First Time Home Buyers- Mortgage Questions

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Mon May 28, 2018 11:57 am

Calling all Bogleheads for advice:

We are in the processing of purchasing our first home. It's new construction and is planned to be complete end of summer/early fall. We are deciding on a lender now. We can't close until the house is complete, but with the Fed continuing to raise rates, we are trying to decide if it makes sense to buy points, lock-in a rate, etc. Our current plan is to stay in the home for at least 10 years. If/when we move, we would consider keeping the home as a rental property depending on circumstances.

Personal Income Details
Combined income: ~$260k w/o bonuses; ~$300k w/bonuses
No current debt; one car that is not near end of life
Credit scores are above 780
Current rent: ~$3100/month

Home Purchase Details
Purchase price: $655k
Down payment: 20%
Current 30 year rate: 4.75% (costs 1/2 point (~$2600) to lock in for 4 months; one free float down within 30 days of closing)
Current 20 year rate: 4.625%


Questions

1. Does it make sense to pay to lock in the rate now?

2. If we can afford the monthly payment, does a 20 year mortgage make more sense? The larger payment wouldn't really change our quality of life, would just mean we are saving less in our investment portfolios.

3. Any tips on negotiating down the mortgage terms would be greatly appreciated.

4. Anything else we should be thinking about?

Thanks in advance to all for your help.

alpinegoat
Posts: 20
Joined: Sat Jun 27, 2009 6:56 pm

Re: First Time Home Buyers- Mortgage Questions

Post by alpinegoat » Mon May 28, 2018 12:11 pm

hi Benjis,
with your income this house should be very doable. Hopefully you guys can throw 5-10k/month at the 525k mortgage and be done with it in 5-8 years so in that case the rate difference doesn't matter much. its only when you hold it for 30 years that the interest difference adds up (30 y at 525k loan at 4.75% = $460k interest , 20y at $525k loan at 4.625%= $281k interest). For 5 years difference is 66k vs 64k --> $2k!!! A mortgage broker can help shop rates if you want to maximize, but the big impact will be in loan payoff years, not 0.1% interest.

LFKB
Posts: 519
Joined: Mon Dec 24, 2012 7:06 pm

Re: First Time Home Buyers- Mortgage Questions

Post by LFKB » Mon May 28, 2018 12:20 pm

I wouldn’t pay to lock it in, unless it’s very cheap. The expected fed rate increases are already priced into that rate you’re getting, so your rate should only get worse if the fed does something unexpected in terms of hiking rates. The reverse could be true at your rate could get better.

In terms of getting the best rate, you need to talk to multiple lenders and leverage them off each other to see how long you can. 4.75% seems pretty high. Make sure you talk to them and understand if they have any discounts on rates, some lenders give lower rates if you transfer over assets to them or participate in other programs with the company.

LFKB
Posts: 519
Joined: Mon Dec 24, 2012 7:06 pm

Re: First Time Home Buyers- Mortgage Questions

Post by LFKB » Mon May 28, 2018 12:22 pm

alpinegoat wrote:
Mon May 28, 2018 12:11 pm
hi Benjis,
with your income this house should be very doable. Hopefully you guys can throw 5-10k/month at the 525k mortgage and be done with it in 5-8 years so in that case the rate difference doesn't matter much. its only when you hold it for 30 years that the interest difference adds up (30 y at 525k loan at 4.75% = $460k interest , 20y at $525k loan at 4.625%= $281k interest). For 5 years difference is 66k vs 64k --> $2k!!! A mortgage broker can help shop rates if you want to maximize, but the big impact will be in loan payoff years, not 0.1% interest.
There’s a big opportunity cost of that capital though and OP may be better off investing in equities that very well may generate a better return than 4.75%. I’m in no hurry to amortize my mortgage but I’m locked in at 2.7%.

