Is this the right mortgage for our situation?

Hi Ksteltenpohl ,

I suppose you are going to refinance the existing loan and pull out equity so that you repay the existing balance as well as pay for the land that you have recently purchased. Are you taking the loan from platinum Mortgage or so? This is not a buy-down loan because as you've stated here, the rate preferred by the company is higher than what is prevailing in the market.

From the details, that you have given here, I don't find anything which can suggest that you are likely to get a buy down loan. You can have a direct talk with the lender if you wish to go for it.

I must say one thing, the tax savings figure seems to be an impressive one.

Thanks,

Jerry

Hi Jerry,

Thanks for your response!
Yes, we are going to refinance the existing loan and use the equity to pay for the land. No, the mortgage company is Ameristar. "Platinum" was the title of this loan option for their preferred customers.

Our lender also stated that every 6 months we'll need to "revisit" the loan and adjust it to the curtent rate. Since we're only going to have this loan until we sell our current house and start building this shouldn't be a big issue. We'll then take out a construction loan.

Would a bridge loan be a better way to handle this situation or would you reccomend selling our current home first and then build?

Thanks again for you response!

Kevin

Hi Ksteltenpohl,

What I can interpret from your post is, probably your lender has offered you an ARM with a 6 month LIBOR index. That's the reason he's saying that the rate will adjust with respect to current rate in every 6 months. But I suggest that you leave out this option as it is an ARM and you never know when rates will go up or fluctuate. And, just for the purchase of the land, I don't think it is an attractive option. Rather a bridge loan would be good in case you cannot sell off the home right now and need to pay off the land soon. By the way, do you wish to take a mortgage and then build the home?

We currently owe $268,000 on our 2 year old home that has an appraised value of $500,000. Our monthly payment is $1,536 total. We just purchased some land for $160,000 and our intent is to build within the next year and sell the house we're currntly in. We are in a good location where average time on the market is 62 days for selling our current home. We close on the land at the end of the month and are looking for the best option to borrow the money to pay for the land which we can eventually pay off when we sell our house. Our mortgage lender came up with the following refinance option:

I'm not sure if this is a "buy down" mortgage?

Mortgage amount $400,000
desired loan term 360 months
current market interest rate 6.0% P&I $2,398.2
Platinum preferred rate 7.0% P&I $2,661.21 This looks like an option arm to me......anytime I see 2 different rates.....it looks like you would be accruing interest...ie this looks like an option arm......and the terms are being disguised with a few fancy words....... payment differential X 6 months $1,578.05

Pricing to investor .04
Available subsidy $8,100 ??? This doesn't make sense......Did they give you an actual GFE?? If they did then please post the information....specifically the information in the 800's section(the first group of numbers)
Platinum monthly subsidy $1,350
Platinum net mortgage payment $1,311
Platinum payment equivalency 1.133% This is a neg am option ARM and they are hiding or masking the terms......for the most part these have pre-payment penalties......
Customer tax rate 25%
Platinum net taxable rate -0.617%

Total tax savings $7,000

Loan term if Platinum subsidy applied to principal reduction 78.8 months

I'm not sure where the $8,100 available subsidy comes from?(is it added into our total loan amount?)

He described this as a way to get the money for our land at no cost out of pocket and we actually pay less than our current monthly payment. You are being sold a loan and the fact that the lender is hiding the material facts of the loan.......is to say the least unethical........and depending on the state fraudulent.......I would get a second opinion from a reputable broker........or post your GFE here and let us critique it for you.....
We plan on selling our next house as well and building one more time after that.

Is there any other suggestions as to what type of loan we should obtain to pay for our land? We don't have cash available for any type of downpayment. There is a reason for this type of loan.....however this is not one of them.....there are construction loans available that will allow you to roll in the cost of your land loan......etc...Are you using a builder or planning on being your own GC?
Thank you for your input!

I think you need to speak with another lender or broker........and have them fully explain the loan you are being offered.....the one you are looking at has some major pitfalls.....and you have not been fully made aware of them.

ckalvesmaki made a very valid point. If you are going to get a arm in order to have a lower payment since you are only planning on having this for a short amount of time just go with a 3/1 or 5/1 arm and take a interest only option. That is your safest way to go about this. A neg am loan means that the balance is going to go up every month until it hits a cap between 110-125% the original balance.

Please be careful.

totally agree with ckalvesmaki

there is alot of ways to get the financing you need

Heloc wich will aloow you to pay interest only and wont cost you much
Or a conventonal loan that will have a fixed payment and no prepayment penalties.
You can also opt for higher then market rate to offset youur closing costs because it is such a short term loan.
If you keep your loan under 417k and have the nessesary qualifications you can still get a rate under 6% and have no closing costs.

