Posted on: 23rd Mar, 2009 08:18 am
OK, my fiance and I have found the house we want, we have been told that they will accept an offer of $230k. We have a current pre-qual approval for $225k @ 4.75% FHA loan with a seller contribution of $8700 towards closing costs.
Being somewhat of a numbers guy, to me that would mean that we could make an offer of $230k with seller paying 3% towards closing costs ($6900). Here is my logic, please tell me if I am completely wrong!
Sales price: $230,000
Downpayment: 3.5% = $8,050
Total financed: $230,000 - $8,050 = $221,950
Closing Costs: total-seller contribution = $8,700-6,900 = $1,800
By my math we could make that offer on the house based on our pre-qual sheet, is that correct?!?!
Also, could we take the $1800 in closing costs that the seller isnt paying onto the loan, making our total loan amount $223,750. Or just make our offer for $1800 more and ask for the whole $8700 back for closing?!?!
Being somewhat of a numbers guy, to me that would mean that we could make an offer of $230k with seller paying 3% towards closing costs ($6900). Here is my logic, please tell me if I am completely wrong!
Sales price: $230,000
Downpayment: 3.5% = $8,050
Total financed: $230,000 - $8,050 = $221,950
Closing Costs: total-seller contribution = $8,700-6,900 = $1,800
By my math we could make that offer on the house based on our pre-qual sheet, is that correct?!?!
Also, could we take the $1800 in closing costs that the seller isnt paying onto the loan, making our total loan amount $223,750. Or just make our offer for $1800 more and ask for the whole $8700 back for closing?!?!
your math is pretty much good. yes, you can bid $230K and get your loan of $221950 based on what you've written. you cannot, however, borrower more than 96.5% of the purchase price; so "the whole" $8700 cannot come back to you. in this case, you'd have to have cash availability of $9,850 (if all those numbers are to be believed).
Good deal, thanks gmakerley!
Amazingly, this concept of being able to offer more than the pre-qual approval amount seems to be like a foreign language to people. In theory, in order actually borrow our maximum approval amount of $225k, we would have to have a purchase price of $232,875.
What do you mean if the numbers are to be believed? Our pre-qual states that to get the $225k max, we need the sellers to contribute $8700 towards closing. I am making an assumption that $8700 is the total cost of closing, not including the downpayment of course....
Amazingly, this concept of being able to offer more than the pre-qual approval amount seems to be like a foreign language to people. In theory, in order actually borrow our maximum approval amount of $225k, we would have to have a purchase price of $232,875.
What do you mean if the numbers are to be believed? Our pre-qual states that to get the $225k max, we need the sellers to contribute $8700 towards closing. I am making an assumption that $8700 is the total cost of closing, not including the downpayment of course....
your closing costs will not be completely accurate until just before closing. there are always variables to take into account, that are determined at the last minute, such as a tax adjustment, or a utilities adjustment. and, of course, a good faith estimate is precisely that, an estimate. there is never a guarantee when given an estimate. that's not to say the numbers are likely to be drastically changed, but there will definitely be variations.
i have never issued a prequalification that reflects what sellers must contribute to closing costs, so i'm not sure where that comes from. i'm not saying it's incorrect - i just don't have that in my experience.
and now that i am going back, momentarily, to review what you wrote originally, you can get as much as 6% back from the sellers towards your closing costs (though not more than actual costs), so if your costs are higher, that's allowable. but of course, your purchase contract will rule as far as that's concerned.
i hope i haven't dropped anything more into the mix that may confuse you.
i have never issued a prequalification that reflects what sellers must contribute to closing costs, so i'm not sure where that comes from. i'm not saying it's incorrect - i just don't have that in my experience.
and now that i am going back, momentarily, to review what you wrote originally, you can get as much as 6% back from the sellers towards your closing costs (though not more than actual costs), so if your costs are higher, that's allowable. but of course, your purchase contract will rule as far as that's concerned.
i hope i haven't dropped anything more into the mix that may confuse you.
George-
Thanks for the clarification. I think I am understanding it all, I wish that could be said for everyone else I am working with on this! I think the amount on the pre-qual is gauranteeing the money is there to buy the rate down to 4.75% from 5% (its a bit of an old pre-qual, I think there are better deals to be had now).
I understand that they can pay up to 6%, but not more than the actual closing costs, that makes complete sense, we would only need less than 4% to cover that required $8700 to get the rate to 4.75%.
Thanks again!
Thanks for the clarification. I think I am understanding it all, I wish that could be said for everyone else I am working with on this! I think the amount on the pre-qual is gauranteeing the money is there to buy the rate down to 4.75% from 5% (its a bit of an old pre-qual, I think there are better deals to be had now).
I understand that they can pay up to 6%, but not more than the actual closing costs, that makes complete sense, we would only need less than 4% to cover that required $8700 to get the rate to 4.75%.
