Help on my mortgage options....

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C

cpals

Diamond Member
Mar 5, 2001
4,494
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I finally found a house and signed the contract last week with a good faith estimate from Bank of America. My builder's mortgage company calls me today and is trying to get me to go with them. Here are the two comparisons:

Bank of America:
Cost of Loan: $176,175 (Split 80/20 to avoid PMI)
1st Loan: 7/1 LIBOR ARM 40 years @ 6.625
2nd loan: 10 Year Balloon @ 9.375

Monthly Breakdown:
P&I 1st Loan: $837.73
P&I 2nd Loan: 293.07
Property Tax: 220.22
Hazard Insurance: 120.00
-------
Total Monthly $1,471.02
Click to expand...

Builder's Mortgage:
Cost of Loan: $172,389 (It's an FHA and the mortgage company pays the 3%)
1st Loan: 30 Year fixed @ 6.5

Monthly Breakdown:
P&I: $1089.62
Property Tax: 220.22
Hazard Insurance: 120.00
Mortgage Insurance: 70.84
-------
Total Monthly $1,500.68
Click to expand...

Assuming I live there anywhere from 7-10 years, which would be the best option. It could be longer, but who knows. Of course PMI sucks, but I am getting almost $5,000 paid towards the loan not out of my pocket.

Thanks for ANY insight.

Edit: Changed hazard/taxes to be the same. Only estimates
 
Slew Foot

Slew Foot

Lifer
Sep 22, 2005
12,379
96
86
Just a quick look but yeah the fixed rate from BofA is much better than carrying a pair of ballooning rates. Especially with the 40 yr loan, youll be paying 500K in interest over the course of the loan with that.

edit: ooops, reversed the lenders, go with the builder.
 
BurnItDwn

BurnItDwn

Lifer
Oct 10, 1999
26,353
1,862
126
I would honestly go with the 30 year fixed in this situation.
You will not be able to write off as much on your taxes, however, if/when either you have 20% paid off ... or you have 20% equity ... usually they will take the PMI off. Also, the fixed rate won't go up in cost where as the BOA loans will go up.

If you're thinking of staying there 7-10 years, definatly the 30 year fixed through the Builder.


That being said, there may still be other options out there that could be better for you.
Have you talked to any mortgage brokers?
Does your place of employment have a Credit Union, perhaps consult them. You may be able to get a 30 year fixed below that 6.5% rate.
 
C

cpals

Diamond Member
Mar 5, 2001
4,494
0
76
Originally posted by: BurnItDwn
I would honestly go with the 30 year fixed in this situation.
You will not be able to write off as much on your taxes, however, if/when either you have 20% paid off ... or you have 20% equity ... usually they will take the PMI off. Also, the fixed rate won't go up in cost where as the BOA loans will go up.

If you're thinking of staying there 7-10 years, definatly the 30 year fixed through the Builder.


That being said, there may still be other options out there that could be better for you.
Have you talked to any mortgage brokers?
Does your place of employment have a Credit Union, perhaps consult them. You may be able to get a 30 year fixed below that 6.5% rate.
Click to expand...

I've looked at around 4-5 different mortgage companies. My company doesn't have a credit union, but I do bank at one, but they also most likely wouldn't pay the 3% for downpayment like the builder is going to.
 
R

richardycc

Diamond Member
Apr 29, 2001
5,719
1
81
the tax and insurance should be same or very close with either loan, the builder might use lower figures just to get you to go with him.
 
T

tfinch2

Lifer
Feb 3, 2004
22,114
1
0
Does the Builder have a 15 yr fixed option? See what the monthly difference would be with that option as well.
 
Dirigible

Dirigible

Diamond Member
Apr 26, 2006
5,961
32
91
Why are the insurance and property tax different for the two loans? Shouldn't these two things be the same? Or at least the property tax (insurance varying depending on insurance company)?

oop. I see that richardycc beat me to this question.
 
C

cpals

Diamond Member
Mar 5, 2001
4,494
0
76
Originally posted by: tfinch2
Does the Builder have a 15 yr fixed option? See what the monthly difference would be with that option as well.
Click to expand...

Richard, the taxes on both are comparable and the home insurance is very much based on my part and what kind of deal I can get. Even with the differences, they're only $30-$50.

