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Mortgages: Cash Flow Programs vs. ARMS

Discussion in 'General Chat Forum' started by peace, May 24, 2005.

  1. peace

    peace New Member

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    I have a question.
    1) One co-worker here said he got a 5/1 ARM with a lender that has 4 payment options, with no pre-payment penalties.

    2)Does anyone participate in a chevy chase cash flow program? One loan officer told me that the risk is 2% being added to your loan amount. For the cash flow program, how much would I have to overpay (to principal) each month to avoid the 2% being added each year to my loan amount? Are there ways around it?
    I don't want to have my loan amount increase yearly.

    3) How many people have actually seen that their good faith estimate (GFE) looked right on target w/ actual costs or were the GFE completely off?
    4) How much are property taxes in Loudoun county right now for a new townhouse?
    5) Don't you end up paying more by using the builder's preferred lender?
    6) Does it really affect my credit score a lot if I get it checked by many different loan officers? Haven't gotten to do all of it in 14 days. Folks have told me that if its in 2 weeks then it counts as 1 credit check. Intercoastal said we would have to keep a high credit score til the end of the year.
    Thank you so much for everything =)
  2. Sunny

    Sunny Chief Advisor

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    I have a good friend who would be happy to help you- just email him this set of questions at willisn@williscentral.net His name is Nate and he is an authority on the subject!

    Also, my husband just emailed me this article yesterday- you might find it interesting...

    SALEM, Ore. (CNN/Money) – The American spirit of "buy now and pay later" – or never – has been a driving force behind this unprecedented housing market.
    Gone are the days of saving a hefty down payment and striving to pay off your house in 30 years. Today, the typical first-time home buyer or vacation-home buyer might finance the entire cost of the house and pay only the interest owed on the loan for the first several years.

    The latest option? A monthly "minimum payment" that doesn't even cover the interest.

    Such innovations have, no doubt, been a boon to buyers who might have otherwise spent years socking away a down payment or paid a premium for a 30-year fixed-rate loan on a house they planned to own less than five years. And judging by historically low default rates, homeowners have been able to handle their growing debt burdens.

    Then again, buyers have been experimenting with more aggressive financing in the best of all times, when interest rates remain low and home prices continue to appreciate.

    "Mortgage markets have been so flush with cash that home buyers are able to layer one risk on top of the other," said Keith Gumbinger, vice president of HSH Associates. "It's possible to borrow more than the value of the home, put in no money of your own and pay a minimum monthly payment."

    What's the worst that can happen, you ask? Consider the danger with three increasingly popular loan structures.

    'Piggyback' loans

    The 20-percent down payment, once the first hurdle to homeownership, is now the exception rather than the rule. According to a recent survey by the National Association of Realtors, in fact, 25 percent of all buyers financed 100 percent of the purchase price, and 42 percent of first-time home buyers bought with no money down.

    Though small down payments are the norm, borrowers with less than 20 percent to put down must either pay private mortgage insurance or borrow their down payment using a home equity loan or line of credit.

    Most choose the latter option, also known as a "piggyback" loan. That makes sense if you can afford to make your regular mortgage payment and pay more than the minimum owed on this loan.

    The danger: A home equity line of credit, which is the most common such loan, carries a variable rate and has no fixed payment schedule. If you make only the minimum payment, the balance of this loan will remain the same. What's more, the interest you pay is immediately affected when the Federal Reserve raises short-term interest rates.

    Interest only loans

    As the name suggests, an interest only loan requires that you pay only the interest due on the loan for the first five, 10 or 15 years of the loan. It's a popular option in areas where high home prices have made it tough for buyers to afford monthly payments that include principal and interest.

    According to R.J. Arnett, executive vice president of national wholesale lending forMortgageIT, an interest-only loan makes sense for first-time buyers whose incomes will likely go up in the next few years or investors who don't want to commit to paying principal every month -- but could afford to pay the higher amount if needed.

