Posted on: 14th Sep, 2007 05:00 am
Hi, I started shopping for a loan recently and that's my first time offcourse. I've declared bankruptcy in 1999 as I married a spender and found out a good deal of debt having been piled by my husband. And then I got divorced. Since then I have worked towards having a clean credit report except there's a 3 year old negative item and a 8 year old bankruptcy. I have 3 credit cards with zero balance and debt to income ratio goes out to be 31%. My credit score is now around 657 and my gross annual income is around 60K. I'm in military and do not have any plans of occupying the home more than 5 years I have received several offers. The options that I've come across: standard 30 year fixed, interest-only loan, adjustable rate that to for 15 years. But I am confused, so may options and I really don't know what to choose, looks to me 30 year fixed would be good but 30 years is a long time!! And don't know where I will be. If any of you can help or suggest something lese, that would be just fine. And, yes, I've heard of cash flow loan – what is that?/
i think it is better to go with fixed rate mortgage instead of ARM.
Have you explored a VA loan?
Some of the benefits of a VA loan are:
1. No down payment required.
2. Fewer allowable closing costs
3. Seller can pay for all your closing costs
4. 100% of your cash to close can be gifted.
5. No cash reserves required.
6. Seller 2nds allowed.
7. VA Funding fee can be financed into the loan.
8. Easier to qualify for (higher qualifing ratio [DTI] + the ability to use residual income.
9. VA loans are assumable.
As to whether or not you should use a long term fixed or a short term fixed/adjustable loan---although holding period is a criteria for selecting an appropriate loan, there is very little benefit/rate difference when considering a ARM loan.
Hope this helps.
Regards,
Scott Miller
Some of the benefits of a VA loan are:
1. No down payment required.
2. Fewer allowable closing costs
3. Seller can pay for all your closing costs
4. 100% of your cash to close can be gifted.
5. No cash reserves required.
6. Seller 2nds allowed.
7. VA Funding fee can be financed into the loan.
8. Easier to qualify for (higher qualifing ratio [DTI] + the ability to use residual income.
9. VA loans are assumable.
As to whether or not you should use a long term fixed or a short term fixed/adjustable loan---although holding period is a criteria for selecting an appropriate loan, there is very little benefit/rate difference when considering a ARM loan.
Hope this helps.
Regards,
Scott Miller
1. what is the negative item?
2. get a fixed rate.
3. i seriously doubt that the arm rate will be that much better than a fixed. just don't let them talk you into interest only unless you are very sure that it is the right choice for you. the payment for a 7% arm is the same as a 7% fixed. if the payment is ever lower on a comparable arm it is for interest only and you might as well rent at that point as you won't pay off any principle.
4. if you plan on moving find out if you will get a prepayment penalty. find out if the penalty applies when you sell or refinance. sometimes if you sell they won't charge it. this is a soft prepay.
5. are you putting money down?
a. 100% loans at that score can have very high rates.
b. your best options include fha, va, mycommunity mortgage
c. what lenders are you talking to?
d. be careful if you aren't getting one of these programs and they are quoting you under 10% (this is a going rate for high risk programs) if they are quoting lower they will probably stick you at closing with the real rate.
let me know if you have any questions.
2. get a fixed rate.
3. i seriously doubt that the arm rate will be that much better than a fixed. just don't let them talk you into interest only unless you are very sure that it is the right choice for you. the payment for a 7% arm is the same as a 7% fixed. if the payment is ever lower on a comparable arm it is for interest only and you might as well rent at that point as you won't pay off any principle.
4. if you plan on moving find out if you will get a prepayment penalty. find out if the penalty applies when you sell or refinance. sometimes if you sell they won't charge it. this is a soft prepay.
5. are you putting money down?
a. 100% loans at that score can have very high rates.
b. your best options include fha, va, mycommunity mortgage
c. what lenders are you talking to?
d. be careful if you aren't getting one of these programs and they are quoting you under 10% (this is a going rate for high risk programs) if they are quoting lower they will probably stick you at closing with the real rate.
let me know if you have any questions.
