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Profile picture for getnandu

Which type of Loan is better for First time home buyer?

Hi! We are first time home buyers and looking for a house. House price we are looking is around 200K. Options we got were 5/1 ARM, 7/1ARM and Conventional 30 yr fixed. We plan to live in the house for 7-10 years. We both have a steady income. We need help to decide on which kind of loan is better of us? The interest rates we recived for 5/1 ARM is 3.375, 7/1 ARM is 3.75 and 4.75 for 30 yr fixed. We were thiking of 7/1 ARM but can't decide. Any input or suggestion will be appreciated.
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March 03 2011 - Hickory
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Profile picture for dshaferb33
MIP= "A fee charged by the FHA to offset the risk that the outstanding loan balance may exceed the property value.  An inital fee of a %'age of the Maximum Claim Amount is charged at closing and an additional monthly fee is charged  at an annual rate of the outstanding loan balance.  These fees are added to the loan balance each month.  Interest accruals thereafter are based on the increased amount."
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March 11 2011
There are a lot of great answers here.  I would encourage you to consider a SELLER Funded Buydown. on a 30 yr fixed.

This is a dynamic strategy in todays market that is creating a win win for both the seller and the buyer.

You can get the seller to pay an additional 2% in discount points and permenetly buy th rate down to say 4.125% on an 30 year fixed.  This will save you moer money short term and long term and will protect you if you decide to stay forever. I reccomend that you consult a Certified Mortgage Planning Specialist (You can google CMPS) to discuss this unique strategy.  Joe T. 
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March 11 2011
As a broker it will depend how long you will own the home - if you plan to keep it up to 10 years I would recommend a fixed rate mortgage. 



Regards, wdm
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March 11 2011
Profile picture for getnandu
Thanks 'sunnyview'. We found the dream house and we close May 5th. :-)
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March 11 2011
Profile picture for sunnyview
Awesome! Wishing you good luck in finding a great house.
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March 11 2011
Profile picture for getnandu
Thank you all! 

I took your guy's advice and locked my mortgage for 30 year fixed. :-)

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March 11 2011
Profile picture for sunnyview
I disagree that an ARM is a good idea. If you are planning to stay for 10 years, get a fixed rate. Rates are low and you will never be forced to refinance when rates are almost guaranteed to be higher.

Take the safe road or follow in the footsteps of those who lost their house on an ARM before you.
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March 11 2011
The interest rate that was quoted to you on an ARM vs fixed would have a lot to do with your decision making. If you truly know that it is a 7-10 year stay that you plan and if the interest rate is lower than I would recommend the ARM. Making sure there are no penalties on paying off early and that the closing cost up front are in line with other mortgage programs available.
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March 11 2011
Profile picture for getnandu
MIP - Mortgage Premium Insurance (some people call it PIM)
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March 04 2011
Profile picture for the_country_hick
"I see MIP in most of them.Few I saw with no MIP but interest rate was 5% instead of 4.75 or so. Does it make sense to pay MIP or no? Any more insight on MIP."

I have no idea what that is. Ask this question under the mortgage section. A lender would likely see it there and reply.



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March 03 2011
Agree with all the previous posts. My 4 first time buyers were all strongly encouraged by my lender to go 30 year fixed with 20% down and they have all been extremely happy with how it has gone. Hope these answers helped.
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March 03 2011
Put me in the fixed rate camp but I would suggest say a 7 year if someone is telling me 3-4 years or something along those lines.  We cannot predict the future and many people thought they would be selling the last few years and have not.

If you are going to go the ARM route save the difference so if you do see a big jump in 7 years you are prepared.
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March 03 2011
Profile picture for getnandu
Thank you guys so much for answering the question and providing advice and reasoning. Looks like fixed rate is the way to go. So, I will get with my mortgage consultant to find out rates and options for 30 yr(FHA or Conventional) loan. 

One more question. In all the approximation loan illustrations I have received from the consultant, I see MIP in most of them.Few I saw with no MIP but interest rate was 5% instead of 4.75 or so. Does it make sense to pay MIP or no? Any more insight on MIP....
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March 03 2011
Profile picture for the_country_hick
In life things happen beyond your control. One example is the federal reserve printing a lot of extra money with NOTHING more behind it. When it begins to be spent when the economy improves inflation will roar and not like a mouse. At that time your arm would increase. Your low payment could become a much higher payment you can no longer afford.

Why would you risk losing a house as interest rates go much higher when you can safely get a low fixed rate? A fixed rate will cost you the same on your last monthly payment that it did for your first payment (insurance and taxes excluded).

Look at the foreclosure crisis we have today. Many people who lost their house to foreclosure lost it because of mortgages that reset. When the monthly payment increased it was no longer affordable.

A 30 year fixed rate mortgage is not the ONLY mortgage that is good for a buyer. A 15 or 20 year (or other time frame) fixed rate mortgage is also a good choice.
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March 03 2011
30-year fixed rate with a escrow impound account even if you plan on 20% down.

Happy funding,  Rudi
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March 03 2011

How certain are you that you will be moving in 7-10 yrs?  Rates will undoubtedly go higher  and if there is any chance that you are staying put then the ARM is not the right loan product.

What are your home ownership goals?  WHat is your income?  Have you considered a 15 yr fixed?  WHat other debts do you have?

Do you qualify for USDA loan based on income guidelines?  They have low rates and no MI.  Many properties in that area are likely to qualify but the loan isn't for all buyers.

Find a loan officer that you can talk to and trust so you can get pre-qualified and begin learning more so you can make the best decision for you and your family. 

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March 03 2011
Profile picture for getnandu
Thanks HUGD for your response. Sounds like you feel very strongly about the 30 yr Fixed. Thats good. But may I ask why and why is that a good/only choice to be made by first time home buyer?  
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March 03 2011
As first time buyers there is no choice; you need a 30 year fixed. 
Period, finito, end of discussion. 

Mortgage rule #237:
Anyone asking whether to take an ARM or a fixed rate has absolutely no business being in an ARM.

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March 03 2011
 
Related Questions
Which type of Loan is better for First time home buyer?
Profile picture for dshaferb33
Latest answer by dshaferb33
March 11 2011 | 18 answers
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