We are trying to buy our first home and are looking for advise on what type of loan we should take, and to find out what programs are available to us. Our credit scores are OK 650 and 600, and we do have a preapproval already, but are looking for the best possible option. We have very little for a down payment/closing costs. We also have a significant income increase coming in the next 1-2 years. What are our options?

80/20 - 3/1 or 5/1 ARM on the first with a Closed end second. Income increase isn't going to matter to the underwriter at this point. Were those the only two scores provided? or is there a borrower and co-borrower and those are your mids? It all depends on how the loan is structured, you can have a no closing cost option, however you will have a higher rate. This is not a good idea in my opinion as you will be financing the closing costs over the life of the loan.

Hang on to these loans for 3 years (depending on your appreciation rate), by then you will have a better understanding of exactly how long you plan on staying in the home. If you plan on staying over 7 years I would suggest a consolidation of your first and second mortgages at that point at or below 80% loan to value (this is the fannie/freddie threshold fo MI) to a 30 year fixed.

There is also something Freddie Mac has called a temporary buy down. a 2/1 buy down assumes an interest rate of say 6.5%. The first year rate is 4.5% the send year it is 5.5% and each year thereafter is 6.5%. I believe you would also qualify on the 4.5% rate. Maybe that will help you.

Temporary Buy downs in today’s market are not efficient for the buyer. It’s a buyer’s market and if your RE agent and loan consultant are working together or same person than the 3% or 6% seller concession is a great tool that EVERY BUYER SHOULD USE. Temporary Buy downs can have high lender cost to you and may require more down because it goes into a special escrow account. The simplest and easiest is 3/1 arm with closed end 2nd. Seems like someone said this above and I agree with AZ. Please do not go temporary buy down but use your 3% or 6% seller’s concession. Make sure you have written in the contract closing costs to cover recurring and non-recurring closing costs. This will place you in a great move toward your new home.

DO not do a ARM! Fixed rate mortgages are pricing out as good and sometimes better than ARM's and do not carry the risk of being adjustable in 3 years. Do you know where interest rates are headed? Do you want to risk refinancing at a rate of 8 or 9% in 3 years? That seems to be a big risk to save maybe $25 or $30 a month now. Insist on a fixed rate combo loan or a fixed rate morgage that has no PMI. Depending on your credit score and debt ratio, this will make the most sense at 100%. Good luck with your home buying experience.

"Do you know where interest rates are headed? Do you want to risk refinancing at a rate of 8 or 9% in 3 years?" by LoanGuyinWisconsin

oh lord......you have got to be kidding me right!?! Are you on "the pot" Adel? You would be more likely to gain 6% interest on your checking account!

I am so sick of hearing this! I have been hearing this for over 7 years now. What do you base this assumption on? I'd love to see this.

I would try for an FHA Loan...You can't beat the interest, and the have down payment assistance. They are also designed for first time home buyers.

Marni C. Miller
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oh lord......you have got to be kidding me right!?! Are you on "the pot" Adel? You would be more likely to gain 6% interest on your checking account!

I am so sick of hearing this! I have been hearing this for over 7 years now. What do you base this assumption on? I'd love to see this.


WHat exactly are you sick of hearing? That ARM's arent a good idea? They were a great idea until about 5 months ago. They started pricing out terrible. Right now for the money, nothing beats a fixed rate mortgage. Even if the consumer could get a quarter point better, on a 200k house that is only 41 dollars. In 3 years you saved them $1500. Now they have to refinance and hope rates are still good. They have to hope their home appreciated enough. They have to hope they didnt tank their credit in the meantime. And then they will pay what they saved for closing costs for a new loan and hope they got something as good as they had the last time around. Do you know how many people are kicking themselves in the butt right now for taking a 3.5% ARM a couple years ago instead of a 4.5% fixed rate. how much did that ARM save them now that they have to refinance and the best they can get is 6.25% for a fixed rate. Maybe they should go onto another ARM at that point? That's great for you and me but does it benefit the consumer?

I'm sick of hearing how rates are going to shoot up. There is nothing to support that claim.

Interfirst has a 5/8th's difference between the 30 year fixed (6.125%) and the 3/1 ARM (5.500%) and a 1/8th's difference between the 3/1 & 5/1 (5.625%). Keep in mind also, I am in AZ. The housing market is much stronger here. I just don't see the point in paying a higher rate, when eventually (here about 2 years), you could refinance, consolidate your first and second in to one loan at or below 80% LTV. This gives the borrower enough time also to get a feel for the house. The average time a person stays in a particular residence is 6 years.

I think we'll have to agree to disagree here.

Agreed, lets agree to disagree. By the way, most major lenders re-priced this afternoon because of the feds rasing the short term rates again.

I know. I've been bombarted with emails for mid day price change. Ten Year Treasury is tankin'.

Goldenbear is dead-on with the 3 and 6% seller concessions. last quarter i saw $30,000 being contributed to closing costs by the seller on homes in So. Cal. fight for the concessions and use them.

i have to agree with Mr. Wisconsin here about the interest rates. personally, i don't see anything wrong with an 8 or 9% interest rate at all. i think between 7-10 is normal. and for a 600 credit score, they should be thanking someone if they get under 9%. anyone remember 1998-99?

he is right about how the yield curve is still almost flat and there is not a big difference between long term and short term rates. this is causing portfolios to really really hurt out there.

as far as ARMs being bad, i don't think so. just a different flavor, that's all.

I enjoy watching different mortgage professionals argue back and forth, forgetting that there was an actual question at the top of this thread.

-Back to the question.
If you are able to fully document your income and assets I would suggest an 80/20 adjustable and have the sellers kick in for the closing costs if possible. By doing this you will avoid any PMI payments and will lessen your cash outlay.
I would not recommend FHA, unless your lender is very knowledgable and your real estate agent as well. These loans are insured by the government so there are rules regarding inspections, appraisals and the general condition of the house. Also the seller will be required te pay certain closing costs. These loans only go to 97% of the sales price. There are ways to get to 100%, but the seller is going to pay in the end.

Rates will go up, it is most likely inevitable. However nobody knows when or by how much. In your case it will most likely cost you a good bit more to have a fixed rate than an arm and the cost to benifit would not be good enough.

To the gentleman in AZ-You have a good point regarding the colse margin between fixed and arms. However what is good for the goose isnt good for the gander. No one product is for everyone. I suggest listening to the questions(or your customers) and providing them the products that are best for them.

Regards,

I use fha loans to do 100% purchases. The seller has to agree to contribute 6% to closing costs. 3% sellers concession and 3% gift to a non-profit 3rd party who can gift the funds to you. If the market is slowing where you live it should be easy to find sellers willing to make the contribution. The hard part is finding the people with the experience to complete the loan for you.

Some advice.

When talking to a First Time Home Buyer you need to avoid industry jargon/abbreviations.

I suggest FHA all the way on this one. The scores are just a little low for the Fannie Mae 100% loans. Plus they only allow the seller to pay up to 3% of the purchase price towards closing costs.

FHA will allow 6% of the purchase price towards closing costs. FHA has the best fixed rates on high LTV.

Did you folks get what you needed? Do you have any more questions yet?

And for those who do not know FHA very well these folks would get 100% financing with a down payment grant everyone qualifies for and the rate would be 6.00% Fixed on a 30 yr term regardless of the credit score. Or 6.5% fixed would pay a premium over 2%...