Thank you all for your responses! I definitely will get a second opinion from a reputable broker----any sugestions?

In response to your questions and to give you all a little background on our situation, my wife and I built the house we're currently in in 2005. Our plan was to live in the house for 2-3 years and use the equity to buy land and build again. I work for a home builder and do much of the work myself (I'll act as my own GC) so our goal is to have $200,000 + in equity in each house after we finish building, do this 2-3 times and finally get into a house free and clear. Currently, the average days on the market for the village we live in is between 60 and 100 days. It's a highly sought after area because of the school district and close proximity to Milwaukee, WI so we aren't too concerned with not being able to sell the house. The area has many older and smaller homes in it so we should be able to get above assessed value even in a slow market.

So our plan was to buy land (which we did and we close on 2/24/08), sell our house, move to an apartment for around $700-800 per month while we build and then move into our new home.
We we planning on refinancing our current mortgage of $266,000 to get the $180,000 to pay for our $160,000 land and have $20,000 extra for emergency fund while building. Once we sell our house, we should get between $500,000 and $550,000 for it, we'd then pay off our mortgage and take out a contruction loan to begin building.

We did not get an official GFE. Basically all I have so far is a peice of paper with the following typed out and a letterhead that reads:
Platinum Preferred Customer
Mortgage amount $400,000
desired loan term 360 months
current market interest rate 6.0% P&I $2,398.2
Platinum preferred rate 7.0% P&I $2,661.21
payment differential X 6 months $1,578.05
Pricing to investor .04
Available subsidy $8,100
Platinum monthly subsidy $1,350
Platinum net mortgage payment $1,311
Platinum payment equivalency 1.133%
Customer tax rate 25%
Platinum net taxable rate -0.617%
Total tax savings $7,000
Loan term if Platinum subsidy applied to principal reduction 78.8 months

evolovik26: The fact that I'd be paying 7% rate instead of 6% seems to me that I am paying a higher market rate to offset my closing costs because it is a short term loan.

Our questions are as follows:
We would love to stay in our current home while building but can not afford to pay any more than our current mortgage of $1,500 per month.
What, if any, options do we have to be able to do this or should we sell 1st and rent while building?

We're obviously looking to do this with little or no money out of pocket but yet don't want to be killed in interest charges, etc. or a higher monthly payment. So any additional suggestions would greatly help as well!

I think taking this loan will cost you in the long run far more that you realize.....I would suggest selling.......renting while you build........and save yourself all the additional fee's.

Hi ksteltenpohl,

I agree with all posters above. Refinancing to get cash for the land purchase and the build up an emergency fund is a good decision no doubt. But choose options like 1 year ARM or 5/1 year ARM as rates of such loans are on a dropdown currently and you are also looking for a short term loan.

After you pay off the land and sell the home, you can pay off the mortgage, rent for some time while you build and then shift to the new home of yours.

Hope this helps...

God bless you.

Samantha

Hi ksteltenpohl,

The person you are working with seems to giving you a bunch of babble which is usually the case with a pick a payment pay option. They are most likely quoting you a pay option. There is nothing platnium about the rate. Check about the prepayment penalty. There are usually pre-pays with these types of loans.

I think you should work with someone that spells it all out and gives the pros and cons of this loan along with some other options that may suit you better.

And I just needed to add that the "tax effective rate" would apply to ANY mortgage. Some brokers/lenders will use this to make it sound better than other options and make the rate sound lower is which it is not. You don't have to pay 7% on 400K. There are better options.

go to an honest broker and run from this one :!:
the terms he put in writing dont exist in a real mortgage world
I hardly can understand what he is talking about and I have been doing this for 7+ yrs.
WTH is a platinum prefered?
Just walk away or get second opinion at least.

OK,

I got some more information regarding this loan from the mortgage company.
They are calling it a broker-sponsored buy down agreement
It is a 30 year fixed rate mortgage with no prepayment penalty
It is not a negative amortized loan
The subsidy amount comes from the mortgage company selling the loan at an above market rate (7% to 7.25%) to a bank.
The rate will be locked in during the process; it has varied lately between 7-7.25% depending on market conditions, as well as the loan purpose (cashout refinance vs rate/term refinance). We're basically looking at an effective rate of 1.1% at the 7% note rate vs maybe 1.25% at 7.25%, so there is not much variance. The main goal of this program is to DRAMATICALLY reduce your payments on a monthly basis, so the rate is not as important if you're talking about 7% vs 7.25%. Especially if you pay the loan off within the year.
They have agreed to write a GFE as well.