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Mon May 28, 2018 12:54 pm

alpinegoat wrote:
Mon May 28, 2018 12:11 pm
hi Benjis,
with your income this house should be very doable. Hopefully you guys can throw 5-10k/month at the 525k mortgage and be done with it in 5-8 years so in that case the rate difference doesn't matter much. its only when you hold it for 30 years that the interest difference adds up (30 y at 525k loan at 4.75% = $460k interest , 20y at $525k loan at 4.625%= $281k interest). For 5 years difference is 66k vs 64k --> $2k!!! A mortgage broker can help shop rates if you want to maximize, but the big impact will be in loan payoff years, not 0.1% interest.
I doubt we will be able to throw that much money at it per month. We both max out our 401(k)s and Roths. We've been thinking of using a significant portion of the annual bonuses to pay it down faster.

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Mon May 28, 2018 12:57 pm

LFKB wrote:
Mon May 28, 2018 12:20 pm
I wouldn’t pay to lock it in, unless it’s very cheap. The expected fed rate increases are already priced into that rate you’re getting, so your rate should only get worse if the fed does something unexpected in terms of hiking rates. The reverse could be true at your rate could get better.

In terms of getting the best rate, you need to talk to multiple lenders and leverage them off each other to see how long you can. 4.75% seems pretty high. Make sure you talk to them and understand if they have any discounts on rates, some lenders give lower rates if you transfer over assets to them or participate in other programs with the company.
It's about $2500 to lock-in for four months. I get what you're saying about the Fed hikes already being built in, but when we got our first rate quote at the beginning of April, it was 4.5 from the same lenders. So we have real concerns that the rate could continue to rise.

There are two of the builder's "preferred" lenders we are working with because we get $20k toward closing costs by doing so.

frisbeeaddict
Posts: 22
Joined: Tue May 22, 2018 7:53 am
Location: Florida

Re: First Time Home Buyers- Mortgage Questions

Post by frisbeeaddict » Mon May 28, 2018 1:02 pm

I'd suggest calling Cardinal Financial as another forum member suggested we do. We shopped around quite a bit and they are offering in the top
2-3 best rates/fees out of 10 lenders we queried. I spoke with Mark McMoran at Cardinal and he has been very helpful... Like you I have very little understanding of the Mortgage market which I believe the industry does their best to keep less than transparent from what I've experienced, or perhaps one just needs to do their homework to understand relationship of rates and terms etc etc etc... Good luck with new home,

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Mon May 28, 2018 1:08 pm

frisbeeaddict wrote:
Mon May 28, 2018 1:02 pm
I'd suggest calling Cardinal Financial as another forum member suggested we do. We shopped around quite a bit and they are offering in the top
2-3 best rates/fees out of 10 lenders we queried. I spoke with Mark McMoran at Cardinal and he has been very helpful... Like you I have very little understanding of the Mortgage market which I believe the industry does their best to keep less than transparent from what I've experienced, or perhaps one just needs to do their homework to understand relationship of rates and terms etc etc etc... Good luck with new home,
Thanks for the tip - I'll give them a try.

And I agree...it's a pretty frustrating endeavor trying to figure everything out. I obviously want to understand as much as possible given the amount of money involved.

zguy
Posts: 10
Joined: Wed May 16, 2018 4:03 pm

Re: First Time Home Buyers- Mortgage Questions

Post by zguy » Mon May 28, 2018 5:37 pm

Was about the pull the trigger on a house last week and PNC Bank gave me a quoted rate of 4.125% for a 30 yr jumbo which he said was anything financed over $420k. Told me they they try to be super competitive in this arena. Not sure if it is location specific or made a difference that it was HCOL area. Worth a phone call maybe.

WolfgangPauli
Posts: 263
Joined: Sun Aug 23, 2015 8:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by WolfgangPauli » Mon May 28, 2018 6:03 pm

Just advice.. take it for what it is worth:

1. You said your combined income is $300K.. .Not sure if that is evenly distributed or not but lets assume it is. You are one job loss away from not being able to afford the home. When both my wife and I worked (many years ago) we had a rule to only take on a mortgage we could service with one income. While others have said this is "doable" I think it is very very risky. I am not a real estate timer but clearly we are closer to the "high" than the "low".

