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Thread: Home loan advice needed

  1. #1
    buffie06
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    Default Home loan advice needed

    I am 27 years old, and am planning to probably quit dancing no sooner than 2 years. I would love to dance longer but just in case I am preparing to stop then. I am purchasing a new home and have not gone through the loan process yet.

    I currently own a home with a fixed interest rate and that is all I am really knowledgable about as far as this goes. I was told that only dancing 1 1/2 years , I have to do a stated income and I will more than likely want to do a fixed rate that turns to ARM after 2 years. I want to pay more principal at first as I am ovbiously making more income now than I expect in the future. I am scared to have an ARM because it seems unpredictible and also seems that interest rates will continue to rise for sometime.

    My fico is not the greatest 654, 675, 660 last time I checked. My husbands are somewhat higher but not alot. We are saving for a down payment right now, but will be able to make a huge decrease in our debt once we actually live in the state where we work, as opposed to traveling every weekend as we have been doing for the past 5 months.

    My questions are can I refinance an ARM to a fixed rate once our ficos improve? What is an acceptable fixed rate, assuming no points and very little down payment, for my situation with a stated income? Any help is appreciated, thanks

    Buffie

  2. #2
    God/dess VenusGoddess's Avatar
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    Default Re: Home loan advice needed

    Your FICO isn't BAD. In fact, the one you have would get you a good rate, right now. You want to begin refinancing your loan, well in advance of that ARM kicking in. You never know what will happen that'll push off the refi...and the more time you have, the better. You can refi your ARM (make sure you don't have any pre-payment penalties) and get a fixed rate. If you own your home, I am not sure why you think you would need a down payment. Also, shop around...different brokers and lenders offer different incentives to lure you in. A lot of places offer to cover the closing costs, leaving you only paying for title and fees (which can still be a few grand).

  3. #3
    tampafldancer
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    Default Re: Home loan advice needed

    couldnt you do a no doc?

  4. #4
    Senior Member DanMorris95156's Avatar
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    Default Re: Home loan advice needed

    Buffie -

    Your self-employment status of less then 2 years does not preclude a traditional fixed rate loan today, it simply requires more documentation and frankly a more involved underwriting process. I find the emotional desire to have a fixed rate loan always an interesting economic discussion. Over the last 20+ years, when interest rates have been much higher, and a little lower, an ARM has nearly always had a lower effective rate of interest. There is a premium paid by borrowers to have that fixed rate - because the lender takes the inflation based risk. Also, the statistically average holding period for a house is like 5 years (in California at least) so paying a premium for a 30 year fixed doeesn't generally pencil out.

    Personally, I like the 3 year fixed or 5 year fixed type ARM products in that they provide a period of fixed rates but are generally like 1/4 of a % less expensive then a traditional fixed and have less points or origination fees.

    FICO scores are certainly important - and lower scores are perceived as more risky from a defalut perspective - but there two more legs to the triangle of things a mortgage company looks at - income and downpayment. If your credit is poor, you have to demonstrate better income coverage and a stronger downpayment - these two strengths can reduce the importance of your raw credit score.

    You certainly can refi almost any ARM with less cost then a fixed rate loan. And you can also refi it with another 3 or 5 year fixed rather than a pure 30 year type fixed. ARM's also can accept additonal principal payments more easily then many fixed rate loans and this helps if you plan on using additional cash flow to reduce your outstanding loan balance.

    There are thousands of loans and each has its purpose. If you wrap up the administrative costs into your loan (e.g. no points/no costs) you will be paying a higher rate of interest. The choices relate to how long you plan on staying with this mortgage and/or staying in this home. You need to forecast into the future what you think your life wil be like and what your needs might be. A qualified lender will be able to clearly explaing these items to you so that you can make a solid loan decision.

