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Posted by Bill Poston on April 16, 2006, 4:14 pm
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Jeff,
Reading your posts from past, you seem very knowledgeable in
mortgages.
I am planning to buy a new home and sell my current home in Georgia.
My head is spinning with all the data I've been fed.
My wife and I are retired. Our credit rating is around 850. Present
home paid for. Selling for $154,900. New home is $219,900 and I
believe way underpriced because there are three other homes in same
subdivision which are listed at $254,900 $248,900 and $229,900.
We don't owe anything, have about $53,500 annual income (I'm a poor
guy).
In general the lenders have told me to take First mortgage on new home
for $80,000, 6.5% interest fixed for 30 years, Pay approx $15,000
closing and downpayment on new home, make Home Equity loan on present
home for $130,000 7.75% plus 1/8 interest payments only of $850. Once
present home is sold and closed, pay off Home Equity and I'm left with
payments of about $505 per month for 30 years.
Any suggestions, hints, tips or anything would be appreciated.
I just want the best for my money.
Thanks in advance for your help.
I imagine this is small peanuts to you but to me it's big.
Bill Poston
To reply correct [at] and [dot]
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Posted by Jeff Strickland on April 18, 2006, 10:16 pm
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"Bill Poston" <poston8[at]comcast[dot]net> wrote in message
> Jeff,
>
> Reading your posts from past, you seem very knowledgeable in
> mortgages.
>
I am licensed to sell loans in California, your mileage may vary.
> I am planning to buy a new home and sell my current home in Georgia.
> My head is spinning with all the data I've been fed.
>
> My wife and I are retired. Our credit rating is around 850.
Your rating (FICO Score) is excellent. The way this works is they start with
850, then begin subtracting points based on a variety of factors. When they
get done, you get a score in the range of somewhere below 500, to 850. I've
never seen an 850 before, but it is theoretically possible, and you
apparently have no negatives to subtract. Good work.
Present
> home paid for. Selling for $154,900. New home is $219,900 and I
> believe way underpriced because there are three other homes in same
> subdivision which are listed at $254,900 $248,900 and $229,900.
>
> We don't owe anything, have about $53,500 annual income (I'm a poor
> guy).
>
It is odd that you are so poor and have such a good FICO score.
The home you're in can be sold for $155, and the one you're buying costs
$220. You're going to run into stuff like agent fees on the sale, these run
in the range of 4% to 6%, typically. Again, your mileage may vary. Assuming
the worst -- 6% in fees -- this will run $9300 off the top of the proceeds.
Let's round up to $10k, you will net $145 after the dust settles.
> In general the lenders have told me to take First mortgage on new home
> for $80,000, 6.5% interest fixed for 30 years, Pay approx $15,000
> closing and downpayment on new home, make Home Equity loan on present
> home for $130,000 7.75% plus 1/8 interest payments only of $850. Once
> present home is sold and closed, pay off Home Equity and I'm left with
> payments of about $505 per month for 30 years.
>
Okay, you want to buy the new house before you jetison the first house?
That's fine. Yes, you can get a home equity 1st Trust Deed on the existing
house, use the proceeds for a down on the second house. Take a 1st Trust
Deed out on the second house for the balance. When the first house is sold,
retire the loan and continue paying on the 1st for the second house that you
(by now) will be living in.
You might run into issues with qualifying because your income is on the low
side, as you already acknowledged. Frankly, I think you should look at a 3/1
or even a 1/1 if you can stomach the risk. The Home Equity loan, by its very
nature is a higher risk to the lenders. Yours won't be much of a risk to
them, but your personal situation is much different than the loan was
designed for. The 3/1 or 1/1 is a fixed rate product for the term of the
first number, 3 or 1, then becones an adjustable that adjusts once a year
for the remainder of the loan's life. You can get a 3/1 or 1/1 in an
Interest Only product that pays the interest that is due each month, but
does not pay down the principle. You don't seem to care -- I wouldn't care
if I were doing what you are trying to do -- because you are only keeping
the loan long enough to turn the For Sale sign into a Sold sign. So, you
take an interest only loan for a short time, and pay it off when the home
sells. BE SURE TO NOT GET A PREPAYMENT PENALTY product. The lenders have
investors, the investors insist on making money, but if you retire the loan
early, then the note is paid off and nobody makes any money. They -- the
lender -- can charge a Prepayment Penalty if the loan is retired earlier
than 3 or 5 years. Many lenders do not have a prepayment penalty, but most
do -- especially on the equity line, so be aware of what they are selling
you.
