Help with Mortgage First Time Home Buyer

[spud]

Here’s the conundrum I’m in. I bought a house back in July and went on vacation to HI. I had compared lenders and what have you and picked the one that gave me the best rate. It was a lender through lending tree. Back then he quoted me 5.5% on a 30-year fixed with no pre-payment penalty 0.875 points. I come back form HI and I find out that the guy was unable to deliver on his promise due to debt to income ratio just above 50%. I am royally screwed because back when I was shopping lenders I got quoted 5.5% with 1 point on a stated loan so debt to income ratio would not have been an issue.

This whole fiasco is costing me big. To get 5.5% right now on a 30-year fixed, we’re talking 2 points. No way I’m paying that much up front. Just some additional information. I have absolutely stellar credit with scores @ 794, 784 and 760 and that’s after they’ve gone down due to “too many inquiries”. Also I have about ten years on the bureau showing on time payments with credit cards, car payments, etc. I currently live in apartment so I do not have mortgage payments history on my credit report. I have solid employment history and am putting 20% down. Also I have no debt. Never any settlements, foreclosures, child support, alimony, none of that stuff.

Given my situation, I am looking for suggestions from people in the mortgage industry. One option is to go with an short term interest only ARM, establish some mortgage payment history, increase income and then refinance with a better rate 30-year fixed. But that assumes that interest rates are going to go down or stay even. Mortgage industry insiders, do you have a read on interest rates direction short/medium/long term. I can also go for 3/5 year ARM. I can even go 30-year fixed. I am confused as to which loan is best for me. Please help. Time is against me. I need to commit fast because that close of escrow date is sneaking up on me. I am a first-time home buyer. We’re talking Detached Single Family Residence.

[eggzz]

Without knowing too much about you (family?) I think its important to know if you plan on staying in this home for a long period of time. If this is your first home, chances are you aren't going balls to the wall, and would probably be due for an upgrade in 5-7 years.

I think the average time spent in a home nationwide is in that 5-7 year range. Think long and hard about that.

I bought my second home two years ago, and I have a four year old son and a 14 year old step son (ages now). We have a four bedroom colonial. I knew that Kyle was only 12 at the time, so that was a deciding factor in me taking out a 7 year ARM.

I figured that worst case scenario, I have any time between now (two years ago) and the next seven years to refinance. I locked in at 4.25% paying one half point which was about 1.5% below a 30 year fixed rate. I think I figured that I would pay down 10k more in principal at the 7 year mark than I would have with a 30 year fixed loan.

Kyle would be 19 when the seven years is up, and that would be ripe time for us to buy a smaller/new/different house perhaps. Either way, I'm very happy with the decision we made, and if you don't see yourself in this house more than 7 years from now (and even if you do), I think the 7 year ARM is a great way to go.

Good luck.

[snowbank]

What value home are you looking at? Are you putting money down? How much? I might be able to help you, but I'll be honest and say you won't find someone who's able to give you a 5.5% interest rate(30 years) unless someone's basically doing the loan for free for you. The rates just recently moved up again. Your main concern shouldn't be the rate. Just get into the best program for you, and get someone who will be up front with you. The difference between a 5.5% rate and a 6% rate is almost nothing when you break the numbers down. Most of the investors I work with tell me "I don't care what the interest rate is, just make sure it cashflows for me." And I do. The rate really isn't important. I can get you the best rate available, but if I get it on a 15 year mortgage and you could have used a 40 year mortgage to lower your payments, that doesn't do you much good.

[MrMon]

I don't do mortgages but as a real estate agent I can tell you what I advise and see here in the midwest with first time buyers.

1. Virtually no one I work with gets a 30-year fixed. 10% tops. Some sort of ARM is almost always the norm, interest only works as well. This is especially true with 1st time buyers, as they know they won't be in the house that long. 5 and 7 year are very popular.

2. Paying points to buy down a rate is almost always a fools game. One mortgage pro I know says she can think of almost no scenario where it's a good move.

3. Your problem is debt-to-income ratio, yet you're putting 20% down. I know, avoid the PMI. But could you go to 10% down and significantly alter that ratio? Would that make a difference? 80-10-10 loans are pretty good as well, and lenders like Cendant will simply alter the interest rate on a less than 20% down load, making PMI deductable.

4. Not an option people want to hear, but the Bank of Mom & Dad is sometimes useful if available. Co-sign or paydown of debt through a "gift" is often a popular way to get ratios in line.

5. Right now your first priority should be lining up something to avoid losing the house, unless you have some escape clause in the contract that you want to use. Liquidate assests if you have to, sell the Porsche, stocks, collections, etc. (The HI vacation with a debt ratio like that was probably not a wise move, but what's done is done.) Find cash, borrow from retirements funds if that is an option, win more at poker fast, or cash-in your bankroll, etc., etc.

Without more specific numbers, that's as good as I can do, but it does appear that you can do some things, however unpleasent they may be. It's a sign of growing up, when you have to sacrifice things for the sake of a house.

Good luck.

[midas]

Spud:

What state are you in? Try direct calling a nationwide lender like Washington Mutual and see if your credit stats pass their requirements.

[spud]

Thanks for the all the input folks. I actually decided to go with 5 year ARM Interest only. What’s the best rate I can get on that type of loan going stated 0 points and no pre-payment penalty? Remember we’re talking jumbo loan here and I am putting 20% down. Looking to close by 8/12 so 15 day lock would be sufficient. If you’re a lender/broker put your info out.

[Glenn]

Are you a mortgage broker or do you work for a direct lender?

[snowbank]

I'm a loan officer for a mortgage company, not a direct lender.

Bill