    Interest rates are a funciton of risk and inflation. Short term rates are rising - but mortgages are based on long-term rates. These rates aren't rising so quickly - so don't panic when Alan Greenspan raises the Fed rate. Also, rates are cyclical in that when summer hits and the hordes of people look for a new loan because they are moving during the summer, rates tend to rise because of the underlying economic pressure of many borrowers absorbing the supply of money - and frequently during the slower periods - rates oftentimes move down a little.

    In essence, you need to pick the overall best mortgage you can get at the time you need a mortgage - but if fixed move again toward record lows - then you might grab one, but trying to time rates is like timing the market, generally a failure.

    Hope this helps a little and best of luck.

    Regards,

    Dan
    Daniel D. Morris, CPA
    [email protected]

  5. #5
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    Default Re: Home loan advice needed

    Beware the unanticipated economic or political event which changes the economic rules of the game. It is quite true that ARM’s over the last ten perhaps twenty years had a lower effective interest rate than fixed.

    Here’s my take on the economic changes coming. High gas and fuel prices are already causing inflation. Never believe the governments CPI index because it was readjusted
    for political reasons in the mid 1980’s. High commodity demand from China and India have hit. Jobs are hard to get and keep, and the icons of corporate American are slowly falling apart, meaning stable employment is hard to find.

    All this means higher interest rates, perhaps as bad as the early 1970’s,
    But not as bad as the early 1980’s. Would mean mortgage rates of
    7- 8.5%, with short term rates for awhile going higher than
    (the slow to learn and adjust) long term rates. (Inverted yield curve).

    Why would you do a ARM in this situation? Just because lenders
    no longer are allowed to say the word “NO” on crazy risky deals
    doesn’t mean that a non doc, 98% loan to value, ARM interest only
    with the balance going up each month is not a crazy deal!!!

    Just because you can obtain a risky crazy loan, doesn’t mean
    you should. It’s your ass on the line on the note for the loan.

  6. #6
    buffie06
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    Default Re: Home loan advice needed

    silly question, but all ARMs are not interest only right? I definatley do not want to do interest only.

  7. #7
    God/dess VenusGoddess's Avatar
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    Default Re: Home loan advice needed

    There are literally dozens of different types of ARM's. Some ARM's are Option, Interest Only, and some are fully amortized loans. You have dozens of different types of ARM's to choose from. You do not have to get an interest only ARM. You can get an ARM loan with a rate of about 5%...wait 2 1/2 - 4 1/2 years and then refinance (depending on the length of your ARM...usually 3-5 years). Get another ARM and just keep doing it that way. The hardest part about an ARM is credit. If you do an ARM, you need to make damn sure that your credit stays where you need it to in order to refinance. If you allow your credit to fall to dramatically/drastically, you will not be able to refi and then when the ARM period runs out...you're screwed. We're in the process of refinancing our place now...we'll most likely go with another ARM...our current ARM will run out in October and the rate will jump to 8%...but, with our refi almost completed, we'll be into our new (lower) payment before that happens.

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    God/dess Emily's Avatar
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    Default Re: Home loan advice needed

    I can already hear Melonie say this now....make sure if you do the method that Venus is describing, that you have the same good credit and the same (or more) equity. What is 20% equity today may be 15% in 3 years, and that would affect your intrest and you'd have PMI to boot!

    Also, interest only isn't necessarily a bad thing. If you are trying to pay off your house and live in it for a long time, obviously not going to work, but if you plan to sell it in a few years, why not?

  9. #9
    buffie06
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    Default Re: Home loan advice needed

    Great , thanks Venus thats how I understood it. Also do you know if after I buy my home, if I were to do a debt consolidation program would this mess up my credit? Do you know the effects of debt consolidation? I have been married 7 years, we both we to college and basicaly were living on our credit cards(stupid young people mistake!) we now have a total of 25,000 or so in credit card and loan debt. All at superhigh interest rates. We were thinking to do this after the new house, but I wonder if it would effect a refi in 2 years? Would it be better to try or to just pay them off?