I'm not sure about a 15 year option, but I'm already close to my maximum monthly payment I can afford and I'm not sure how that would change things.
 
C

cpals

Diamond Member
Mar 5, 2001
4,494
0
76
Originally posted by: Dirigible
Why are the insurance and property tax different for the two loans? Shouldn't these two things be the same? Or at least the property tax (insurance varying depending on insurance company)?

oop. I see that richardycc beat me to this question.
Click to expand...

They are estimates.. I guess I could just estimate high. I put down what both companies gave me.
 
M

mrrman

Diamond Member
Feb 8, 2004
8,497
3
0
seems high on both ends...I have a higher mortgage and my payements are lower than both posted
 
C

cpals

Diamond Member
Mar 5, 2001
4,494
0
76
Originally posted by: mrrman
seems high on both ends...I have a higher mortgage and my payements are lower than both posted
Click to expand...

Yeah, but what's your interest?
 
A

altonb1

Diamond Member
Feb 5, 2002
6,432
0
71
Originally posted by: cpals
Looks like everyone recommends the builder's mortgage company.
Click to expand...

Definitely. Interest rates have been going up for the last couple of years or so...why would you want to get an ARM in that kind of climate? Besides, the estimates are fairly close--they differ ~$30. You can't spend an extra $30/mo in order to knock 10 YEARS off the loan?
 
AnonymouseUser

AnonymouseUser

Diamond Member
May 14, 2003
9,943
107
106
Originally posted by: cpals
Bank of America:
Cost of Loan: $176,175 (Split 80/20 to avoid PMI)
1st Loan: 7/1 LIBOR ARM 40 years @ 6.625
2nd loan: 10 Year Balloon @ 9.375

Monthly Breakdown:
P&I 1st Loan: $837.73
P&I 2nd Loan: 293.07
Property Tax: 220.22
Hazard Insurance: 120.00
-------
Total Monthly $1,471.02
Click to expand...

Assuming I live there anywhere from 7-10 years, which would be the best option. It could be longer, but who knows. Of course PMI sucks, but I am getting almost $5,000 paid towards the loan not out of my pocket.
Click to expand...

Go with BoA, but roll your PMI into your mortgage.. Mortgage companies love splitting the mortgage 80/20 for the additional interest. :)

EDIT >> For chrissakes, go with a 30 year loan!
 
M

mwtgg

Lifer
Dec 6, 2001
10,491
0
0
Interest rates are only going to rise, so you'd be a fool to go with that ARM.
 
S

SampSon

Diamond Member
Jan 3, 2006
7,160
1
0
I've been using FHA financing for my properties. It's a good option, though an FHA mortgage has to meet different criteria than std conv.
The first mortgage seems to be a case of "creative financing", put together for someone who doesn't have the cash to actually close on a property.
Since the mortgage amount is still within FHA guildelines and (I assume) this is your first house, I would go with an FHA loan. At this point you are at the top of your affordable value range so you should go with the best fixed mortgage possible.

When you purchase a house do NOT purchase it based on monthly payments, this is how people get into trouble.

 
alkemyst

alkemyst

No Lifer
Feb 13, 2001
83,769
19
81
looking at the numbers the Builders is a no brainer. You would save a bit with the first scenario, but if for some reason you can't unload the place at the 7 year mark...you could be in for a beating.

Also I don't know what you had prior to your edit, but a lender changing taxes/insurance/HOA/etc is a typical way to give you a better price, but in reality these are fixed costs.

The real cost of your loan will be any fees/costs from the lender/affliates (appraisal, title, processing, underwriting, et al) and the P&I each month. The rest should be a wash as every lender will have to use them.

I work for a top 10 home builder in their mortgage division. Being that we cover both the building and lending, we usually offer pretty nice incentives. I am willing to bet over the next year with all the top 10 facing around 30% contract walk-outs due to the market changing...the incentives will get better.

What a competitor will try to do is compare against us offering a conventional fixed + incentive, against their 1 year ARM product at a teaser rate. They will show the customer over the 30 years (or 15, 40, etc), that incentive means nothing. What they fail to tell the customer is after that 1 year is up, their rate will be climbing. Over a typical 5-7 year period incentives do make a huge difference. If you are going to carry a property 30 years+ then probably not.

 
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