2. I would not buy points.

3. Given the risk you are taking in LTV I would go out as long as you can (30yr) and then use every nickel you can get your hands on to pay it down. No need to trap yourself into a 20 year.

Just my .02
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com

User avatar
Cycle
Posts: 857
Joined: Sun May 28, 2017 7:57 pm
Location: USA

Re: First Time Home Buyers- Mortgage Questions

Post by Cycle » Mon May 28, 2018 6:03 pm

I wouldn't pay to lock in points. I did that before the housing crisis in 2009, then ended up refinancing to like a 2% rate a couple years later.

I always cost in a sale after 7 years and lost investment gains in tied up equity. My spreadsheet says your renting costs were $38,600/yr and your new house will cost $47,000/yr. You should be able to easily afford the 20yr, but you aren't saving much % on the loan so I'd just get the 30yr and put that extra money in your taxable account.

We have similar income as a household... slightly lower, and our annual housing expenses are $15,000/yr, but if we had a loan it would be $12,250/yr. Thats with an owner occupied duplex. If ignoring the lost gains from equity, we profit $2.5k/yr on housing, which allows us to save ~$175k/yr.

delamer
Posts: 6401
Joined: Tue Feb 08, 2011 6:13 pm

Re: First Time Home Buyers- Mortgage Questions

Post by delamer » Mon May 28, 2018 7:15 pm

Based on past experiences with builders, I’d be concerned about paying for a lock period based on the estimated closing date.

What happens if you miss the 4 month window because your builder is late completing the home?

Admiral
Posts: 1458
Joined: Mon Oct 27, 2014 12:35 pm

Re: First Time Home Buyers- Mortgage Questions

Post by Admiral » Tue May 29, 2018 10:22 am

WolfgangPauli wrote:
Mon May 28, 2018 6:03 pm
Just advice.. take it for what it is worth:

1. You said your combined income is $300K.. .Not sure if that is evenly distributed or not but lets assume it is. You are one job loss away from not being able to afford the home. When both my wife and I worked (many years ago) we had a rule to only take on a mortgage we could service with one income. While others have said this is "doable" I think it is very very risky. I am not a real estate timer but clearly we are closer to the "high" than the "low".

2. I would not buy points.

3. Given the risk you are taking in LTV I would go out as long as you can (30yr) and then use every nickel you can get your hands on to pay it down. No need to trap yourself into a 20 year.

Just my .02
+1. Absolutely agree, and this has been our policy. There's a lot to be said for peace of mind: you keep your house even if one person is unable to work, or unemployed (or underemployed) for a long time.

If you are not to be dissuaded from this particular house, then I would go 30 year, and pay it off sooner if future income allows. (Also most people either move or end up refinancing well before 20 years anyway.) I would also not pay points.

chevca
Posts: 1942
Joined: Wed Jul 26, 2017 11:22 am

Re: First Time Home Buyers- Mortgage Questions

Post by chevca » Tue May 29, 2018 10:58 am

Personally, I'd lock in the rate if I were the OP. So far this year has not shown rates are staying steady, nor ready to go back down. Never know though. I'd also go with the 30 year, as you guys can pay it down sooner if you choose to. And, there's not a big enough spread with the 20 to make it worth it, IMO.

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Tue May 29, 2018 1:34 pm

zguy wrote:
Mon May 28, 2018 5:37 pm
Was about the pull the trigger on a house last week and PNC Bank gave me a quoted rate of 4.125% for a 30 yr jumbo which he said was anything financed over $420k. Told me they they try to be super competitive in this arena. Not sure if it is location specific or made a difference that it was HCOL area. Worth a phone call maybe.
Thanks for the information. We are in a HCOL area so jumbo loans don't start until >$650K or so. But will see what the rate is for our area.

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Tue May 29, 2018 1:37 pm

WolfgangPauli wrote:
Mon May 28, 2018 6:03 pm
Just advice.. take it for what it is worth:

1. You said your combined income is $300K.. .Not sure if that is evenly distributed or not but lets assume it is. You are one job loss away from not being able to afford the home. When both my wife and I worked (many years ago) we had a rule to only take on a mortgage we could service with one income. While others have said this is "doable" I think it is very very risky. I am not a real estate timer but clearly we are closer to the "high" than the "low".

