My sister is buying a home for 131,700. This their first home and they went through a company that supposedly finds them the best loan possibly for them and then the get a builder to start building their home over the next six months. Their credit score is in the low and mid six hundreds and they are looking at a fixed interest rate of 9.3%. the taxes are about 310 monthly and the insurance is 127 monthly. Im helping her go through the paper work and I notice that there are two loans being combined, one for 104 thousand and the other is around 27 thousand. Can you do this? I want her to know as much as possible because they are set to close on March 13, 2007 and I want to make they can afford this and that they are actually getting a good deal. They make over 4000 monthly. Please provide any information possible and thank you in advance for any responses. I would hate for them to get in over there head.
2007-03-07 10:17:54 · 9 answers · asked by RayneFaLLz 1 in Business & Finance ➔ Renting & Real Estate
The house has been built, inspected, and appraised already. They started this process in October I believe
2007-03-07 10:34:28 · update #1
Yall are giving my sister and I wonder information. We are really appreciating this.
2007-03-07 10:47:06 · update #2
I just found out that they didnt have a downpayment and they arent paying any closing costs. Also why wasnt they offered something like a first time homebuyers deal. Im a college student dormer so I dont know anything about home loans.
2007-03-07 10:55:58 · update #3
The structure is not uncommon. More so when the buyer has little to put down. The structure helps to avoid paying PMI.
The credit score is a bit low so the borrower is getting hit with a high interest rate. Likely to be some pretty steep fees being paid. Some of the time the rate is higher and the fees are lower as the lender will pay the broker after the loan closes so that there are lower fees. All legal and mostly covered by the estimate and the closing HUD statement.
Watch out for prepayment penalties as that is also common with such a deal when the credit score is average to low.
To improve things will require a bigger down payment and for the past credit problems to be cleaned up. If there is a plan to do so then maybe starting with this loan package makes sense and then refinancing in 1-3 years. Just check the prepayment fees if she does want to do a refinance in a few years.
Note that a 30 years fixed loan for good credit should be closer to 6.25%.
Checking that they are not in over the head is a great idea. Even if they can afford the payments do they have a cash buffer if someone is looses their job? What about fixing the place up (landscaping, curtains and other things that a new home needs)? Will they need furniture or do they have enough for a home this size? Those are all costs that seem to pop up even when it looked like you can afford the payments.
2007-03-07 10:34:00 · answer #1 · answered by Anonymous · 0⤊ 0⤋
This is called an 80/20 and anyone in the whole sale lending industry will tell you this is very common. There is nothing wrong with this loan although I will say that at that interest rate I am assuming they are going stated income, that is, not proving their income. If not, even in todays market that first is a bit high. The second is not a construction loan...no worries there, and they may in fact have a prepay. If their scores are lower, it may be their only option. OR...at that rate, they may have bought out the prepay. There are a lot of unanswered questions, but I can assure you as someone who has been in the wholesale market for 10+ years.....this is normal. Feel free to email me if you have any questions. No...I do not work with consumers so I am not trying to get your business,I just like to make sure people are informed and understand what they are doing.
2007-03-07 13:20:47 · answer #2 · answered by queenvwr 2 · 0⤊ 0⤋
I had to do this when I bought my first house (I had a condo) to make the 80% rule not to have to pay PMI. I had a first loan for the 80% balance and a second loan for the next 10% (I had enough for a 10% down payment). The second loan is usually a higher rate loan and is for a shorter term.
If they need this sort of situation to get into the home, it is pretty typical. With the credit score as low as you state, the rate seems about right too.
If they close the house and can get there credit score up, in about a year, they might consider refinancing, and combining the 2 loans into one, with a better rate. It also might have gained in value (the home) which can help the loan to value ratio to avoid paying the PMI.
2007-03-07 10:28:36 · answer #3 · answered by Jen 5 · 0⤊ 0⤋
Yes. Sometimes you need to have two loans. Banks consider Loan to Value (LTV) when approving loans. Most lenders do not lend more than 75% LTV (example: if your property is worth $100,000 you cannot borrow more than 75% of that value from them, which would be $75,000). Some lenders will go to 80%, but anything above that would require mortgage insurance. Some lenders will lend more than that without "requiring" you to purchase mortgage insurance, but you are paying a higher rate and the mortgage insurance is built into that on their end.
If a borrower needs to borrower more than 75% LTV, they would get a First Trust Deed for that amount and then take out a Second Trust Deed for the remainder, either as a Home Equity Line of Credit or a standard second mortgage.
2007-03-07 17:36:11 · answer #4 · answered by Mary M 1 · 0⤊ 0⤋
Yes, it is typically a first and second mortgage, or a first mortgage and home equity loan.
When I bought my house I got a mortgage and a home equity loan. I did this to avoid paying PMI on the mortgage.
You should make sure there is no prepayment penalty. They can afford to pay down the loan aggressively (and I recommend that they do, 9.3% is a high rate of interest.) So if they pay more than the minimum each moth, they could get everything paid sooner and save thousands in interest.
2007-03-07 10:27:03 · answer #5 · answered by Vegan 7 · 0⤊ 0⤋
Yes it can. It may or may not be considered a first and second mortgage/line of credit. The smaller loan for $27k sounds like it could be a construction loan. I would definitely be leary of this. If the house is being built in a new sub-division (where the houses being there the longest have been there one year or less) the property taxes may not be accurate and could raise considerably by the next evaluation period. My husband and I were advised about our property taxes because of this same reason- we will find out later this year.
2007-03-07 12:04:18 · answer #6 · answered by kglover_23 2 · 0⤊ 0⤋
Yes, this is usually called a combination of a first and a second mortgage. Some buyers like it to pay for closing and down payment. this is dangerous. It could lead to overspending for a mortgage and eventual bankruptcy, if not done with careful intent.
2007-03-07 10:23:33 · answer #7 · answered by The Cythian 3 · 0⤊ 0⤋
Something smells bad. They could get stuck paying for years, for a non-existent house. Consult a real estate attorney FAST.
2007-03-07 10:32:09 · answer #8 · answered by bullwinkle 5 · 0⤊ 0⤋
That sounds like what I had to do on my home. It can make the money really tight though..
2007-03-07 10:23:24 · answer #9 · answered by Niklaus Pfirsig 6 · 0⤊ 0⤋