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Advice Needed ... Loan Closing Options and PMI


GLW
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Hi Folks - I'm scheduled to close on a new construction home 8/30. The kids start school here in MD on 9/3. They enroll in new schools and I want to get them settled as much as possible. That background might come in handy for the scenario that I'm seeking advice on.

 

Here's the scenario: purchase price is $439,540. I'm currently doing an FHA loan with 3.5% down. My mortgage credit score is 726. The loan estimate has me paying $300 month in PMI. The issue is that in October I get my yearly sales bonus; at that time I can put down the ~$90K needed to cover the 20% down payment to remove PMI. Questions for those experienced in the industry:

 

1. Should / can I delay closing for two months? If so should I go conventional?

2. Should I move forward with the FHA loan and refinance quickly? How soon can one refinance?

3. Should I move forward with the FHA loan and simply pay $90K on the principal of the loan and reduce the amount to have PMI removed?

 

Thanks for your help in advance.

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Avoiding PMI/MIP if at all possible should be your goal, especially since if I recall correctly it can no longer be removed on FHA loans when you get to 80% LTV (unlike FHA in the past - but verify this to be certain).  The only downfall to doing a FHA then doing a re-fi would be that you would be hit with closing costs twice, which can be a pretty big figure, but certainly less than paying MIP for an extended period.  I would talk to your LO and see what they recommend.  Can you borrow the funds from someone to get to the 20% mark, and pay them back after you get your bonus?  Again, make sure this is OK.

 

I highly doubt the builder will delay the closing by 2 months, especially if it is a large national...I know my builder certainly would not.

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As CTSoxFan said, I highly doubt the builder will delay the closing by 2 months, especially if it is a large national. That being said, I have three questions... and I can provide you with a comprehensive recommendation.

 

1.) Is the builder paying any of your closing costs? (called a seller concession, or a seller "credit" toward closing costs)

2.) Rather than a down payment of 3.50%, do you have enough cash on hand to put down 5% (another $6600)?

3.) Do you happen to know what your Debt-to-Income (DTI) Ratios are?

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Hi - 

 

1) The builder is offering $15K in "Seller Credits"

2) Yes; I can come up with the additional 1.5%

3) No sure of the exact # but the ratio is excellent per my last discussion with my LO

 

Thanks

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That credit should pay for all of your closing costs plus prepaid's and you should still have some left... this means you do not need premium pricing, so I would flip the loan to conventional - this would mean you'd need to put down 5% -vs- 3.50%. Use what ever amount of seller credit remains to buy your rate down as far as you can from the lenders par rate (you may only achieve 1/8 or 1/4 lower).

 

Doing this, you've not paid any closing costs, and you've also not paid the FHA Funding Fee of 1.75% ($7,552.63) which would be added to your loan amount (financed) if you used an FHA loan for the purchase... which does not make sense if your plan is to drop $90k a few months later to eliminate your MI.

 

Also... if you utilized FHA financing for the purchase, your Mortgage Insurance WOULD NOT "Drop Off" by paying down the mortgage, regardless of the new Loan-to-Value after the pay down. This can not and will not happen... The only way to eliminate the mortgage insurance would be to pay down the loan to 80% LTV or below and refinance into a conventional loan.

 

What company is doing your loan? Have you presented your questions to your loan officer?

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36 minutes ago, GLW said:

Thanks LoanX … Eagle Home Mortgage is the lender that the builder prefers. My LO is not very responsive. 

Are you getting a financial incentive to use Lennar's captive mortgage company?  

 

If not, you should be able to close with anyone (many builders require loan approval [or at least preapproval] through their preferred lender, but that generally doesn't mean you have to close with them).  

 

Assuming I am correct and the builder is in the Lennar family, I'd be shocked if delaying closing by two months is an option.

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Eagle is Lennar's captive, and agree being Lennar it would be highly unlikely they will push 2 months.

 

The financial credits at closing are almost assuredly tied to using Eagle.  I am going through this same process right now, albeit with a different large builder, but they operate very similarly.

 

With closing set for 8/30 you have time to find another lender, although you'll have to move quickly and find someone who can close quickly.  The issue is that you would also need to find someone who is giving you a rate that is good enough to offset the $15k, which may prove difficult.  In my personal experience, the rate I was quoted from the captive mortgage company was within 1/8% of my independent guy, which may not be enough to warrant not using them.  You'd have to do the math on your case and find out which is best.

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  • 1 month later...
22 hours ago, GLW said:

UPDATE: Thanks very much for the advice all around. I closed on 8/28 ... 3.9% rate ... Eagle Home Mortgage was a nightmare to work with.

Congrats, and this is not surprising.  It is the reason I am looking for alternatives to using the captive on my deal, even though they are providing around $10k worth of benefits.

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