2. I would not buy points.

3. Given the risk you are taking in LTV I would go out as long as you can (30yr) and then use every nickel you can get your hands on to pay it down. No need to trap yourself into a 20 year.

Just my .02
Our base incomes are roughly 50/50, and we chose the price range we did for the exact reason you state - that we can afford the monthly payment on a single salary. We'd most likely have to adjust our retirement contributions in this case, but we are OK doing that if necessary. But our total monthly payment (mortgage, taxes, community HOA) should be right around $3500 with current interest rates. It won't be an issue for us to make this payment on a single salary.

Thanks for the advice on 30 yr vs 20 yr.

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Tue May 29, 2018 1:44 pm

Cycle wrote:
Mon May 28, 2018 6:03 pm
I wouldn't pay to lock in points. I did that before the housing crisis in 2009, then ended up refinancing to like a 2% rate a couple years later.

I always cost in a sale after 7 years and lost investment gains in tied up equity. My spreadsheet says your renting costs were $38,600/yr and your new house will cost $47,000/yr. You should be able to easily afford the 20yr, but you aren't saving much % on the loan so I'd just get the 30yr and put that extra money in your taxable account.

We have similar income as a household... slightly lower, and our annual housing expenses are $15,000/yr, but if we had a loan it would be $12,250/yr. Thats with an owner occupied duplex. If ignoring the lost gains from equity, we profit $2.5k/yr on housing, which allows us to save ~$175k/yr.
Our annual rent costs are $37,200 (which strikes me as insane) and the house costs (mortgage, taxes, HOA fee) would be about $42,000 (obviously not counting repairs, which I hope are minimal for a new build). Not sure how this changes your calculations.

We are starting to lean toward the 30 year. We spoke with the lenders and both allow us to pay down the principal as early and often as we like. That seems to be the better road to take.

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Tue May 29, 2018 2:00 pm

Admiral wrote:
Tue May 29, 2018 10:22 am
WolfgangPauli wrote:
Mon May 28, 2018 6:03 pm
Just advice.. take it for what it is worth:

1. You said your combined income is $300K.. .Not sure if that is evenly distributed or not but lets assume it is. You are one job loss away from not being able to afford the home. When both my wife and I worked (many years ago) we had a rule to only take on a mortgage we could service with one income. While others have said this is "doable" I think it is very very risky. I am not a real estate timer but clearly we are closer to the "high" than the "low".

2. I would not buy points.

3. Given the risk you are taking in LTV I would go out as long as you can (30yr) and then use every nickel you can get your hands on to pay it down. No need to trap yourself into a 20 year.

Just my .02
+1. Absolutely agree, and this has been our policy. There's a lot to be said for peace of mind: you keep your house even if one person is unable to work, or unemployed (or underemployed) for a long time.

If you are not to be dissuaded from this particular house, then I would go 30 year, and pay it off sooner if future income allows. (Also most people either move or end up refinancing well before 20 years anyway.) I would also not pay points.
Thanks for the advice. We'll be able to make the monthly payment on one person's salary - wanted to make sure of that for exactly the reasons you state.

Good points on the 20 yr vs 30 yr. I think we'll end up with the 30 yr and try to pay down sooner.

User avatar
Meg77
Posts: 2415
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX
Contact:

Re: First Time Home Buyers- Mortgage Questions

Post by Meg77 » Tue May 29, 2018 2:19 pm

Hi there, banker here. I do a lot of mortgages - although I do not originate conventional or FHA loans, so I'm not always up to date on the latest ins and outs with those requirements.
All_About_Benjis wrote:
Mon May 28, 2018 11:57 am

Questions

1. Does it make sense to pay to lock in the rate now?
No. The fee isn't worth the interest rate risk when you are looking at locking for more than 90 days. Once you get a little closer you MIGHT consider doing a 60 day lock, but really I wouldn't consider it before then. Construction projects usually get delayed anyway so you may not be ready to close till Christmas for all you know. You might pay for a 6 month rate lock and it may still run out before the closing! Ouch. (Lenders can't start the process until the Certificate of Occupancy is issued - that piece alone can take a month or so in some busy counties even once the construction is complete). The fee you pay even on the short end will likely be more than you'd save even if rates rise a little though (of course no one can predict the future, but my point is that it's an expensive insurance policy).