Hi Juliana,
As 8 years have already passed after bankruptcy, you can likely qualify for many loan options. And I feel, it is better to go for any fixed rate mortgage as your monthly payments will remain fixed and it will help you to pay off the loan with a fixed budget.
As 8 years have already passed after bankruptcy, you can likely qualify for many loan options. And I feel, it is better to go for any fixed rate mortgage as your monthly payments will remain fixed and it will help you to pay off the loan with a fixed budget.
But do VA loans offer interest-only option?i can make down payment worth 5-7% but why do you say a 7% ARM and 7% fixed rate will have the same payments almost?? what is seller 2nd? i know i am asking a lot of questions but i'm just not aware of this...
Juliana,
Let me try to clarify. Some lenders try to trick people into doing an interest only loan saying it will save them money. It doesn't save you any money it lowers your payment. Which will always cost you money as you are not paying off any principle (principle is the initial amount that you borrow from the bank).
Lets take a typical purchase and look at it.
Example.
The Adams Family purchases a home for $100,000. They don't put any money down and do an interest only loan. The loan is fixed for 30 years and the first 10 years are interest only. They aren't worried about after the interest only period because they are going to sell in 3-5 years. So over the next 3 years they make there interest only payment and think everything is fine. The market they are in, like most these days, is stagnant and home values are not increasing.
So here is what happens. Even if the home stayed the same value lets say $100,000 how are the Adams' going to sell. If the home is only worth 100k and they have to pay a realtor then they cannot sell as that will put them out $6000-7000 to pay for the real estate fees. They can't refinance because with the new closing costs added in they are still short $3000. It is a situation many lenders want you to be in as now your are locked into their loan and their terms. Real estate is a speculators market and values can go up or down. Unfortunately in most areas they are going down right now.
That is why interest only doesn't work it is like renting only you have to pay for it when you move. I don't care what anyone says unless rent is significantly higher than the interest only payment it is never a good deal. The only time it could pay is if home values are skyrocketing and increasing by more than 10% per year.
Now hopefully you can see what interest only really is. The reason I mentioned that 7% fixed is the same as 7% ARM was not to insult your intelligence. But many people are fooled into thinking that an interest only ARM actually has a lower payment than a fixed with the same rate. It isn't because of the loan just because your only paying interest. It is amazing how many loan officers just say something like this "Oh sir or maam Company A can get you a payment of $1000 at 7% for 30 years well I can get you a lower payment of $900 at 7% for 30 years from my company. Sounds to good to be true because it is interest only. And even worse if they simply have a minimum payment that doesn't even cover the interest which happens, then you could be adding money to your principle everymonth. So that $100,000 turns into $110,000 really quick. Eventually you have to start paying or sell and you saw what happens when you try to sell.
A seller second is when a seller offers a 2nd mortgage to someone buying there property. It is a form of privately held owner financing. It used to work well when properties were appraising for more than sellers need to sell for. Typically it doesn't involve any money actually changing hands although the 1st mortgage lender expects it to be real. Sometimes these are called forgivable 2nds. Most 1st mortgage lenders don't allow them as it is just a trick to get out of putting money down.
Hope this helps.
Let me try to clarify. Some lenders try to trick people into doing an interest only loan saying it will save them money. It doesn't save you any money it lowers your payment. Which will always cost you money as you are not paying off any principle (principle is the initial amount that you borrow from the bank).
Lets take a typical purchase and look at it.
Example.
The Adams Family purchases a home for $100,000. They don't put any money down and do an interest only loan. The loan is fixed for 30 years and the first 10 years are interest only. They aren't worried about after the interest only period because they are going to sell in 3-5 years. So over the next 3 years they make there interest only payment and think everything is fine. The market they are in, like most these days, is stagnant and home values are not increasing.
