Is this a good interest rate for my Conditional Approval Letter?

[CTNative]

We are still waiting a bit longer (been saying that for six years now) but I thought I would get a feel for what we would qualify for by going through the pre-approval process with a bank. I picked Bank of America just to see what your standard big bank would say so I can compare it to other banks.

It's all conditional, but I was honest on all of their questions. We have excellent credit, own both our cars, both of us work and have been with the same companies for more than 3 years, have no debt, no other liabilities, we have money to put down (not FCB-baller style though). In fact, I am leaning towards putting as little down as possible, and that is the position I took for this conditional pre-approval analysis. I am making more on where the cash is now than I would, I think, if I put it into a house that still has some depreciation to go.

It came down to this:

On a 30 yr fixed (no prepayment penalty) we'd get 4.75% / 5.507 APR. <-- Looks like the 4.75% is good but is that APR good? I read somewhere there is a lot (read manipulation) that goes into the difference between those two numbers.

They also gave us no lender fee, no origination fee, no application fee and would give us -1 point credit.

Then we would have to pay for the "3rd Party Fees" like appraisals. They also said we could probably get a seller concession of up to 3% to cover a lot of those 3rd party fees. They estimated $500 a month in taxes, $100 a month in homeowners insurance.

After all the math was done, our Debt-to-Income was 27%, 4% below the maximum. This was for a purchase price (that I pulled out of thin air) of about $25,000 less than the maximum they would loan us, so I am actually aiming for a property between 25% and 35% less than the "thin-air" amount this whole pre-approval was based on.

This was for an owner occupied SFR purchase in Orange County.

Is that APR good? Is there anything in those figures that doesn't smell right? Is it better to invest my cash than put it into the house as a down payment? When I do the mortgage calculators, it looks like I can save hundreds of thousands of dollars by overpaying the mortgage each month or as often as I can at least, does everyone concur?

Any input would be much appreciated.

 

[irvinerealtor]

We are still waiting a bit longer (been saying that for six years now) but I thought I would get a feel for what we would qualify for by going through the pre-approval process with a bank. I picked Bank of America just to see what your standard big bank would say so I can compare it to other banks.

It's all conditional, but I was honest on all of their questions. We have excellent credit, own both our cars, both of us work and have been with the same companies for more than 3 years, have no debt, no other liabilities, we have money to put down (not FCB-baller style though). In fact, I am leaning towards putting as little down as possible, and that is the position I took for this conditional pre-approval analysis. I am making more on where the cash is now than I would, I think, if I put it into a house that still has some depreciation to go.

It came down to this:

On a 30 yr fixed (no prepayment penalty) we'd get 4.75% / 5.507 APR. <-- Looks like the 4.75% is good but is that APR good? I read somewhere there is a lot (read manipulation) that goes into the difference between those two numbers.

They also gave us no lender fee, no origination fee, no application fee and would give us -1 point credit.

Then we would have to pay for the "3rd Party Fees" like appraisals. They also said we could probably get a seller concession of up to 3% to cover a lot of those 3rd party fees. They estimated $500 a month in taxes, $100 a month in homeowners insurance.

After all the math was done, our Debt-to-Income was 27%, 4% below the maximum. This was for a purchase price (that I pulled out of thin air) of about $25,000 less than the maximum they would loan us, so I am actually aiming for a property between 25% and 35% less than the "thin-air" amount this whole pre-approval was based on.

This was for an owner occupied SFR purchase in Orange County.

Is that APR good? Is there anything in those figures that doesn't smell right? Is it better to invest my cash than put it into the house as a down payment? When I do the mortgage calculators, it looks like I can save hundreds of thousands of dollars by overpaying the mortgage each month or as often as I can at least, does everyone concur?

Any input would be much appreciated.

Lots of questions, and here are a few answers (or clarifying questions):

1. What is the Loan-to-Value (LTV) that this rate is for? It will be different if you're comparing the minimum down payment (~3.5%) or a higher, more conservative down payment (20%+)

2. Anyone can give you a "no fees, no points, no (fill-in-the-blank)..." quote. Keep in mind the common sense in the equation, though, that everyone doing work on your loan will be getting paid.  That payment will be coming from you.  You will pay it either in an up-front cost or dropped into the back end.  How you decide which is better for you depends on your own comfort level, and the amount of $$$ you have available up front.  And how much of a rainy-day fund will that leave you, just in case "life" happens?