Mortgage rates have already increased this year by more than analysts expected, but mortgage rates are not related to the Fed funds rate (which is the short term rate the Fed is voting to increase every few months). Mortgage rates are linked to long term bond rates which fluctuate based on global demand. Long story short - there's no reason to assume mortgage rates will continue to rise this year. They are already pushing against technical ceilings; the 10 year treasury is bounding around 3% but is unlikely to rise higher. In simple terms, this is because most other global stabilized markets are paying much less on their bonds. So as our rates rise, more European investors and companies want to buy our bonds; that increased demand pushes up bond prices, and when prices rise yields are directly reduced.
All_About_Benjis wrote:
Mon May 28, 2018 11:57 am

2. If we can afford the monthly payment, does a 20 year mortgage make more sense? The larger payment wouldn't really change our quality of life, would just mean we are saving less in our investment portfolios.
No. If you can afford the payment then it makes sense to get a 15 year fixed mortgage which usually comes with a meaningful rate reduction compared to a 30 year. The 20 year usually has the same or almost the same rate as the 30 year - so you may as well stick with the lower payment and pay extra (or invest extra) instead.
All_About_Benjis wrote:
Mon May 28, 2018 11:57 am

3. Any tips on negotiating down the mortgage terms would be greatly appreciated.
The mortgage market is so competitive that there's very little difference between most conventional (standard) loan terms. Maybe a few hundred bucks in fees or an eight of an interest rate here or there. In any case there is usually no wiggle room allowed. You can shop among lenders, but most have standard rate sheets that the mortgage brokers don't have the authority to deviate from or negotiate. This is due to Fair Lending regulations - you have to offer the same fees and rates to everyone. Or else be able to justify to the auditors why one person got a deal or a fee reduction and another person (especially a low income or minority applicant) did not. Title and appraisal fees are usually set
All_About_Benjis wrote:
Mon May 28, 2018 11:57 am

4. Anything else we should be thinking about?
Not really. Looks like you're in good shape. Just don't rack up any new debts or move too many big piles of money around in the next few months. Hopefully you are enjoying the process! Building a home can be stressful but really exciting of course as well.
"An investment in knowledge pays the best interest." - Benjamin Franklin

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Tue May 29, 2018 2:35 pm

chevca wrote:
Tue May 29, 2018 10:58 am
Personally, I'd lock in the rate if I were the OP. So far this year has not shown rates are staying steady, nor ready to go back down. Never know though. I'd also go with the 30 year, as you guys can pay it down sooner if you choose to. And, there's not a big enough spread with the 20 to make it worth it, IMO.
Yeah...I'm worried about volatility. The downside to locking in is we waste $2600 (if the rate went even lower). The downside to not locking in is we end up with a rate of 5%+.

delamer
Posts: 6401
Joined: Tue Feb 08, 2011 6:13 pm

Re: First Time Home Buyers- Mortgage Questions

Post by delamer » Tue May 29, 2018 3:14 pm

All_About_Benjis wrote:
Tue May 29, 2018 2:35 pm
chevca wrote:
Tue May 29, 2018 10:58 am
Personally, I'd lock in the rate if I were the OP. So far this year has not shown rates are staying steady, nor ready to go back down. Never know though. I'd also go with the 30 year, as you guys can pay it down sooner if you choose to. And, there's not a big enough spread with the 20 to make it worth it, IMO.
Yeah...I'm worried about volatility. The downside to locking in is we waste $2600 (if the rate went even lower). The downside to not locking in is we end up with a rate of 5%+.
Don’t ignore what a couple of us have pointed out — the lock could expire before the home is finished and so becomes useless.

