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Profile picture for plumloopy

Is this interest rate too high for an 800 FICO?

I'm in the midst of getting a 80/10/10 loan for a home purchase (that's 10% down) for a $400k house.  We were preapproved, etc, but are providing document after document at underwriters' request.  That doesn't surprise me, however.

My lender is currently quoting us 5.15% on our 80% loan, stating that because we're not putting 20% down, it's higher than usual.  My credit is excellent, an 800 FICO score with virtually no debt besides a car loan and current interest rates for a 30 year are under 5%.

Does that rate seem high?  Is he just using the 80/10/10 setup to BS me into paying more than I should?

Thanks,

Chris
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June 03 2010 - Oak Park
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Profile picture for plumloopy
I should add that the appraisal came in fine ($415k).  We're getting the loan on my income only, which is cutting it close.  Our backup plan is to add my wife's income which probably won't be necessary.  Our contract requires closing by 6/28.  We're already about a month into the process.

Thanks very much for whatever help/opinion you can offer,

Chris
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June 03 2010
Would need to know more about the scenario. Is this for a condo or a single family home, is the lender covering any of your closing costs, and what was the lock period?  There is a minor Fannie Mae adjustment for first and second loan scenarios, but it certainly wouldn't raise the interest rate that much.  Without knowing too much more, the rate definitely seems high in this market.  Try submitting a loan request through the Zillow Mortgage Market. As an aside, I don't know of any banks allowing for purchase seconds up to 90%, so maybe that's where you're paying the premium.  Just a thought... 
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June 03 2010

At 90% CLTV although the first mortgage is probably higher than what you could obtain, very few outlets offer a combined 1st and 2nd to 90% to avoid MI.

You may not like it but the little extra you are paying on the first may just be because the lender can charge it, when you have a product no one else can compete against...you usually do not have to price the product sharp to get the business.  Supply and Demand kicks in...The demand for 90% no MI is high but the supply is low, so you pay a premium for it.

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June 03 2010
You may also want to re evaluate the way your lender has your financing structured.  I would imagine the 10% second interest rate is significantly higher than the 5.125%.  In most cases, the total monthly payment is lower on a 90% loan, than an 80/10/10. 

Today, on a purchase with 10% down, you should be under 5%.

I would be happy to go over options.  We have fast turn times and will not have a problem closing by the 28th.  Please feel free to contact me if I can be of any help.

Good Luck!!
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June 03 2010
Loan amount of $360,000 at 4.875% P&I Payment of $1,905 +PMI

80-10-10
1st Loan Amount $320,000 at 5.125% P&I payment of $1,742
2nd loan Amount $40,000 at 8.25% P&I payment of $301

P&I payment for 80-10-10 is $2,043 with No Mortgage Insurance.

The Difference in Payments is $138 per month.  MI at 90% will be around .49% or $147 per month.  So even with the higher rate on the 2nd it can still be the lower payment.  

That 2nd rate is what I offer at 90% on a 30 year fixed rate 2nd, depending on the borrowers situation I may suggest paying PMI over splitting the loan into a 1st and 2nd but I have found in most cases the 80-10-10 has a lower monthly payment.
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June 03 2010
Profile picture for doralgate
Rates seem high to me...we are in a similar scenario with a 80/15/5 and both rates for the first and second are lower....I think the piggyback is by far a better scenario for anyone who is trying to pay off the second on an accelerated schedule.
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June 03 2010
I'll have to disagree with you there, doralgate; I would take the MI on a single loan rather than the split loan. You can accelerate the paydown of the main loan the same way as paying off the second, but it would be at a lower interest rate for principle.  Once the loan gets to 78%, the MI will come off and you still have a nice low interest rate.  

By comparison, the interest rate on the main loan for split loan would have been adulterated by an LLPA, however minor, for having the second lien.  

Anyway, just my $.02.  
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June 03 2010
Profile picture for doralgate
Yeah but I believe that I will be paying principal when I make the payment on the second mortgage already and not some arbitrary thing called MI that does not do a thing for me. In the one mortgage scenario I will have to cover for this MI first before I can start paying the principal. For the quotes I got the 80/15/5 scenario actually had a lower rate than any of the other quotes...not sure why, maybe I did not shop hard enough but that was the case. The MI apyment for me for me would have been only $20 cheaper than the payment for my second mortgage and then abviously the first quite a bit higher due to greater loan balance. Just made sense to me.