    "If you're the gambling sort, you could get into an interest-only product and bet that the market will build equity for you," said Gumbinger, explaining that paying down principal is not as much of a concern for people with shorter time horizons, particularly if home prices are going up.

    The danger: Homeowners who are using these loans to buy more house than they can afford could get into serious trouble if they don't budget for higher payments down the road. There's no a guarantee that prices will appreciate. And if you stay in the house longer than you planned, your monthly payment jumps drastically after your interest-only honeymoon period.

    The 'minimum payment' option

    The mortgage du jour -- which is marketed as a cash flow ARM, option ARM or flex ARM -- gives borrowers three or four payment choices each month.

    They can pay the old-fashioned principal and interest of a 30-year loan.

    They can pay only the interest due.

    Or, they can make a "minimum payment" and add the rest of the interest they owe to the balance of the loan.

    Lenders put a limit on how much interest borrowers can pile onto their loan. Still, borrowers who consistently pay the minimum will see the balance of their loan go up rather than down over time.

    "Traditional banker that I am I didn't think there would be much interest in this product," said Anthony Hsieh, president of LendingTree.com, referring to the payment option his company rolled out in February. "But consumers have loved it."

    Still, Hsieh cautions that this not the best bet for everyone. "If you have seasonal income or are self-employed with monthly income that is inconsistent, this loan may be great for you," he said. "You can pay the minimum monthly payment a few times per year, but catch up by making extra principal reduction in months when your income is higher."

    If, however, you're using such a loan to push the limits on how much you can afford, you could be setting yourself up for trouble.

    The danger: "Not only do you not own any of your home, but you may be piling up additional debts that could quickly exceed the value of the home," said Gumbinger, adding that the interest rates on these loans adjust every one to three months. "There are no guarantees that rates will remain at comfortable levels and no guarantee that home prices will continue to go up."

    "You could find yourself in a rather uncomfortable circumstance," he said.
  3. peace

    peace New Member

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    Interesting. what type of loan did you try?
    Has anyone used a refinance with no closing costs? What are the advantages/disadvantages?
  4. Sunny

    Sunny Chief Advisor

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    None of them! We have a 30-year fixed and are quite happy with it. My husband sent it as a sort of "I told you so" to me.
  5. Neighbor

    Neighbor Member

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    The best loan out there is with Pentagon Federal Credit Union. Today the 5/1 jumbo is 4.375 with 0pts. I have looked around for a long time and the rates are still the best I have seen. That being said, you might do better if you use a builders lender if they play the game and compete with serious incentives. Our builder (VM) offered to take about 12K off the sale price if we used their lender. That really compensates for the other lenders lower rates (taking into account my circumstances). Anyway, check out the site an I would challange anyone to show me lower published rates. Trust me, I am a member of at least 5 credit unions and Penfed is the best by far. Navy FCU, NSF FCU, Treas. Dept FCU, can not compete.
    Here is the link:
    https://www.penfed.org/productsAndRates/mortgages/firstMortgageLoans.asp
  6. SoxFan

    SoxFan New Member

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    Sunny...thanks for posting that article. Great info.
  7. peace

    peace New Member

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    Thank you for all the responses. I'll have to look at the Penta.
    I feel like I have to decide by next week if I want to use the builder's preferred lender because we have decide our design center options. They are offering the gourmet kitchen, countertop and an allowance for the design center, but not 12K off the sale price. That's amazing, when did VM offer that? for single family home only?
  8. teak

    teak New Member

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    Pentagon Federal has restriction on who can be members. Same with Navy Federal. Anything with "Federal" probably means you must be a federal govenment employee or somehow work for the govenment. Mortgage brokers can be good since they seek rates from several sources for the best deals. From my experience there are LOTS of options for mortgages. Some are very creative. GFE is just that, an estimate. It will be close to maybe several hundred dollars. All depends on what interest rate you close on. Co tax can be found on the Loudoun Co website. I forgot the url, just search for it. If you're buying a resale, you can lookup what the previous owner paid in taxes. You MAY pay slightly more buy using the builder's lender but the cash you get might offset the extra amount over a short period of time like an ARM. I did this and got $5k off closing. The type of credit checks will matter like car dealerships and credit card inquiry. Just don't go car shopping until you get your mortgage. Lien, suits, and judgements will be more of a weight than credit inquiries.