User avatar
Cycle
Posts: 857
Joined: Sun May 28, 2017 7:57 pm
Location: USA

Re: First Time Home Buyers- Mortgage Questions

Post by Cycle » Tue May 29, 2018 8:16 pm

All_About_Benjis wrote:
Tue May 29, 2018 1:44 pm
the house costs (mortgage, taxes, HOA fee) would be about $42,000 (obviously not counting repairs, which I hope are minimal for a new build). Not sure how this changes your calculations.
I had the following monthly costs calculated for the housing costs:
Tax - $715
Heat - $80
Electric - $40
Waste/Water - $40
Internet - $35
HOA - $0
Misc. Exp - $350 (this would go towards inevitable repairs, upgrades)
Interest - $2004
Insurance - $200
Lost Investment Gains - 130k equity *.05 = $542
Sale after 10 years = 130k*4%/10/12= $43

So that's $48,590 annual impact on your net worth (of course the sale cost would be a one time hit when you sell the property).

Minus the "sale after 10 years" and "lost investment gains", I get $42,090... but you'd have to adjust this based on your local specifics.

You probably don't need heat if you're in an area with that high of rent. Here we go from snow on the ground to blazing heat requiring AC within 3 weeks.

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Tue May 29, 2018 9:28 pm

delamer wrote:
Tue May 29, 2018 3:14 pm
All_About_Benjis wrote:
Tue May 29, 2018 2:35 pm
chevca wrote:
Tue May 29, 2018 10:58 am
Personally, I'd lock in the rate if I were the OP. So far this year has not shown rates are staying steady, nor ready to go back down. Never know though. I'd also go with the 30 year, as you guys can pay it down sooner if you choose to. And, there's not a big enough spread with the 20 to make it worth it, IMO.
Yeah...I'm worried about volatility. The downside to locking in is we waste $2600 (if the rate went even lower). The downside to not locking in is we end up with a rate of 5%+.
Don’t ignore what a couple of us have pointed out — the lock could expire before the home is finished and so becomes useless.
For sure. We've spoken with the builder a number of times about timeline - he keeps telling us end of August and we are adding a month to that. Also, we are approximately 6 weeks behind a set of homes being built in the same development so we are keeping our eyes on them. But locking in this early is definitely a risk and one big reason we haven't pulled the trigger.

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Tue May 29, 2018 9:38 pm

Cycle wrote:
Tue May 29, 2018 8:16 pm
All_About_Benjis wrote:
Tue May 29, 2018 1:44 pm
the house costs (mortgage, taxes, HOA fee) would be about $42,000 (obviously not counting repairs, which I hope are minimal for a new build). Not sure how this changes your calculations.
I had the following monthly costs calculated for the housing costs:
Tax - $715
Heat - $80
Electric - $40
Waste/Water - $40
Internet - $35
HOA - $0
Misc. Exp - $350 (this would go towards inevitable repairs, upgrades)
Interest - $2004
Insurance - $200
Lost Investment Gains - 130k equity *.05 = $542
Sale after 10 years = 130k*4%/10/12= $43

So that's $48,590 annual impact on your net worth (of course the sale cost would be a one time hit when you sell the property).

Minus the "sale after 10 years" and "lost investment gains", I get $42,090... but you'd have to adjust this based on your local specifics.

You probably don't need heat if you're in an area with that high of rent. Here we go from snow on the ground to blazing heat requiring AC within 3 weeks.
Thanks for clarifying. Some of the numbers might be a little high, but they only internet we are getting for $35/month is dial-up on a 56k modem. Overall probably in the right ballpark.

Funancials
Posts: 32
Joined: Sat Feb 17, 2018 2:09 pm

Re: First Time Home Buyers- Mortgage Questions

Post by Funancials » Tue May 29, 2018 9:47 pm

Most of your questions have been answered above, so I’ll only add a few recommended lenders:

If you’re looking for the lowest rate, check out Cardinal Financial (mentioned above), Amerisave or Consumer Direct. Those 3 have the thinnest margins in the industry.

