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almon_IHB

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Can someone please advise on the best way to get a loan? We are told that going through a mortgage broker will cost up to 1 point of the loan, and in our case means up to $7K (loan=700K). Some background:





Husband/wife credit scores: 810s and 820s.


Loan preference: well, that's our question #2 below.





So here are our questions:


1- What are the advantages of using a broker vs doing-it-yourself? We have enough to put 20% down, have no bad credit history, and are not afraid to dug up our tax returns and fill in some forms.


2- Our first starter home was bought with a traditional 30-yr fixed (10% down). Our 2nd home we used the homebuilder's mortgage broker and went with a 5-yr fixed/25 ARM (20% down). Well, I think I need a multiple-part question here:


2a- It seems a traditional 30-yr fixed @ 7.25% will have paid $287K after 5 yrs ($247K interest + $40K principal). A 5-yr fixed interest -only loan @ 6.25% will have paid $222K after 5 yrs (all interest). So in order to build the $40K in equity from the first loan, we will pay an extra $65K ($287K - $222K). Is this why everyone does interest-only loans nowadays? (By the way, the 7.25% and 6.25% were numbers told to us by our agent, not sure if they are reliable)


2b- What are the down sides to IO loans, aside from your property being worth less when you sell which forces you to make up the difference? I mean, doesn't this also apply to using 30-yr fixed mortgages?


3- Are there websites that show reliable current mortgage rates?


4- Are there any banks (local or web) that are famous for giving competitive quotes?





Thank you very much. We do appreciate different viewpoints from risk-takers and risk-averser.
 
Hello almon,





Finding reliable and accurate rates can sometime be a challenge. Have you checked out <a href="http://www.bankrate.com" target="_blank">www.bankrate.com</a>?





When you are shopping around for rates, make sure you get a GFE (Good Faith Estimate). The various lenders/brokers can give this to you without pulling your credit. If you are already working with someone, have them to match the best GFE you've gotten.





A web broker that I've used once before that offers pretty good rates is Mortgage Capital. As of today, their 30 Year Fixed Conforming is 5.875% with 0 points and 30 Year Fixed Jumbo is 6.125%:


<a href="http://www.mtgcapital.com/ratesheet-fixed.html?state=ca&rs=fixed" target="_blank">http://www.mtgcapital.com/ratesheet-fixed.html?state=ca&rs=fixed</a>





I'm sure others here may have some input as well..
 
<p>almon - If you are serious and really are looking for advice then respond by tomorrow morning and I will give you some advice. I will have a list of questions for you as if you were applying for a loan.</p>

<p> I don't know about Mortgage Capital but I would trust Zovall's opinion. </p>
 
Hi Zovall and Graphrix,





Thank you for responding...Looking back at my original post, it was long and all over the place, wasn't it? Let me try to sum up and re-phrase my questions.





We know we shouldn't have any trouble getting a loan based on our credit scores. Our questions are more on:





1- We are conservative so the first two loans we got were the "pay-off-the-principal-in-30-years" type. We never considered and never ran the numbers for an interest-only loan. But now when we looked at the numbers for an IO loan (I wrote some numbers in my first post), it seemed better than a traditional fixed rate loan in today's environment. We were wondering if others feel the same way.





2- We have also never used online mortgage companies, so we were hoping someone could point out one or two reputable ones that offer good rates. Thanks, Zovall, for pitching in.





If anyone wouldn't mind sharing their thoughts on especially the first question, we'll very much appreciate them.





Thank you!
 
<p>Almon,</p>

<p>Have you considered a 30yr. fixed with a 10yr. interest only option? This will give you an interest only loan for the first 10 years, with an option to also pay down your principle during that time, and a fixed rate for the entire 30 yrs. Of course, at year 10 your payments will jump, but less depending on how much you contribute to your principal during the first 10 years. Your rate will be higher than a traditional 30yr. fixed. This loan gives you the flexibility to only pay interest if you want, but to also build some equity. You don't have to worry about a rate reset, which is key, but you will pay a higher rate than a traditional 30yr. fixed. </p>

<p>Anyone else have thoughts on this type of loan?</p>
 
The gamble on that I/O is where interest rates will be when that fifth year reset hits. If they stay low, you could do well with an adjustable rate mortgage such as this one.
 
Hello Almon,





To answer your questions:





* Mortgage brokers do cost some money, they have to eat too! Sometimes you go to a broker for a "no cost" loan, only to discover your loan amount had increased by few thousand dollars after a refinance. So why use a broker? Here's a few reasons:


1) Personal service (you meet with your broker in person) instead of internet


2) Cheaper than traditional banks


3) Good brokers will give you the extra mile on service


4) If your time is valuable (or if you're lazy like me), you pay someone to chase down the best rates for you





* Not everyone use interest-only loans -- I don't use them. I only use 15 or 30 year fixed rate P+I loans (even on income properties), so I don't have to worry about where the interest rate is 3-10 years from now. I value my sleep over the couple hundred bucks.



