Mortgage Loan Questions…?
My husband qualified on his credit for a home loan. As of right now well untill monday, we know very little about the details, I’m sure I can find all this out from the loan officer, but I thought since I was on, and it’s late, I might be able to quickly get some info via some of you yahoo people! 
He has fair credit, it’s not bad, but it’s not really good either. I’m guessing because of the market that the loan we are being offered is sub-prime what are the interest rates like on a sub-prime? Are they usually ARM or Fixed? if it is ARM would we be able to refinance and qualify for a a better fixed loan after paying on time for a year or two? We don’t want to move untill March. (This is when we estimate we will have the 3% available for down payment.) is there some way we can find a home now and sign into a contract to close in 90 days or so? Do we need to have the down payment up front for that? and also does anyone know if the 8,000 tax credit is going to be extended into next year for sure? All of these questions apply to Las Vegas’ Market…IDK if that matters. THANKS TO ANYONE WHO ANSWERS ON ADVANCE!!!
Ok, it seems like you have quite a few questions here.
1) ARMs are not evil despite what everyone is saying. People fear something they don’t understand. I’m not saying to get an ARM, but you should know what it is and how it works to know if it is for you or not. ARM stands for Adjustable Rate Mortgage. This means that after the initial 5 or 7 years (depending on what type of ARM you get), the interest rate begins fluctuating.
For example, a 5 year ARM is fixed for the 1st 5 years, then it begins fluctuating with the market and economy. Now, why would anyone get an ARM? Well, you get a lower interest rate during the initial fixed period if you get an ARM. So, if you do not plan on staying in your house for longer than 5 or 7 years (depending on your ARM type), then you should get an ARM. Why? Because if you’re planning on moving within the fixed period, then you can enjoy low interest rates for the 5 years, then sell the house, so you wouldn’t have to worry about the fluctuating interest rates anyway.
2) ARMs do NOT always adjust up, currently they have been adjusting down for some time, making homeowners with ARMs have even lower interest rates than what they had with the initial fixed period.
3) However, if you plan on staying in your home for a long time, and you don’t like having to watch the market for how interest rates are moving — up or down, then you should get a fixed loan (there are 2 types: 15 year fixed or 30 year fixed).
4) As for down payment, the lowest down payment amount you can pay is 3.5% for an FHA loan. FHA loans come in 30-year fixed as well. FHA is a loan that is insured by the Federal Housing Administration, which makes otherwise riskier borrowers safer to lenders as the goverment is insuring you to the lenders — to guarentee the loan will be paid back.
5) FHA loans are also good with lower credit scores as they are designed to be more flexible. Also the tax credit is extended until April 2010. Lastly, remember the tax credit is only 10% of the house you are buying — up to $8,000.
Hope this helps. For more information on how loans work, check out the sources section.
November 26th, 2009 at 12:26 pm
DO NOT get an ARM loan. The interest rates and your payments will balloon after a couple of years. ARM loans are the primary reason so many people lost their homes to foreclosure in recent years.
The best way to obtain a loan is to get interest rates, based on your credit score, from other lenders. Here’s what has worked for me time and time again. Take the rate that you got from your current lender and then call 5-10 banks, telling them the rate you were quoted by the first bank, and then ask them if they can beat it. Feel free to give them your credit rating, because you do not want to have them do their own credit inquiry until you are in the application process as it will cause your credit rating to drop. After you have the best rate, choose that company.
Demand a 30 year FIXED loan, with no prepayment penalty for early payment or total payoff. In this economy you will have to pay 20% down, or pay PMI (Private Mortgage Insurance). PMI ensures that your mortgage is paid even if you default-but of course, the payee is the bank in this event and you lose the house.
References :
Years of experience.
November 26th, 2009 at 12:34 pm
Are you also going to be a borrower? You only mentioned your husband’s credit. If he gets struck by lightening one day, your mortgage becomes due even if you are an owner. You need to be both.
March is several months from now. Your credit could improve a lot by then if you really work at it. Starting now, make sure every single payment is on time. Don’t close old accounts but don’t use them either. Pay down what you can and leave the accounts alone.
Don’t get an ARM. A lot of people who are screwed up right now got ARMs thinking they could refi in a couple years, but their homes are not worth as much as they owe now. Don’t even think about any of those fancy loans, like pick a payment or interest only. Those are not for regular people with regular jobs.