If you want convenience, check your primary bank or Rocket Mortgage.

User avatar
dogagility
Posts: 219
Joined: Fri Feb 24, 2017 6:41 am

Re: First Time Home Buyers- Mortgage Questions

Post by dogagility » Wed May 30, 2018 5:39 am

^Agree with others that you should shop around for rates. Bankrate has a nice search engine.
Taking "risk" since 1995.

Jags4186
Posts: 2623
Joined: Wed Jun 18, 2014 7:12 pm

Re: First Time Home Buyers- Mortgage Questions

Post by Jags4186 » Wed May 30, 2018 5:50 am

After yesterday's cratering of the 10 year I would look at today and tomorrows rates and lock those in. You should be able to get 4.25% now.

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Wed May 30, 2018 8:23 pm

Meg77 wrote:
Tue May 29, 2018 2:19 pm
Hi there, banker here. I do a lot of mortgages - although I do not originate conventional or FHA loans, so I'm not always up to date on the latest ins and outs with those requirements.
All_About_Benjis wrote:
Mon May 28, 2018 11:57 am

Questions

1. Does it make sense to pay to lock in the rate now?
No. The fee isn't worth the interest rate risk when you are looking at locking for more than 90 days. Once you get a little closer you MIGHT consider doing a 60 day lock, but really I wouldn't consider it before then. Construction projects usually get delayed anyway so you may not be ready to close till Christmas for all you know. You might pay for a 6 month rate lock and it may still run out before the closing! Ouch. (Lenders can't start the process until the Certificate of Occupancy is issued - that piece alone can take a month or so in some busy counties even once the construction is complete). The fee you pay even on the short end will likely be more than you'd save even if rates rise a little though (of course no one can predict the future, but my point is that it's an expensive insurance policy).

Mortgage rates have already increased this year by more than analysts expected, but mortgage rates are not related to the Fed funds rate (which is the short term rate the Fed is voting to increase every few months). Mortgage rates are linked to long term bond rates which fluctuate based on global demand. Long story short - there's no reason to assume mortgage rates will continue to rise this year. They are already pushing against technical ceilings; the 10 year treasury is bounding around 3% but is unlikely to rise higher. In simple terms, this is because most other global stabilized markets are paying much less on their bonds. So as our rates rise, more European investors and companies want to buy our bonds; that increased demand pushes up bond prices, and when prices rise yields are directly reduced.
Thanks for the information on what influences rates - it's very helpful.

The lender does offer a free 60 day lock, so that could be a good possibility. We are definitely worried about delays in construction, but the homes being built directly in front of ours seem to be progressing at a good pace. They are supposed to start framing our home this week. We also have been told that once the pre-drywall inspection occurs, it's roughly 30-45 days until completion. That might be the best time to lock in.
All_About_Benjis wrote:
Mon May 28, 2018 11:57 am

2. If we can afford the monthly payment, does a 20 year mortgage make more sense? The larger payment wouldn't really change our quality of life, would just mean we are saving less in our investment portfolios.
Meg77 wrote:
Tue May 29, 2018 2:19 pm
No. If you can afford the payment then it makes sense to get a 15 year fixed mortgage which usually comes with a meaningful rate reduction compared to a 30 year. The 20 year usually has the same or almost the same rate as the 30 year - so you may as well stick with the lower payment and pay extra (or invest extra) instead.
This makes sense. While we could currently afford the 15 year payments, we would be in real trouble if one of us loses our job. Seems like the best path forward is 30 year and make extra payments if we decide to.
All_About_Benjis wrote:
Mon May 28, 2018 11:57 am

