overstate how important this is for people in here. Please shop around for smaller mortgage places and don't just immediately run to the big names. Our rep came highly recommended from our realtor and his office was an underwriter for a portfolio company, not a big bank. This meant the company was more interested in just collecting the payments than worrying about rolling up mortgages for reselling out. Every time we met with our rep it was extremely casual, went over every possible run down (0, 3.5, 5, 10 down), showed us how rates work, how & why he locks in when he does, everything.
OP
OP
Exactly. Unfortunately we are in the era of everything online and 1-800 numbers. I work with people all across the United States, so it's not always necessary to meet your loan officer face-to-face, but if you don't have his cell phone number and call him after hours it's probably not the right guy. Your loan officer should be just as available as your realtor.
Our loan officer called us while he was driving to a wedding when we had to bail on our first offer. I knew I was going to be in good hands when that happened.
OP
OP
That's awesome. That's exactly how I conduct business. I'm almost happy when my clients call me at odd hours and inopportune times so that they know how much I appreciate their business when I answer and happily help them. Hopefully you are able to refer some friends and family to that loan officer! It sounds like they earned their keep.
I've referred three people to our realtor, who then refers them over. They're (loan officer, realtor, lawyer) a tight group so things worked pretty seamlessly and I never had to worry about the phone tag.
Thanks for the explanation on the 80/10/10. The interest rate now is a bit higher last time my realtor informed me. 4% I think he said. But just a year ago I was pre-qualified at around 3.8. Yeah, I don't think the 80/10/10 loan is a good idea then.
Great points! I need these second opinions to help me reevaluate my situation. Thanks! I'll talk with my loan officer again and more thoroughly before I get pre-qualified.
Thanks for the thread, OP. Very interesting information, wish you lived in Oklahoma so I could just do business with you lol
OP
OP
Well, I probably should have made it clear that I can do business in all 50 states. I did not want this thread to come across like me soliciting business though, but I am happy to help anyone anywhere across the US.
OP
OP
Yes, the trade issues with China have the markets spooked which is helping bonds. The more people invest in bonds the lower interest rates are.
We just got the notice for closing on our house. I wanted to wait until we had a full 20% down to avoid PMI, but then my analytic brain reminded me that would be really stupid.
On our current $300K loan we will be paying ~$90 a month in PMI, or $1,080 a year. That does seem like a lot. However, home prices in our area have been increasing on average ~3% per year. The house did appraise for $300K, and at 3% appreciation, the house should be worth ~$309,000 in a year. $9000 > $1080. Waiting to save up a full 20% down would actually cost me thousands in potential lost gains in the value of the home.
Plus we were able to lock in a rate of 4.125, which isn't as cheap as last year, but sure as hell will be cheaper than this time next year if the Feds keep raising rates as they're expected to.
I guess what I'm saying is that PMI isn't necessarily money thrown down the drain, if the alternative is missing out on home values increasing in the mean time.
On our current $300K loan we will be paying ~$90 a month in PMI, or $1,080 a year. That does seem like a lot. However, home prices in our area have been increasing on average ~3% per year. The house did appraise for $300K, and at 3% appreciation, the house should be worth ~$309,000 in a year. $9000 > $1080. Waiting to save up a full 20% down would actually cost me thousands in potential lost gains in the value of the home.
Plus we were able to lock in a rate of 4.125, which isn't as cheap as last year, but sure as hell will be cheaper than this time next year if the Feds keep raising rates as they're expected to.
I guess what I'm saying is that PMI isn't necessarily money thrown down the drain, if the alternative is missing out on home values increasing in the mean time.
OP
OP
I'm in love with this post. I'm such a mortgage nerd and this is wonderful stuff. This is exactly the kind of things that people should be considering and their loan officers should be discussing with them. So many people sit on the fence waiting for that magic 20% number without considering things to this level of depth. Congrats on that interest rate by the way. My last closing was at that same rate and I'm not sure when I'll be able to give it to someone again.
Along the same lines as your post, is that an FHA loan will sometimes have a cheaper interest rate, which can offset the PMI versus a conventional loan. And with 10% down, you can lose the PMI on an FHA loan after 11 years. You have to really work the math on it but I have been able to help some people out immensely taking that route.
All good points and the interest rate is a big reason we bought (got 3.49). Another piece is even if you get to 20% do you want to fully liquidate all of that and possibly not have much left over for moving, painting, emergency repairs, etc?
OP
OP
Exactly. It often times cost more to finance all of the things you do after closing than it would have to put less money down on the home.
So I'm starting the process in the DFW area, which I'm already seeing is hell on earth. Just crazy how fast homes are selling. But we did talk to a lender, Great Western Home Loans, if anyone has heard of them. They seem nice enough and they did do a full documentation pre-approval, so that seems comforting. They approved much more than I would have thought possible, but of course we're not touching that number. Does anyone have any experience with them? Their reviews online seem to be ok to good for the most part. They didn't provide a rate with the pre-approval, though. Is that normal?
And while we do have a good chunk of savings, we want to expose a little as possible to upfront costs. Closing costs seem killer in TX. Along with property taxes and homeowners insurance. We're going with the FHA route. Income is too high combined to qualify for USDA it looks like.
And that being said, does FHA automatically put a buyer at a nearly impossible disadvantage in what is a hot market like DFW?
And while we do have a good chunk of savings, we want to expose a little as possible to upfront costs. Closing costs seem killer in TX. Along with property taxes and homeowners insurance. We're going with the FHA route. Income is too high combined to qualify for USDA it looks like.
And that being said, does FHA automatically put a buyer at a nearly impossible disadvantage in what is a hot market like DFW?
