Edgewood, WA Real Estate Blog

Mortgage rates continue to bounce all over the place during these volatile times in the market.  I thought it might be interesting to share a scenario that I’ve been pricing out this morning instead of just creating a rate sheet.

They are a couple who are looking at buying their first home.  They have saved up enough for 5% down payment and closing costs.  They have excellent credit (scores 740 or higher) and are just shy on savings as many first time home buyers are.   They orignally were seeking a “piggy back” type scenario where the first mortgage is at 80% of the sales price (to avoid private mortgage insurance) and the second mortgage at 15% (to make up the difference owing of their 5% down).   These types of programs have disappeared during the “mortgage meltdown” as no bank wants to be in second lien position in the event of a foreclosure.   There are still options for this buyer’s scenario. 

Conforming financing will still allow 5% down with private mortgage insurance.   This morning, I provided them with a Good Faith Estimate detailing how this would look based on their 740 low mid score (low mid score means that you take the two middle scores of both borrowers and use the lowest of the two):

They are looking at a home with a sales price of $390,000 with a loan amount of $370,500.

30 year fixed priced with 1 point:  5.75% (apr 6.694%) based on a 740 low-mid credit score.

Principal and interest = $2,162.14; plus private mortgage insurance of $240.83 and estimated taxes and insurance of $456.25 = a total mortgage payment of $2,859.21.

Down payment plus closing costs = $29,000.

I also included a Good Faith Estimate based on financing their home purchase utilizing an FHA insured mortgage loan.   Why?  Frankly mortgage and private mortgage insurance companies continue to tighten their guidelines with underwriting that overlays what is dictated by Fannie Mae and Freddie Mac (conventional lenders).  In this market, it’s good to have a back up plan just in case the bank or the pmi company decides that they don’t want to go up to a 95% loan to value anymore.

Here’s what the FHA scenario looked like this morning (I’m seeing that rates have improved slighlty as I write this post):

30 year fixed priced with 1 point: 6.000% (apr) with a base loan amount of $370,500 plus upfront mortgage insurance of 1.75%  ($6,483)  =  $376,983.  Credit scores with FHA may be as low as 620 without any adjustments to price or mortgage insurance (currently).

Principal and interest = $2,260.20; plus monthly mortgage insurance $169.81 and estimated taxes and insurance of $456.25 = total mortgage payment of $2,886.26.

Down payment* plus closing costs = $28,450.  *This down payment is based on 5% down.  With an FHA mortgage, they could elect to do as little as 3% down until the end of this year.  Effective January 1, 2009, the minimum required down payment for an FHA mortgage loans will be slightly increased to 3.5%.

You don’t have to have 20% down to buy a home and although we’re hearing a lot about how banks aren’t lending in the news due to the credit freeze, mortgages are still taking place.  I do advise meeting with a Mortgage Professional early on should you be considering buying or refinancing a home so that you can be in the best position possible with your credit.