Question: Loan underwriting for this scenario?

pbx2_gwJune 6, 2012

Just running some numbers by you all & seeing if you can check behind me for logic & accuracy.

$525K = Cost of house

$108K or 20% = Down Pmt

$417K = Loan (conforming not high balance conforming ie FNMA HBL program)

$10K = Closing costs into a 2nd Piggyback HELOC.

Question:

1) Will the lender charge me a higher rate on the 1st because I am financing the closing cost & effectively borrowing more than 80% (CLTV vs. LTV)?

or

2) Will lender be charging me a higher 1st mortgage rate (say 4.0% vs. 3.625%) because I am right at the 20% down payment & in this environment more cash & low LTV means better rates?

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invisible_hand

I believe the answer to both of your questions is no.

Do be aware that the lender(s) do not care about the cost of the house, but rather the appraised value of the house.

The good news is that if the house appraises higher than your purchase price of $525k, your HELOC may fall under the 80% or 75% CLTV threshold reducing your rate.

The bad news is that if your house appraises lower than $525k it will mean that you are unable to borrow the full $417k at the favorable 80% LTV rates.

Good Luck.

    Bookmark   June 6, 2012 at 9:58AM
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mgmsrk

Will the lender give you a home equity line at the same time as the mortgage? If they do will they not just add PMI back as you are below 20%?
Are you sure your closing cost will only be $10G, that seems low for the cost of the home. Are you including the escrow end of closing costs, 3-12 months of taxes and 6-12 months of insurance? Does your area have a mortgage or transfer tax?
Credit scores tend to have more to do with rates, if your credit is great you generally get the best rate even if you borrow a bit more.

    Bookmark   June 6, 2012 at 10:38AM
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Billl

There are not national laws about this and each lender is free to set rates by their own criteria. Either start getting some quotes directly or contact a mortgage broker to do it for you.

    Bookmark   June 6, 2012 at 11:39AM
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pbx2_gw

Posted by mgmsrk (My Page) on Wed, Jun 6, 12 at 10:38

Will the lender give you a home equity line at the same time as the mortgage? If they do will they not just add PMI back as you are below 20%?
Are you sure your closing cost will only be $10G, that seems low for the cost of the home. Are you including the escrow end of closing costs, 3-12 months of taxes and 6-12 months of insurance? Does your area have a mortgage or transfer tax?
Credit scores tend to have more to do with rates, if your credit is great you generally get the best rate even if you borrow a bit more.

A little bit more disclosure from me: it's a construction to perm loan.

So, the escrows in the closing costs will be essentially the land property taxes - low with no building yet.

They would establish the 2nd equity line HELOC to pay for the Closing costs.

We are planning to pay the closing costs on the HELOC off with the proceeds from the sale of another property some time during the construction phase.

Question:

1) What would be make good dollar sense at that point?

2) Would I have to Refi or Modify the original terms?

Reasoning is the current lender seems to be steering me towards a jumbo loan ( amt would be 420k vs. 417k) & putting less of the closing costs on the 2nd HELOC.

Not sure what the motivation play is here...unless we are getting better pricing for a jumbo (very rare IMO)

    Bookmark   June 6, 2012 at 11:59AM
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mgmsrk

What are the terms with a Jumbo loan? The monthly payment would not be much more for 3K. With what current rates are each 1k is only about $5 in P&I per month.

Are you including the land you already purchased for part of your �down� amount? If you are do you know for sure the underwriters will give full value for it?

    Bookmark   June 6, 2012 at 12:39PM
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pbx2_gw

Posted by mgmsrk (My Page) on Wed, Jun 6, 12 at 12:39

What are the terms with a Jumbo loan? The monthly payment would not be much more for 3K. With what current rates are each 1k is only about $5 in P&I per month.
We are still speaking in generalities with the lender. So I haven't seen the details yet. But good to know about the monthly P&I difference.

Are you including the land you already purchased for part of your �down� amount? If you are do you know for sure the underwriters will give full value for it?
The land has not been purchased.
Since the builder also owned the land, we will close it as one package land + house.

    Bookmark   June 6, 2012 at 12:51PM
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mgmsrk

I don�t know anything about "jumbo" loans so I can�t offer any help. One question would be to find out when and if PMI drops if you put less down and forget about the HEL. If you think you will sell your other property and you can just dump it as a lump sum into the principle, bringing up you LtV ratio you may be better off.

I asked about the land because often lenders will not use full value for it as equity, I�ve seen a few people caught short by that. It happened to me with our last home, not so much the value but how the dum dums at the bank "sectioned" the property for the home. Our house is on 30 acres of waterfront land, 1700� on saltwater. The mortgage people decided the house should only be on 4 acres for the loan and they cut a square that did not include any water. Hello, idiots all the value in the land is the fact that it is waterfront. We are selling it and of course selling the whole parcel it was just funny to watch them figure things at the time and just wonder how they come to decisions.

    Bookmark   June 6, 2012 at 1:15PM
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pbx2_gw

Posted by mgmsrk (My Page) on Wed, Jun 6, 12 at 13:15

I don't know anything about "jumbo" loans so I can't offer any help. One question would be to find out when and if PMI drops if you put less down and forget about the HEL. If you think you will sell your other property and you can just dump it as a lump sum into the principle, bringing up you LtV ratio you may be better off.

Good point(s). Thanks for your insights.

Sometimes, all the options available causes more confusion than necessary I think LOL!

    Bookmark   June 6, 2012 at 3:37PM
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PRO
Sophie Wheeler

In what location are you building where a 525K build actually appraises for 525? Most people are finding building costs to be much higher than their appraisals and are having to put down much more than 20% of the cost of the build to even approach 20% equity in the home. You're basing a lot of your math on assuming that you will make appraisal, and you'd better have a goodly reserve amount for the worst case scenario of problems during the build, upgrade creep, and a low appraisal.

    Bookmark   June 6, 2012 at 5:14PM
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suz1023

mgm--thirty acres with salt water frontage?!
wow, that's amazing.

    Bookmark   June 6, 2012 at 9:21PM
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pbx2_gw

Posted by hollysprings (My Page) on
Wed, Jun 6, 12 at 17:14

In what location are you building where a 525K build actually appraises for 525? Most people are finding building costs to be much higher than their appraisals and are having to put down much more than 20% of the cost of the build to even approach 20% equity in the home. You're basing a lot of your math on assuming that you will make appraisal, and you'd better have a goodly reserve amount for the worst case scenario of problems during the build, upgrade creep, and a low appraisal.

Worst case = the HELOC comes into play
Appraisal is coming in +5% more than sale price.
I don't assume. I know.

    Bookmark   June 7, 2012 at 12:49AM
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mgmsrk

"fallingwaters
mgm--thirty acres with salt water frontage?!
wow, that's amazing."

It�s for sale cheep, about $150,00000. less then it would cost to build if you want a summer home in the Canadian Maritimes. ;)

    Bookmark   June 7, 2012 at 8:02AM
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