3. Any tips on negotiating down the mortgage terms would be greatly appreciated.
Meg77 wrote:
Tue May 29, 2018 2:19 pm
The mortgage market is so competitive that there's very little difference between most conventional (standard) loan terms. Maybe a few hundred bucks in fees or an eight of an interest rate here or there. In any case there is usually no wiggle room allowed. You can shop among lenders, but most have standard rate sheets that the mortgage brokers don't have the authority to deviate from or negotiate. This is due to Fair Lending regulations - you have to offer the same fees and rates to everyone. Or else be able to justify to the auditors why one person got a deal or a fee reduction and another person (especially a low income or minority applicant) did not. Title and appraisal fees are usually set
Good to know. I've been told by some that we need to negotiate the rate, get them to bring it down, etc. and I have no idea how realistic this is. We have been offered a "kickback" of some of the closing fees by one lender, but little else.
All_About_Benjis wrote:
Mon May 28, 2018 11:57 am

4. Anything else we should be thinking about?
Meg77 wrote:
Tue May 29, 2018 2:19 pm
Not really. Looks like you're in good shape. Just don't rack up any new debts or move too many big piles of money around in the next few months. Hopefully you are enjoying the process! Building a home can be stressful but really exciting of course as well.
I'm certainly learning a lot, which I always enjoy. But it's certainly more stress than we anticipated.

majiaknight
Posts: 56
Joined: Tue Jan 26, 2016 2:55 pm

Re: First Time Home Buyers- Mortgage Questions

Post by majiaknight » Thu May 31, 2018 5:14 pm

My family purchased our first house also a new construction in 2015. Based on our experiences the builder recommended mortgage lender is much easier to deal with as they could easily get all the required documents (my new house has HOA and is among the very early phase of release). Some lenders like CHASE offered very good rates but was very picky on new constructions. At the time we also got quotes from a loan broker my friend recommended and a mortgage banker at Wellsfargo. We compared 5/1 ARM, 15Y and 30Y options. Finally, we decided to go w/ the builder recommended lender for 30Y fixed (4%APR w/ highest rebate @$6.5K) as they agreed to beat all the other offers. Our new construction was delayed about 1.5 month due to weather and Christmas/New Year. We did 0 cost refi w/ Wellsfargo after less than a year to a 5/1ARM at 3% APR. My suggestion is looking around for quotes and always preparing for refi opportunities.

PS: Your current quotes for 30Y fixed seemed to be too high compared to the avg daily quote below:
http://www.mortgagenewsdaily.com/mortga ... daily.aspx

All_About_Benjis
Posts: 24
Joined: Tue Aug 15, 2017 10:28 am

Re: First Time Home Buyers- Mortgage Questions

Post by All_About_Benjis » Mon Jun 04, 2018 3:39 pm

majiaknight wrote:
Thu May 31, 2018 5:14 pm
My family purchased our first house also a new construction in 2015. Based on our experiences the builder recommended mortgage lender is much easier to deal with as they could easily get all the required documents (my new house has HOA and is among the very early phase of release). Some lenders like CHASE offered very good rates but was very picky on new constructions. At the time we also got quotes from a loan broker my friend recommended and a mortgage banker at Wellsfargo. We compared 5/1 ARM, 15Y and 30Y options. Finally, we decided to go w/ the builder recommended lender for 30Y fixed (4%APR w/ highest rebate @$6.5K) as they agreed to beat all the other offers. Our new construction was delayed about 1.5 month due to weather and Christmas/New Year. We did 0 cost refi w/ Wellsfargo after less than a year to a 5/1ARM at 3% APR. My suggestion is looking around for quotes and always preparing for refi opportunities.

PS: Your current quotes for 30Y fixed seemed to be too high compared to the avg daily quote below:
http://www.mortgagenewsdaily.com/mortga ... daily.aspx
Thanks for the information and link. I'd just been looking at a few big bank websites (Well's Fargo, for example) for 30 year rates and what we've been offered seemed to be in line with those.

It's a bit difficult for us to go with anyone other then one of the (two) preferred lenders because we get $20k toward closing costs by doing so. Our agent recommended going with a preferred and then try to refinance in 6 months if there are lower rates out there.

As for timing, we are most likely going to wait until the pre-drywall inspection before potentially locking in (we can do a free 60 day lock). The builder says that inspection is typically 30-45 days out from when the home should be complete.

Post Reply