3. A lender promising a 3% seller concession is very misleading. Consider if you were a seller... would you give away 3% just because?

-IrvineRealtor

 

[sgip]

Unless I missed it, the loan amount and down payment amount is missing. That really matters in knowing how the rate and fees are calculated. I'm assuming in the response below that the down then is 20% and the loan amount is greater than $417,000.

The APR is meaningless since it appears the lender is paying costs. Is the 1.0 point lender credit covering any 3rd party fees, or only the BofA fees? If it's zero lender fees AND 1.0 point to use as you see fit towards closing costs, then it's market competitive. Most lenders are between 4.75 and 4.625% for the same terms. If the 1.0 point remainder is covering only their lender fees, the 4.75% is relatively high. You could request .125% less in rate given terms today. If the rate quoted is for a sub $417,000 loan, then it is not competitive.

If you pay for your own lender fees (about $1,500) then your rate is 4.50%. 4.50 vs 4.75 is enough of a gap to pay the lender fees. Sometimes a "fee free" loan is expensive over the long term. Knowing that at these rates, the likely chance of refinancing in the future is slim or none. It may pay in the long run to look at a loan with costs to get the lowest long term rate you can.

I've heard that if your mortgage is over $625,500 there is a likely chance that BofA will not continue forward with your mortgage due to High Cost Area Temporary Loan Limits being reduced in October. Check with your rep and get their confirmation in writing that they are going to still work with you past June 30th. If it's not committed to in writing, any pledge from the loan officer has no value.

My .02c

Soylent Green Is People.

 

[CTNative]

1. What is the Loan-to-Value (LTV) that this rate is for?

Since I want to put down as little as possible, the LTV would be 96.5%. I could put down more if I needed to, but again, concerned about putting any more cash in a house than absolutely needed since I can make more with the cash elsewhere, unless someone can tell me that that idea in itself is flawed.

2. Anyone can give you a "no fees, no points...."

There were a few thousand dollars in fees that I was given the option to pay up front or include in the loan, which I chose to pay up front. My papers with that info are at home, so I will update that amount when I get back there.

3. A lender promising a 3% seller concession is very misleading. Consider if you were a seller... would you give away 3% just because?

Agreed. No. I wouldn't.

Something else I thought was unexpected....they asked about the source of my down payment and they went through a check list. The first question was amount of cash in savings/checking which of course is zero (except for a little emergency fund I keep around). The second question was stocks/bonds, etc... and I told them how much I had from that. The third question was 401k. I thought that was strange. I told them how much we had and they said we had enough. They asked if I had any more sources and I said yes, but they said they didn't need to know about it, since I already had enough between the investments and the 401k. Are they actually expecting me to take a loan against my 401k even though I have other short-term investments I could liquidate and use instead?

 

[CTNative]

Unless I missed it, the loan amount and down payment amount is missing. That really matters in knowing how the rate and fees are calculated. I'm assuming in the response below that the down then is 20% and the loan amount is greater than $417,000.

The down is 3.5% and the loan amount "out of thin air" was for $600,000.

The APR is meaningless since it appears the lender is paying costs. Is the 1.0 point lender credit covering any 3rd party fees, or only the BofA fees?

I believe it is only BofA fees because they said that 3rd party fees, such as appraisals, would have to be paid and that I could include it in the loan or pay up front, which I said I would pay up-front. Their rationale was that I could probably get a 3% concession from the seller to cover a lot of the third-party fees (IrvineRealtor's comment fully understood).

If it's zero lender fees AND 1.0 point to use as you see fit towards closing costs, then it's market competitive. Most lenders are between 4.75 and 4.625% for the same terms. If the 1.0 point remainder is covering only their lender fees, the 4.75% is relatively high. You could request .125% less in rate given terms today. If the rate quoted is for a sub $417,000 loan, then it is not competitive.

