Attn: Flip & Fillip

[Flipx99 5,000+ posts]

I am sure that wasn't cheap.

 

[squeak9798 5,000+ posts]

See, when you borrow money for housing, the lender wants some assurance you will pay. If you do not have 20% down with FHA housing, you have to pay private mortage insurance until you have 50% equity in the home. This insurance comes in the form of a slighly higher interest rate.

The process/terms will likely vary lender to lender and insuring company.

The previous lender I worked for PMI was on every loan over 80% LTV. Once the loan was paid down to 80%, the borrower could write a letter and request PMI be cancelled. Once the loan was paid down to 75% (might have even been 78%, it's been a few years) we were required to cancel the insurance, with or without the written request from the borrower.

Also, the insurance was an additional payment on top of "regular payment". I'm not sure if you were just equating PMI to the "cost" of a higher interest rate. But essentially what would happen is we would submit the information to the PMI company (in our case, GE Cap) and they would return an approval and cost of insurance (based on the loan amount, LTV, credit rating, etc). Your payment would then be the "regular payment" plus the cost of the insurance. So you were really hit double; You had a higher interest rate due to the higher LTV, plus you had to pay for the cost of the PMI (on most regular loans ranged from $15 - $75)

I can afford a house in the $120,000 range. My lender will loan me 95% of the appraised value of the home before I pay PMI. I am thinking that under current market conditions I can buy a house below it's appraised value; thus, my down payment would be less. If they appraised said house at $150,000, I wouldn't need a down payment.

Most lenders consider the lesser of the appraised amount or the purchase price when determining things such as LTV. So if they would lend 95% LTV without PMI and you bought the house for $100k, the most you could finance without PMI is $95k regardless of the appraised value of the home (if the appraisal is higher). What better indicator is there of the true market value of the home (what the appraisal determines) than the actual price you are paying for the home ? This is why they take the lesser of the two. And if you are paying over the appraised value, we simply think you're getting taken for a ride and use the appraisal as the indicator of the home's value //content.invisioncic.com/y282845/emoticons/biggrin.gif.d71a5d36fcbab170f2364c9f2e3946cb.gif

Again, this may vary lender to lender. But of every company I've worked for, and talked with, this is how they operated.

And a caveat to this is if you bought a total dump and were planning to do major remodeling. We'd essentially work it like a construction loan and order an appraisal that took into consideration the planned upgrades and use that as our basis, and then disburse funds periodically over time as work was completed.

 

[Flipx99 5,000+ posts]

Also, the insurance was an additional payment on top of "regular payment". I'm not sure if you were just equating PMI to the "cost" of a higher interest rate. But essentially what would happen is we would submit the information to the PMI company (in our case, GE Cap) and they would return an approval and cost of insurance (based on the loan amount, LTV, credit rating, etc). Your payment would then be the "regular payment" plus the cost of the insurance. So you were really hit double; You had a higher interest rate due to the higher LTV, plus you had to pay for the cost of the PMI (on most regular loans ranged from $15 - $75)

Most lenders consider the lesser of the appraised amount or the purchase price when determining things such as LTV. So if they would lend 95% LTV without PMI and you bought the house for $100k, the most you could finance without PMI is $95k regardless of the appraised value of the home (if the appraisal is higher). What better indicator is there of the true market value of the home (what the appraisal determines) than the actual price you are paying for the home ? This is why they take the lesser of the two. And if you are paying over the appraised value, we simply think you're getting taken for a ride and use the appraisal as the indicator of the home's value //content.invisioncic.com/y282845/emoticons/biggrin.gif.d71a5d36fcbab170f2364c9f2e3946cb.gif

Again, this may vary lender to lender. But of every company I've worked for, and talked with, this is how they operated.

Interesting....my lender is a credit union and since they own the portfolio of loans, they have a great deal more flexibility in the structure. I guess I should also mention this was a 7 year baloon vs. a conventional loan. Perhaps that is where the differences between the two lie.

 

[squeak9798 5,000+ posts]

Interesting....my lender is a credit union and since they own the portfolio of loans, they have a great deal more flexibility in the structure.

If you are referring to keeping the portfolio in house rather than selling the mortgages........my previous employer was a community bank and kept

all of it's mortgages in house and on their books. They didn't (and still don't) sell the mortgages.

I guess I should also mention this was a 7 year baloon vs. a conventional loan.

LOL....wow, there's a product I haven't dealt with in a while.

Balloons sort of fell out of the market when ARM's took over.

Any particular reason you were considering a balloon over a product such as an ARM?

 

[Eugenics 5,000+ posts]

Hey Squeek,

While you're here, can you tell me what will benefit my credit score the most?

 

[Flipx99 5,000+ posts]

LOL....wow, there's a product I haven't dealt with in a while.

Balloons sort of fell out of the market when ARM's took over.

Any particular reason you were considering a balloon over a product such as an ARM?

The balloons have the 95% appraised value before PMI, whereas the ARM doesn't. It's part of the package, I guess.

What is really nice is that any time during the 7 year period...if interest rates drop, there is a $400 "documentation fee" vs. the traditional costs of refinancing. The great benefit here is that it doesn't consider home valuation. So, while my home value may drop, I can still refinance without worry for only $400.

 

[squeak9798 5,000+ posts]

What is really nice is that any time during the 7 year period...if interest rates drop, there is a $400 "documentation fee" vs. the traditional costs of refinancing. The great benefit here is that it doesn't consider home valuation. So, while my home value may drop, I can still refinance without worry for only $400.

Loan modification, I presume. $400 is a really good price for a modification. The bank's fee for loan modification was 1% of the loan balance with a $750 minimum. Basically, not much, if any, cheaper than a full refinance.

 

[Flipx99 5,000+ posts]

Loan modification, I presume. $400 is a really good price for a modification. The bank's fee for loan modification was 1% of the loan balance with a $750 minimum. Basically, not much, if any, cheaper than a full refinance.

Yes, that is the word....the way the loan is set up it seems like a pretty good deal.

 

[Eugenics 5,000+ posts]

ahhem

 

[squeak9798 5,000+ posts]

Hey Squeek,
While you're here, can you tell me what will benefit my credit score the most?

Really depends on what you have now and in your past, credit wise.

Here is a brief summary of just a few of the hundreds and hundreds of things to consider;

http://www.caraudio.com/forum/showpost.php?p=1740184&postcount=22

 

[WhoSayWho? 5,000+ posts]

ahhem

Pay down any debts that you have, but I don't think you need to cancel your cards.

 

[Eugenics 5,000+ posts]

I dont have any cards.

 

[Flipx99 5,000+ posts]

You need to get some.

 

[WhoSayWho? 5,000+ posts]

I dont have any cards.

Do you want some? I just stole a wallet down to the mall.

 

[squeak9798 5,000+ posts]

You need to get some.

Agreed.

Too little credit is not a good thing either.