I have to assume it is a disadvantage at the least. I just sold my home (in a healthy market, but not crazy) and the buyer was going with FHA loan. We had to do some repairs that, to be fair, needed to be done by someone, but they were required by the FHA inspector. I can see sellers just not accepting FHA loans at all if the market is the kind where buyers flock to you and you're almost guaranteed multiple offers in the first week.
OP
OP
This is correct.
One "trick" to help you with it is to have your lender write you a preapproval for a conventional loan if you indeed qualify, and then write the loan as FHA. It will eventually require an amendment to the contract, but you'll be far enough long that the seller is unlikely to balk.
Having closed this past week, your post provides some level of comfort. Ended up at 4.25% on a 30 year fixed and feeling like our monthly is going to be very manageable even if hardship appears.
This thread was and is super helpful so thanks to those again that contributed to it- learned quite a bit as a first time buyer from the discussions in here.
OP
OP
4.25 is a solid rate and will be difficult to get again any time soon.
I'm glad you found the thread useful! I have a lot of content I want to add but very little time to do so.
Wife and I are in the process of buying a 180k house down in Maryville, TN. Very excited, but we found out something that I had never heard of.
So, obviously, if you don't put down 20%, you have to pay PMI.
So talk to the lender and say "Hey, we have $20k to spend on the whole house-buying process." So he asks us, "How long do you plan to stay in the house? More than 3 years?" That was strange question, but we said "yeah."
Apparently, we can pay $2000 upfront to completely wipe out all of our PMI. I had never heard of this nor knew it was an option. That's ~$60/mo we're going to save! We probably won't have the house for the life of the 30-yr mortgage, but we'll definitely have it long enough to need to pay down all the PMI, so this ended up being a huge cost-cut for us. We had budgeted for that extra $60/mo, so we might end up still paying it to cuz some off of the principal and make it better when we go to sell.
Our guess is the rule is you can pay 3 year's worth of PMI upfront, which equated to approx $2k for us.
So, obviously, if you don't put down 20%, you have to pay PMI.
So talk to the lender and say "Hey, we have $20k to spend on the whole house-buying process." So he asks us, "How long do you plan to stay in the house? More than 3 years?" That was strange question, but we said "yeah."
Apparently, we can pay $2000 upfront to completely wipe out all of our PMI. I had never heard of this nor knew it was an option. That's ~$60/mo we're going to save! We probably won't have the house for the life of the 30-yr mortgage, but we'll definitely have it long enough to need to pay down all the PMI, so this ended up being a huge cost-cut for us. We had budgeted for that extra $60/mo, so we might end up still paying it to cuz some off of the principal and make it better when we go to sell.
Our guess is the rule is you can pay 3 year's worth of PMI upfront, which equated to approx $2k for us.
OP
OP
Funny, this is something I was going to add to the thread. You are working with a smart and experienced lender. That is a great option, but not all lenders think of it or can offer it.
But yes, obviously you need to be in the home for more than 3 years to break even.
The wife and I are beginning the first time home buyer process, and last week sat down with a local lender. The firm writes mortgages backed by the local State Employee's Credit Union, of which I have been a member for over 20 years.
One of the intriguing options described is a 100% financed mortgage that effectively splits the purchase price between two loans. 80% of the price is funded by an ARM with a 10 year locked in rate, up to 2% annual adjustment after 10 years, maximum 6% increase lifetime. The remaining 20% (or less, depending on the down payment) is funded by a 15 year fixed interest loan. The advantages as described to me are that equity builds quickly in the smaller mortgage, and doing this negates the need for mortgage insurance normally required when the down payment is less than 20%. In our neighborhood, a 20% down payment is simply onerous. We'd need to have $80-$100k on hand.
Alarm bells go off in my head when I think of ARMs, and multiple loans for a single purchase. The former is at the center of every horror story I read about the real estate crisis, and the latter feels like the kind of bad financial decisions people make at Rent-A-Center. The agent was very forthcoming and addressed my concerns, but this still feels like a grift. Anyone have experience with this type of financing?
One of the intriguing options described is a 100% financed mortgage that effectively splits the purchase price between two loans. 80% of the price is funded by an ARM with a 10 year locked in rate, up to 2% annual adjustment after 10 years, maximum 6% increase lifetime. The remaining 20% (or less, depending on the down payment) is funded by a 15 year fixed interest loan. The advantages as described to me are that equity builds quickly in the smaller mortgage, and doing this negates the need for mortgage insurance normally required when the down payment is less than 20%. In our neighborhood, a 20% down payment is simply onerous. We'd need to have $80-$100k on hand.
Alarm bells go off in my head when I think of ARMs, and multiple loans for a single purchase. The former is at the center of every horror story I read about the real estate crisis, and the latter feels like the kind of bad financial decisions people make at Rent-A-Center. The agent was very forthcoming and addressed my concerns, but this still feels like a grift. Anyone have experience with this type of financing?
OP
OP
Your instincts are strong. That 2nd mortgage will eventually become a thorn in your side, or worse, make your mortgage unaffordable. These types of products are gaining popularity again, but are not worth the stress or worry. Eventually, you will find yourself trying to refinance both in to a single mortgage.
You should not need to put a full 20% down.
I would not trust this lender.
I am a 10 year experienced lender. If you want a 2nd opinion, feel free to shoot me a PM.
This is sounding a bit dodgy. Does that second loan affect the interest rates offered for the main 80% loan because your debt to income would change?
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OP
This is a really great thread Hokahey! I own a title company, so I'm familiar with all of this. I also bought my own house about a year ago, and even being in the business buying your own house is a pain in the ass.
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Ha!
I bought last year, and even with my experience I was beyond stressed out.
Shoot me a PM. Would love to know more about your business.
oh ok. My lender asked me for any outstanding car loan details or credit card accounts. I assumed it affected rate. So DTI is just used to see if you can pay or not?