Considering our situation of using this loan to just purchase the land, sell our current house in 2-6 months and then using the $$ from the sale to pay off this loan, it seems to be the least expensive option I can find for us.
Even if we remain in our home while building and hold onto this loan for 2 years, it's still less expensive.

What do you think??

Just thought I'd post the actual email I exchanged with the lender regarding this loan.

We have a few concerns and some questions regarding the refinance loan proposal you presented us for a "Platinum Preferred Customer" as listed below:


MORTGAGE AMOUNT $400,000

DESIRED LOAN TERM 360

CURRENT MARKET INTEREST RATE 6.000% P&I $2,398.20

PLATINUM PREFFERED RATE 7.000% P&I $2,661.21

PAYMENT DIFFERENTIAL X 6 MONTHS $1,578.05

PRICING TO INVESTOR 0.04

AVAILABLE SUBSIDY $8,100

PLATINUM MONTHLY SUBSIDY $1,350

PLATINUM NET MORTGAGE PAYMENT $1,311

PLATINUM PAYMENT EQUIVALENCY 1.133%

CUSTOMER TAX RATE 25%

PLATINUM NET TAXABLE RATE -0.617%

TOTAL TAX SAVINGS $7,000

LOAN TERM IF PLATINUM SUBSIDY APPLIED
TO PRINCIPAL REDUCTION 78.8 MONTHS


1ST, what type of loan is this exactly? (Is it a HELOC or an option ARM with a 6 month LIBOR index?)

This is a 30 year fixed rate mortgage with no prepayment penalty

Is this a negative amortized loan? Is there pre-payment penalties?

This is not a negatively amortized loan, nor does it include a prepayment penalty. We just ask that you do not pay it off for at least 4 months, because then we are out the closing costs and subsidy amount.

Where does the $8,100 subsidy come from? (Is it added onto our principal?)

The subsidy comes from us selling your loan at an above-market interest rate. The money comes from the bank, ex. Countrywide, US Bank, Citibank, etc. The loan is basically a broker-sponsored buydown agreement; a MUCH accelerated version of the one that banks have. So they are the ones providing the subsidy, it is just administered by us.

Should we lock in a rate or float it until closing? (In terms of least expensive to us)

The rate will be locked in during the process; it has varied lately between 7-7.25% depending on market conditions, as well as the loan purpose (cashout refinance vs rate/term refinance). We're basically looking at an effective rate of 1.1% at the 7% note rate vs maybe 1.25% at 7.25%, so there is not much variance. The main goal of this program is to DRAMATICALLY reduce your payments on a monthly basis, so the rate is not as important if you're talking about 7% vs 7.25%.

We were told that the least expensive loan to take out to do this would be a 15 year FRM with a combination of the highest rate and largest rebate. (Or a 30 year for a lower payment). Does this work for our situation in your opinion? (Keeping our monthly costs near where they're at now).

The least expensive loan for you to take out for short or even long term financing is this program; you are talking about a rate of 1% or so vs rates that are much higher for longer term fixed rates as well as short term adjustable rates.

Others are telling us to take out a 1 year, 3/1, or 5/1 arm since we'll be paying it off with the sale of our house?

Short term rates have run about equal to long-term rates lately; and with the platinum subsidy, it doesn't really matter since your payment rate is so low. Especially if you plan on moving within a year or so.

You guys both know our situation and what we're trying to accomplish with paying for the land, selling our current home and building within the next year. We can't really afford to pay much more per month then we are currently ($1,550). We would love to have an option where we could borrow to pay off the land and remain in our current house while building and only have to move once. However, if to do this, we'll end up paying a significant amount more in the long run, we'd rather sell and rent while building.

Could we also get a written list of lender charges and a GFE along with any loan quotes?

Indeed, just let me know if these answers help you out and we will write the good faith estimate. There are no closing costs associated with this loan, which is another great benefit of it! If you would like some other quoted of non-platinum loans, then we can also send those along. But again, to keep you in your home as affordable as possible, please take serious consideration of this program! The agreement for the subsidy will also be signed at the closing table, as well as a schedule of when the checks are to be made available to you!

Thank you for the opportunity to serve you and to do this in the most cost-effective manner!

beware!!!

i have never worked with a firm that had "platinum" borrowers. what is the next level down - gold? filigree? diamond?

if i ever walked into a lender and was told that i was a platinum borrower and therefore could get certain rates, i would be baffled by it. yes, current conforming and jumbo loan rates vary based on credit scores, but neither fannie mae nor freddie mac, nor any reasonable lender would ever justify rates based on your being a "platinum" or "bronze" or "quartz" borrower, or any other such appellation.