    BTW thanks for everyones responses

    Buffie

  10. #10
    Senior Member DanMorris95156's Avatar
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    Default Re: Home loan advice needed

    Buffie,

    My experience is that a debt consolidation where the lender reduces interest and terms rather than risk a Chapter 11 or 7 does impact your credit score - but certainly better then a charge off.

    You may be able to consolidate the whole thing within your mortgage as an option and although $25k is a lot - it isn't the most I have seen in my practice.

    Good luck,

    Dan
    Daniel D. Morris, CPA
    [email protected]

  11. #11
    God/dess VenusGoddess's Avatar
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    Default Re: Home loan advice needed

    Actually, if you use the equity in your home to "debt consolidate" it looks just fine on your credit. It can improve it because you get rid of a lot of debt (which can bring your score down). The reporting agencies would just report that you paid off/closed x accounts. The only place that would know that you did a debt consolidation is the mortgage company that does your loan.

    About PMI...no one should pay that. With the amount of companies out there today...there is no need to pay this. There are many thing that you can do to get out of paying PMI. When we bought our place, we went subprime at 100% LTV (no money down...we kept our money in the bank). We did an ARM and got a rate of 6%. We're refinancing and our LTV is now around 80% (payments and home value equity). That's after 2 years. You can also do split loans where you get one loan for 80% and another for the rest. There are so many scenarios out there that you can do...you just need to find someone who is knowledgeable about them and see what feels right for you.

    Don't get stuck into thinking that you have to cough up the 20% down or get stuck paying out the nose for PMI. It's not like that anymore...especially with a lot of "subprime" lenders offering rates comparable to conventional lenders...but without all of the "setbacks".

    Do your research. That's the most important thing you can do.

  12. #12
    Banned Melonie's Avatar
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    Default Re: Home loan advice needed

    aaa ooo gah ! The FED raised interest rates for something like the 6th consecutive month this week. Bankruptcy legislation is making its way through congress which will greatly affect people's ability to simply 'walk away' from bad debt in the future. In some areas, home foreclosure statistics are beginning to rise and/or home prices are beginning to stagnate. If you're going to do this, there are two schools of thought ...

    A. do this as quickly as possible, lock in as low of a fixed rate as possible before rates rise any further.

    B. wait a couple of years for some economic trauma to start hitting 'marginal' borrowers/homeowners who find themselves unable to escape paying on their old debts via bankruptcy, resulting in fewer qualified home buyers and lower home prices for those who do qualify.

  13. #13
    Senior Member Archangel's Avatar
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    Default Re: Home loan advice needed

    Check the rates of ARMs vs. fixed. Last I heard from some friendly brokers, the current rates are so close, there's no reason to consider an ARM.

    I've done 5/1 ARMs on all my home purchases, as I don't keep houses for more than 4 years. I have another purchase coming up and will probably be getting a fixed rate this time.

    I would consider an interest only loan on a quick-turn investment property only. IMHO, it has too high of a chance to bite you in the ass if you hold it long term.
    -=# Archangel

    "Who is to say what is a sin in God's eyes?" (Pearl from The Scarlet Letter)
    "Every man dies; not every man really lives." (William Wallace from Braveheart)

  14. #14
    God/dess VenusGoddess's Avatar
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    Default Re: Home loan advice needed

    ^ All true. The best investment you can make in your home is research. Too many people just do whatever someone tells them. You really need to learn your local market trends...learn about all the different types of loans available...and use all of that information to make your decision.

    The other important thing, although annoys bankers and brokers, is to READ THE FINE PRINT!! Know everything about your loan before you sign the final papers. Some people just take the word of the closer and sign on the line. When they go to refi a year later for debt consolidation/cash-out...find out that in order to do so, they have to pay-off a 1, 2, or 3 year pre-payment penalty. Don't let this happen to you. Know everything about your loan...be informed...do your research...and you'll be fine.

    There's a lot more to buying a home than just liking the house your buying and getting a loan for it.

  15. #15
    buffie06
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    Default Re: Home loan advice needed

    thanks you guys are really helpful

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