If you pay for your own lender fees (about $1,500) then your rate is 4.50%. 4.50 vs 4.75 is enough of a gap to pay the lender fees. Sometimes a "fee free" loan is expensive over the long term. Knowing that at these rates, the likely chance of refinancing in the future is slim or none. It may pay in the long run to look at a loan with costs to get the lowest long term rate you can.

I would rather pay those things, as you said, up front.

I've heard that if your mortgage is over $625,500 there is a likely chance that BofA will not continue forward with your mortgage due to High Cost Area Temporary Loan Limits being reduced in October. Check with your rep and get their confirmation in writing that they are going to still work with you past June 30th. If it's not committed to in writing, any pledge from the loan officer has no value.

It's less than that, but that is good to know.

I picked $600,000 out of the air, and they qualified us for that amount, but I would rather buy something between $400K and $450K. I'm still very concerned about the economy as a whole and I believe there is some signficant pain ahead and I am trying to find something we could squeeze by on with one income if things should get worse and something happens to either of our jobs. Means less house than we could probably get, but more financial stability and I can sleep at night.

 

[CTNative]

Can anyone recommend any banks that would be competitive against BofA taking into consideration what everyone knows from this thread? I want to get a few more quotes and BofA was only a litmus test. Are smaller regional banks better or should I stick with the big kids? Is anyone against using something like Lending Tree or other sites like that?

 

[usctrojancpa]

Can anyone recommend any banks that would be competitive against BofA taking into consideration what everyone knows from this thread? I want to get a few more quotes and BofA was only a litmus test. Are smaller regional banks better or should I stick with the big kids? Is anyone against using something like Lending Tree or other sites like that?

PM SGIP to start.  Big banks have bad pricing whether it's Wells, US Bank, BofA, Chase, etc.  Non-big bank lenders like Met Life or mortgage bankers/brokers will give you a better rate and better service.

 

[home2irvine]

Can anyone recommend any banks that would be competitive against BofA taking into consideration what everyone knows from this thread? I want to get a few more quotes and BofA was only a litmus test. Are smaller regional banks better or should I stick with the big kids? Is anyone against using something like Lending Tree or other sites like that?

PM SGIP to start.  Big banks have bad pricing whether it's Wells, US Bank, BofA, Chase, etc.  Non-big bank lenders like Met Life or mortgage bankers/brokers will give you a better rate and better service.

I went with Wells Fargo when I closed a couple of months ago. Walked into a branch to see if they could do better than what the builder was offering. At the end of the day I got 3.875% for 15 years. The 15 year was a lot more attractive to me even though the 30 year rates have come down again. I did shop with BofA as well and they could not match what Wells offered.

 

[sgip]

The responses are very helpful. Now that we know the program, the quote you have is not as competitive as it could be. That said, it's a quote only and not a deliverable rate. For example, we don't know the rate lock period which impacts pricing. Rates since Friday (6/24/11) have been on the rise what with this temporary fix to the Greek problem and two terrible Treasury auctions.

During the week of the 19th to the 24th, a 4.75% Jumbo FHA mortgage had a rebate anywhere from 3.5 to as low as 2.75 points. That's the pricing from "the biggies" - BofA, Chase, Wells, MetLife, Citi, et al. Some Internet Lenders will have higher rebates, often .50 to .75 more than what the biggies do simply because they don't have a brick and mortar shop to pay for. If your escrow goes sideways, that phone line is often DOA, so trying to get .50 or .75 more in lender credit by using a smaller shop or an Internet Lender becomes a phantom discount when your sale collapses. There are some good small shops out there (Broadview Mortgage and Prime Lending for example) but the majority of on-line lenders should be avoided when funding an FHA transaction.

Assuming that the lender wants to make 1.0 point origination, has the standard lender fees of $1,500, and will charge an appraisal of $500 + / -, that's a net cost of about 1.375%. The bank said they would also give you 1.0 point to spend as you see fit. If the total is 2.375% and the rebates at that time were 3.5 to 2.75, clearly there was room for improvement.

I'd suggest using the remaining 1.0 point lender credit to pay for the Up Front Mortgage Insurance Premium (UFMIP) rather than financing it over time. If you still prefer to finance it, the 1.0 point can be used for your mandatory impound account.

Hope this helps.

My .02c

Soylent Green Is People.