So here is what happens. Even if the home stayed the same value lets say $100,000 how are the Adams' going to sell. If the home is only worth 100k and they have to pay a realtor then they cannot sell as that will put them out $6000-7000 to pay for the real estate fees. They can't refinance because with the new closing costs added in they are still short $3000. It is a situation many lenders want you to be in as now your are locked into their loan and their terms. Real estate is a speculators market and values can go up or down. Unfortunately in most areas they are going down right now.
That is why interest only doesn't work it is like renting only you have to pay for it when you move. I don't care what anyone says unless rent is significantly higher than the interest only payment it is never a good deal. The only time it could pay is if home values are skyrocketing and increasing by more than 10% per year.
Now hopefully you can see what interest only really is. The reason I mentioned that 7% fixed is the same as 7% ARM was not to insult your intelligence. But many people are fooled into thinking that an interest only ARM actually has a lower payment than a fixed with the same rate. It isn't because of the loan just because your only paying interest. It is amazing how many loan officers just say something like this "Oh sir or maam Company A can get you a payment of $1000 at 7% for 30 years well I can get you a lower payment of $900 at 7% for 30 years from my company. Sounds to good to be true because it is interest only. And even worse if they simply have a minimum payment that doesn't even cover the interest which happens, then you could be adding money to your principle everymonth. So that $100,000 turns into $110,000 really quick. Eventually you have to start paying or sell and you saw what happens when you try to sell.
A seller second is when a seller offers a 2nd mortgage to someone buying there property. It is a form of privately held owner financing. It used to work well when properties were appraising for more than sellers need to sell for. Typically it doesn't involve any money actually changing hands although the 1st mortgage lender expects it to be real. Sometimes these are called forgivable 2nds. Most 1st mortgage lenders don't allow them as it is just a trick to get out of putting money down.
Hope this helps.
Juliana,
My point is that the difference between the short term and long term interest rates is marginal at best---the mortgage markets have been operating at a flat and/or inverted yield curve for 3-4 years now (historically short term interest rates are lower then long term interest rates).
In your case, if you are comparing the use of a I/O ARM @ 7% and a 30 YR FXD at 7%, then there would be a modest difference (the payment would be approx. 98 dollars cheaper with the I/O ARM).
Sorry for the confusion and I hope this clarifies matters for you.
Regards,
Scott Miller
My point is that the difference between the short term and long term interest rates is marginal at best---the mortgage markets have been operating at a flat and/or inverted yield curve for 3-4 years now (historically short term interest rates are lower then long term interest rates).
In your case, if you are comparing the use of a I/O ARM @ 7% and a 30 YR FXD at 7%, then there would be a modest difference (the payment would be approx. 98 dollars cheaper with the I/O ARM).
Sorry for the confusion and I hope this clarifies matters for you.
Regards,
Scott Miller
Thanks guys for the great info. So, what do i do if i had to qualify for Va loans? whom should i approach now and how. Does VA loans have an insurance cover that i hear people getting for any other mortgages?
Hi Juliana,
There are several criteria that you must meet o to qualify for a VA approved loan. They are mentioned as follows:
1) You must be a veteran who had served on active duty during World War II.
2) You must be a veteran who had served for at least 90 consecutive days during a major conflict.
3) You must be an enlisted veteran whose service began after 1980 or an officer and who have served for at least 2 years.
4) You must have a certificate of eligibility issued from U.S. Department of Veterans Affairs.
You may get a VA loan from any VA approved lender. And you will also get the insurance coverage on this type of loan.
There are several criteria that you must meet o to qualify for a VA approved loan. They are mentioned as follows:
1) You must be a veteran who had served on active duty during World War II.
2) You must be a veteran who had served for at least 90 consecutive days during a major conflict.
3) You must be an enlisted veteran whose service began after 1980 or an officer and who have served for at least 2 years.
4) You must have a certificate of eligibility issued from U.S. Department of Veterans Affairs.
You may get a VA loan from any VA approved lender. And you will also get the insurance coverage on this type of loan.