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Need Advice: First-time buyer, Credit Score 674, 195K home, downpayment 10%

Would I be better of  with a Fixed rate or ARM? Any chances of getting interest only mortgages for me to build my reserves for 20% downpayment to get a lower rate 30 yr fixed mortgage? 

Thanks in advance for your advise.
  • March 01 2009 - Greenville
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Answers (9)

Best Answer

If you try to get a conventional interest only arm, i dont think you will qualify with a 674 score, plus the rate is much HIGHER than a fixed rate 30 yr. A portfolio arm will generally require 20% down and rates about the same as 30 Yr fixed. 
Compare: 30 Yr at 5.25% = 969/month
    5 Yr I/O at 6% = 877/mo interest payment
Cash flow savings = $91/mo or only $1100 / year. That does not get you the extra $19,000  needed to get to 80% LTV.

  • March 01 2009
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Anukumar, the banks in my area go to 85%, some only 80%, and want at least a 720 score to get a piggyback Heloc. When you have 2 loans, the cost of the 1st mortgage goes up due to another adjustment for the combined loan to value, on top of the score adjustment. 
  • March 01 2009
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Profile picture for Anukumar
Thanks very much for your suggestions. I will go the fixed rate route. Waht would my chances of getting a small home equity for the 10% gap. In otherwords can I get 2 loans one for 80% of the value and the other for 10%. The idea being we can repay the smaller loan faster and not be struck with a higher payments for 30 yrs. Plus save money on refinancing.
  • March 01 2009
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CB--



You can only give the illustrious "Best Answer" designation if you had asked a 'question' not started a 'discussion'.  Your'e SOL buddy.
  • March 01 2009
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Thats right! Plastic Baby Rules, unless plan B has to be put into action. Anukumar, thanks for the best answer, that's a 1st. BTW, how do you give that, I need to give best answer to someone else on another thread and cant figure it out, LOL.
  • March 01 2009
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Thats right, rates are near historic lows and according to the plastic baby, they will be at historic lows again sometime in the next two weeks

  • March 01 2009
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Profile picture for Anukumar
I was wondering if I could have a low interest loan by doing a ARM or Interest only so that by the end of the year i would have the remaining 10% and hopefully my credit score would be 700+ for me to refinance at low fixed rates. 
Would this be a worthwhile considering all the closing costs?
  • March 01 2009
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Not sure what you mean about the interest only and reserves? If you are buying with 10% down and 674 fico, then go FHA. If you can wait until you build your reserves ( best ) to 20%, then you can get a conventional loan with no MI and it also gives you time to get your score over 700. DO NOT get an interest only loan, probably not available to you anyway.
  • March 01 2009
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Take a fixed rate loan. Rates are near historic lows.
  • March 01 2009
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