In any case, I suggest a 3/1 on the new property, and your choice of the 3/1
or 1/1 on the existing property. Take both with an Interest Only note. This
will get the payment to its lowest possible number, for two reasons. The 3/1
product represents more risk for you, and less risk for the lender, they
reward you with a lower rate, and the interest only has no principle
repayment. YOU CAN ALWAYS ELECT TO ADD PRINCIPLE REPAYMENT IF YOU WANT, JUST
WRITE A LARGER CHECK. But, you want the lowest possible payments to
calculate your qualification. Assuming the SAME rate, 6.5%, the Interest
Only payment will be $400, or about 20% less than the fully amortized
payment. When the existing house is sold, then refinance the new house to a
30-year fixed.
If you get a 3/1 on the existing home, why not consider putting a tenant in
it to make the payment for you? Odds are good the home will appreciate
another 5% or 10% before you need to do anything with the loan.
The new house is 220k, give or take, but the loan is only 80k. This means
that you have a 36% LTV (loan to value). You should be able to do much
better than 6.5% with that kind of equity. I'm not actively lending anymore,
but when I was, you could get a NINA (No Income No Asset) product at a
better rate than that with your equity position. With a NINA, the loan
officer essentially writes your name on the loan app and sends it in. There
is no need to tell anybody that you don't make any money.
THE RISK TO YOU
The risk you face is that housing values plummet and/or interest rates climb
dramatically before the fixed rate term is over. If values plummet, then you
could owe more than the house can be refinanced for. But, you would have to
lose alot of value before this happens to you. The other risk is rising
rates. You can get a 6.5% loan today, can you get one in 3 years?
> Any suggestions, hints, tips or anything would be appreciated.
>
> I just want the best for my money.
>
> Thanks in advance for your help.
>
> I imagine this is small peanuts to you but to me it's big.
>
>
>
>
>
>
>
>
> Bill Poston
>
> To reply correct [at] and [dot]
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Posted by $cott on April 19, 2006, 3:33 am
Please log in for more thread options > It is odd that you are so poor and have such a good FICO score.
Income and assets are not used to calculate credit scores, timely
payments and low balances do.
Regards,
Scott Miller
National Commercial and Residential Lender/Broker
1.877.716.6495
EZMortgageLoanz@aol.com
www.RealEstate-IQ.com
www.EZMortgageLoanz.com
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Posted by $cott on April 19, 2006, 4:03 pm
Please log in for more thread options I forgot summarize my recommendation so here it is:
a. Sell your old home before buying your new home. This way you are
paying for one set of lending fees (for the purchase of your new home)
and two (refi of old home to purchase new home).
b. If you must borrow against your old home, use a HELOC and borrow
only what is required for the down payment and try to get the first
home sold before loan origination on your new home.
c. If you borrow against your old home and don't sell your it before
you buy your new home, apply for a no-doc loan in the variation of your
choosing (30 yr fixed, interest only and ARMS are offered with no-doc
loan types).
Regards,
Scott Miller
National Commercial and Residential Lender/Broker
1.877.716.6495
EZMortgageLoanz@aol.com
www.EZMortgageLoanz.com
www.RealEstate-IQ.com
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Posted by Jeff Strickland on April 20, 2006, 8:22 pm
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>> It is odd that you are so poor and have such a good FICO score.
>
> Income and assets are not used to calculate credit scores, timely
> payments and low balances do.
>
I know that, but as a general rule, people with low incomes also have low
FICO scores. Obviously, this rule of thumb is not set in stone. The idea is
that life costs money, and if one hasn't got the cash, they use credit.
Excessive credit drives scores down. Certainly, one can go through life
without using credit, or using credit well, and this is reflected in high
scores without regard to the income.
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