Thanks again!
but if all you're talking about is a buydown of your rate, that's not going to cover your closing costs. if i understand you correctly, you're not getting any special deal here. perhaps the sellers in your case would be paying your points, but that's not going to take care of appraisal fee, application fee, legal fees, credit report, processing, underwriting, escrows, etc. there's a lot more than simply the buydown to deal with.
am i understanding this correctly?
am i understanding this correctly?
Well, I am not completely certain, the Pre-Qual letter doesnt say what in total the $8700 the seller is paying towards closing costs covers. I would need to talk to the Mort. Broker to see if the $8700 is in face the total estimated closing costs, or just the points...
i find it quite unusual that a prequalification letter would specify how much a seller ought to contribute. i feel pretty certain you're facing more costs than you think at this point.
Ok, so, all my math was to no avail. The amount on the pre-qual letter was a maximum purchase price, not loan amount. I guess I should have just looked at the thing a little closer. Smart on my part...
OK, so, new question: How much could we save rate wise by going to something like a 5/1 FHA ARM? Do many lenders even offer this product, I just ran across something mentioning it this evening. Having a tough time finding current rates to see how much more we could possibly qualify for.
Thanks!
OK, so, new question: How much could we save rate wise by going to something like a 5/1 FHA ARM? Do many lenders even offer this product, I just ran across something mentioning it this evening. Having a tough time finding current rates to see how much more we could possibly qualify for.
Thanks!
A 5 year ARM means that the interest rate is locked in for five years. The “1†signifies a 1% interest only ARM for 1 month. The interest only loan option at 1% is good for the first month. After that, the interest only option at a normal interest rate is considered due for the next five years of the loan. The interest rate may change, and the payments will begin to include principal and interest. The rates keep on changing however, the rates may vary between 5% - 5.13%.
au contraire...
a 5/1 arm is a fixed rate for 5 years - that is correct. the "1" is indicative of the fact that the loan will adjust annually thereafter. generally, the maximum change per period (each year) is 1%, with a lifetime cap of 5%.
for example, if you begin today at 5%, that rate will remain the same for 5 years. on the fifth anniversary, if market conditions warrant it, the loan will adjust to 6% (no higher), or anywhere within that range (or even down). each year thereafter, the maximum change is 1% in either direction; and the highest possible interest rate you would face in this scenario is 10%.
this is NOT an interest-only loan in any sense. that 1% is fallacious, and i don't know where ana got that from. you will pay principal and interest with each payment from day one until the loan is paid in full.
with fixed rates where they are at this time, i don't feel that a 5/1 arm is worthwhile.
a 5/1 arm is a fixed rate for 5 years - that is correct. the "1" is indicative of the fact that the loan will adjust annually thereafter. generally, the maximum change per period (each year) is 1%, with a lifetime cap of 5%.
for example, if you begin today at 5%, that rate will remain the same for 5 years. on the fifth anniversary, if market conditions warrant it, the loan will adjust to 6% (no higher), or anywhere within that range (or even down). each year thereafter, the maximum change is 1% in either direction; and the highest possible interest rate you would face in this scenario is 10%.
this is NOT an interest-only loan in any sense. that 1% is fallacious, and i don't know where ana got that from. you will pay principal and interest with each payment from day one until the loan is paid in full.
with fixed rates where they are at this time, i don't feel that a 5/1 arm is worthwhile.
Thanks George. I knew that was incorrect. The FHA 5/1 ARM can increase a max of 2% each yr, and a lifetime max of 6% from what I can tell.
Is the ARM rate any lower than the current fixed rate? I cannot find rates for the product readily. I realize it may not seem worth it, but if it gets us even just that extra 0.25% we need to get the few extra thousand we need to get into the house we want, so be it. Again, in our circumstances, the ARM adjusting after 5 yrs should not be a big issue.
Thanks for all of your help!!
Is the ARM rate any lower than the current fixed rate? I cannot find rates for the product readily. I realize it may not seem worth it, but if it gets us even just that extra 0.25% we need to get the few extra thousand we need to get into the house we want, so be it. Again, in our circumstances, the ARM adjusting after 5 yrs should not be a big issue.
Thanks for all of your help!!
most 5/1 fha arms have a 1% annual cap; ours does and that's where i got that from; further, there's a 5% life cap.
i'm surprised you're finding 2/6 caps on that product.
rates on the arm are worse than on a fixed rate at this time. as a general rule of thumb (at least it used to be), arm rates were lower and therefore made homes more affordable during the early years.
we are in aberrant times.
i'm surprised you're finding 2/6 caps on that product.
rates on the arm are worse than on a fixed rate at this time. as a general rule of thumb (at least it used to be), arm rates were lower and therefore made homes more affordable during the early years.
we are in aberrant times.
Thanks George! Can you do our loan in Virginia?!?! Your much more helpful than anyone around here!
of course, i would be pleased to do so.
That could be outstanding. I think you may have sent me a private message, but I cannot find it...