Sub-prime loans can be fixed as well. ONLY get a fixed rate and ONLY one loan. Do not get an 80/20 to avoid mortgage insurance. That really means you can’t afford the house. It’s wonderful to own a home, but there are many expenses beyond the monthly payments. Don’t box yourselves in so that there’s no way to save for contingencies.
You need at least enough for the downpayment, the closing costs and 2 months reserves, i.e. enough to pay the principal, interest, mortgage insurance, home owners insurance and taxes for 2 months in the bank. The money needs to have been there for a few months. If you have what we call "mattress money", deposit it now and don’t touch it. There has to be a paper trail for money.
The only time you may have to get an ARM is if the property doesn’t meet the requirements of the secondary market and the lender can only offer you a portfolio loan…one they keep themselves. One of the lenders I’ve processed loans for did that on rare occasions when someone was buying a condo that didn’t meet Fannie/Freddie requirements. Otherwise, avoid them except in reverse mortgages which are a whole different ball of wax.
References :
November 26th, 2009 at 12:42 pm
If they are telling you 3% down that is wrong- FHA is 3.5% down. There are no sub-prime programs left. FHA only requires a 620 score so I believe that is probably what they are offering you. Most sellers will not agree to wait 3 months. Most lenders can’t lock your rate for 3 months & if they do you will pay a higher rate. Tax credit is being extended.
References :
November 26th, 2009 at 1:03 pm
There are no more subprime loans and you shouldn’t want one even if they still existed. No doubt, you qualify for FHA. You need 3.50% down. And there’s no reason to get an FHA arm. The rates are not that different. Get a fixed rate.
You need to show the mortgage company that you have the down payment now, not 90 days from now. A lot of people will be working very hard over the next 60 to 90 days to get you the house you want. And they all will want to be certain as possible that the transaction goes through. Primary is making certain you have the money for the down payment and closing costs. The seller can cover some of the closing costs, but it needs to be clear upfront. You will have to show the underwriter that the money is in the bank or somewhere else before your transaction moves forward. The listing and selling realtor will want to be sure of this also. Otherwise they will find another buyer.
The tax credit was already extended.
References :
Finance and Mortgage Consultant since 1978
November 26th, 2009 at 1:49 pm
Ok, it seems like you have quite a few questions here.
1) ARMs are not evil despite what everyone is saying. People fear something they don’t understand. I’m not saying to get an ARM, but you should know what it is and how it works to know if it is for you or not. ARM stands for Adjustable Rate Mortgage. This means that after the initial 5 or 7 years (depending on what type of ARM you get), the interest rate begins fluctuating.
For example, a 5 year ARM is fixed for the 1st 5 years, then it begins fluctuating with the market and economy. Now, why would anyone get an ARM? Well, you get a lower interest rate during the initial fixed period if you get an ARM. So, if you do not plan on staying in your house for longer than 5 or 7 years (depending on your ARM type), then you should get an ARM. Why? Because if you’re planning on moving within the fixed period, then you can enjoy low interest rates for the 5 years, then sell the house, so you wouldn’t have to worry about the fluctuating interest rates anyway.
2) ARMs do NOT always adjust up, currently they have been adjusting down for some time, making homeowners with ARMs have even lower interest rates than what they had with the initial fixed period.
3) However, if you plan on staying in your home for a long time, and you don’t like having to watch the market for how interest rates are moving — up or down, then you should get a fixed loan (there are 2 types: 15 year fixed or 30 year fixed).
4) As for down payment, the lowest down payment amount you can pay is 3.5% for an FHA loan. FHA loans come in 30-year fixed as well. FHA is a loan that is insured by the Federal Housing Administration, which makes otherwise riskier borrowers safer to lenders as the goverment is insuring you to the lenders — to guarentee the loan will be paid back.
5) FHA loans are also good with lower credit scores as they are designed to be more flexible. Also the tax credit is extended until April 2010. Lastly, remember the tax credit is only 10% of the house you are buying — up to $8,000.
Hope this helps. For more information on how loans work, check out the sources section.
References :
https://www.quickenloans.com/refinance/learn/how/adjustable-rate-mortgages
https://www.quickenloans.com/home-buying/learn/why