Still think the rates quoted to the OP are too high though from what I have seen.
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June 03 2010
Doralgate...I know of no one offering an 80-15-5.  Unless you are in Texas...that was the last place I have heard they were available.
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June 03 2010
Profile picture for doralgate
Texas it is for me....so I guess I'm lucky in the regard that I actually will be able to keep some reserves in my savings account instead of completely depleting them in order to come up with a bigger downpayment.
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June 04 2010
You should get 4.75% on 1 loan with an 800 Fico. The payment @ 4.75% with MI = 2027/month, lower than the combo payment. Even If you have no appreciation and the value holds at $415K, then the MI will come off after 71 months which will be 78% LTV. Your total payback if kept for 30 years = $686,704. 
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June 04 2010
Profile picture for plumloopy
Thanks so much, everyone, for your replies.  Some clarification:

- It's for a single family home.

- We are looking at an adjustable for the second because it was so, so much lower than the fixed rate and we are planning to aggressively pay it off in a couple of years.  I believe the current rate for the 10% loan at an adjustable rate is around 5%.  The chance that the adjustable would exceed the fixed within a few years time seems unlikely.

- We would like to avoid PMI if possible unless the math makes overwhelming sense.

- I'm doing it on my income only which cuts it REALLY close.  In fact, the house is in an area where taxes will add ~$800/month eventually.  Due to a senior discount, the current taxes are less than half that.  We can enjoy that for about a year and a half before it's reassessed.  For the purposes of the loan, it allows me to be the only applicant... but not by much.  My wife has another $55k/year to contribute.

- The current lender is a fairly "big name" bank. 
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June 04 2010
You still come out better with 1 loan. Even if you had a Heloc as the 2nd lien and it stayed at 5% ( no way that is happening, but if ), you could instead apply the 3 year Heloc payment to paying down the single loan,  and the MI would come off after 28 payments ( 78% LTV ) and you are left with 1 loan at 4.75% instead of 1 loan left at 5.125% plus 8 more Heloc payments at $1200 each. Leave the Big Bank and call John Paunan, there is a reason why he has 160,000 reviews and a 5/5 rating.
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June 04 2010
Profile picture for plumloopy
I wish I could leave at this point.  Five weeks in and U/W are still seeking documents that we could have provided or prepared long ago but now have to scramble late in the game.  Our advisor told us to pursue on my income alone, then asked us to pay down by 50% one of our car loans only to tell us last week that it now needed to be paid entirely.  Bye-bye $7000 in cash.  Now because my '07 income was substantially less and we have an extension for 2009 (high income for me but taxes not yet filed) U/Ws are being asked for a ratio exception.  We could have simply put my wife on the loan long ago OR started the tax return process in early May.

I would jump ship and try another lender but our contract has some need for verification of the loan by the 15th and close by the 30th - hopefully earlier.  I have no faith that anyone could process a home purchase quickly.  This is the second house I bought in the last year (first on mother's behalf last fall) and I have absolutely no trust in the system.  I'm convinced U/Ws only feel they're doing their job by dragging out the process and asking for doc after doc until they find one you can't provide.  Then you have to throw yourself on their mercy.  I'm also selling an investment property and the buyer's U/W demanded that he double his down payment last minute, which he cannot afford -- after I'd already given a payoff amount to the title company and was expecting close any day.

Burnt out.
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June 08 2010
Profile picture for plumloopy
I just wanted to post an update that we did close on the house Monday and our rate for the 80% loan was 4.875, which we're happy with.  In addition, costs kept going down with every GFE.  I think there's a complication closing smack in the middle of the year like this (due to taxes) but it was eventually straightened out.  I never could get a straight answer about discrepencies with our lender, but they seemed to work in our favor.  I got answers like "Only the best for you guys!" and "I felt bad that things have been difficult, so I got you this discount."  Yeah, right.

In the end, we're happy and I definitely was wiser in the process due to this board.  Thanks, all.
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June 23 2010
Congrats! 
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June 23 2010
 
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