    I see you ended up with a Van Metre TH. Intercoastal is a small mortgage company thats trying to make a name for itself in this area. They are a company created by Van Metre. My experience is they usually don't have the best rates. Service was fine except towards the closing date when I felt they became a little unorganized. Not really a problem for me since I was doing a refi and getting some $$$ for a condo I bought since they were one of the prefer lender.

    -Teak
  9. Carol Al-Ajroush

    Carol Al-Ajroush New Member

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    Northwest Federal Credit Union, although having federal in the name is opened up to non-federal employees (see the list of member companies/organizations on the web site to determine if you are eligible). It is worth checking into:
    http://www.northwestfcu.org/
  10. pamD

    pamD Member

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    FYI - I believe the "federal" refers to Credit Unions being chartered under the federal gov't. That said, most credit unions have some sort of affiliation requirement for membership.

    Pam D.
  11. Neighbor

    Neighbor Member

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    True, you must be a member. However anyone can join Pentagon Federal Credit Union. When you call, just ask to join their Millitary Family Organization Newsletter. That gets you in, and the rates are the best. Have you looked at their lender fees. NONE! Blows the doors off any lender I have seen.


  12. Neighbor

    Neighbor Member

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  13. peace

    peace New Member

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    Is there any cost to join the pentagon fed.credit union?
  14. Thu

    Thu New Member

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    PEACE;

    I bought a Van Metre and used Intercoastal bc of the incentives. They didnt have the best rates but not the worst either. My sales person said if we went with them i could get 12k off the sale or 10k off the closing cost. I chose the latter and used some of that money towards pts to lower my rate.
  15. gammonbabe

    gammonbabe New Member

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    To learn about mortgages go to our website:

    http://www.freddiemac.com/corporate/buyown/english/mortgages/what_is/

    There are many options in the market today, and different lenders offer different products. Make sure the product you pick is something you can live with not just today, but 5 years down the road. Also beware of mortgage brokers offering deals that sound too good to be true ... they usually are. If you go with the broker that the builder uses you can always refinance later with a product that suits your needs better.

    There are many reputable lenders with many different products, Provident, Wells Fargo, and Bank of America are just some of the big dogs.

    Marianne
  16. Thu

    Thu New Member

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    Hey Just checked out the Pent Fed link. The rates look good on the 5/1 arm but 4.375 with zero points. The APR looks kinda high at 5.492 which is supposed to be what ur actually paying w all the fees and points together. And for a zero pts that looks off, they gotta get u somewhere....
  17. peace

    peace New Member

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    Is that incentive for 10K and 12K just for single family home? That's a lot, does that include design center options?

    We bought a townhouse.
  18. Neighbor

    Neighbor Member

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    That is the correct rate. No they do not "get" you anywhere. That would be illegal. Moreover, did you compare the closing costs? Pen Fed has practically none. I have been tracking rates and loans for a long time and you can’t beat the rates and fees. Most people go with the higher rate lenders because they feel more comfortable with their builders’ lender. But hey, in the long run they are just taking your money.
  19. Pats_fan

    Pats_fan Former Resident

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    Neighbor, based on this link: http://www.answers.com/topic/annual-percentage-rate , I would have to disagree with you. I am just learning this myself, but it would appear that the "interest rate" is really not the measure of what you pay the lender. The APR is a better indicator, and PFCU's APR's are pretty comparable to those of everyone else.
  20. Thu

    Thu New Member

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    Exactly, a high APR is an indicator that theres fees built in somewhere. And i have spoken to loan officers and they are the ones pointing this out.

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