 
<p>OC-Flip,</p>

<p>30 year fixed w/ 10yr interest only options do not reset at the 10 year mark- the rate is fixed for 30 years, but principal + interest kicks in at year 10.</p>
 
<p>almon - </p>

<p>Here is my two cents: Check with lenders such as etrade, e-loan, and countrywide. Each is more than willing to send you a good faith estimate (GFE) in writing. (which I know from personal experience) And no, you do not need to provide your credit info just to get a GFE... so don't let everyone under the sun run your credit!</p>

<p>Later, when you sit down with a loan broker, (which is just a middleman) tell them what you need (type of mortgage, etc.) and wait for them to provide you with a GFE - or whatever their sales pitch is. Then, compare the GFE'S!!!!</p>

<p>I frequently have found that when faced with the possibility of losing business, mortgage brokers frequently will bite the bullet on their commission. But whatever you do, please don't buy the line about providing customer service. Not matter how friendly they are, it doesn't make up for a point on a loan for 500K... I mean really, what "service" could they really provide to be worth $5000 when all you really want is to have the $$$ funded to an escrow company in a timely manner.</p>

<p>Most importantly, do everything in writing! Email confirm everything. Especially when/if you lock a loan rate... this will help protect you in the event that the lender representative fails to really lock your rate. Also get in writing what penatlies you face (if any) in the event you back-out of a purchase! When you lock a rate there is frequently a financial cost associated with locking that rate... and even if you do not end up buying the home (and therefore not needing the loan) you may owe a fee for having locked the loan. (and even that is negotiable...just get it in writing).</p>

<p>Good luck.</p>

<p> </p>

<p> </p>
 
<p>almon - GrewUpInIrvine makes some great points. Don't let them run your credit! If you already have a credit report that you got from a lender that shows scores of 800 you are golden. If you got it from online or the car dealer then you will have to get a lender's credit report because they are very different. Get the GFE! Legally if you do apply i.e. have them run your credit and you don't get one in three days the lender is in violation and you should be leary of them. Get the lock agreement in writing the day that you lock. The only time there is a fee to lock or break a lock is when it is for six months or longer. If it is a lock for 30-60 days and they tell there is a fee up front or if you back out then run don't walk away from them. </p>

<p>Who do you bank with? Do you have a brokerage account with someone such as Merrill Lynch? If you have nice chunk of money with either of them or you have business accounts with them they will take better care of you than anyone else. They would rather keep you as a customer and they will lose money on a loan just to keep you from going some where else. </p>

<p>Judging by everything you have said so far you should go with a 30 year fixed loan. The only reason to get the ten year fixed would be if you were 110% certain that you would not keep the house for longer than ten years or would refi before the ten years. I don't think the rate difference would be worth even if you were. If you are not comfortable with the payment and that is why you are looking at interest only loan you are not making a wise decision. If your income varies month to month or own a business then the interest only payment is great on bad months. But you must have the discipline to make up for it later and if you don't then stick with the thirty year fixed.</p>

<p>As for paying points an honest and ethical broker would get paid the same dollar amount whether you paid points or not. Get the GFE and compare the two. A broker has to disclose his yield spread premium and this is how he makes his money when they don't charge points. A bank or direct lender does not have to disclose the YSP only brokers do. Also don't let them BS you that an origination fee is different than points and that is why they have to charge it. Again run don't walk away. Here is how you can decide if points are worth it to you: $600k loan with no points 6.25% rate the payment is $3694 with a 1% point fee $6k would be 5.875% rate the payment would be $3549 for a savings of $145 a month. Now take that $145 and divide the $6k fee you paid and that rounded up equals 42 or 3 1/2 years to recover the $6k and after the 3 1/2 years you would be saving money. So say you kept the loan for ten years the payments for no points costs $443,280 and paying a point costs $425,880 + the $6k saving you $11,400. Rates change everyday and it varies by lender but the spread could be more too so a 1% point could get the rate down to 5.625%. After reading that what do you think would be best for you? </p>

<p>Let me know if this helped you out or if you still have more questions.</p>
 
Thanks to everyone for their two cents!





Graphrix - I got our credit scores from a printout from our car dealer. It mentions an Experian "Risk Score" of 810s and an "Auto Score" of 840s. For housing, should I only look at the Risk Score?





Went to BOA on Saturday to get a pre-approval as leverage to show to listing agents. Their rates were 7% for a 30yr fixed (0 pt), and 7.25% for a 30yr fixed w/ 10yr interest-only. I don't think the tradtional brick-and-mortar places can compete with online places...





We are debating between the 30yr fixed and a 5yr fixed/25yr arm (the rate for the 30yr fixed w/ 10yr IO is too high to me). Definitely gonna try to get the loan ourselves and not use a mortgage broker. We're with GrewUpInIrvine and Graphrix on this one -> we had bad experience with mortgage brokers in the past too.
 
<p>Hmm. I bank with E*Trade (5.05% APY savings acct linked to brokerage) and I can get a standard 30 year jumbo for 6.25% with no points and 990 in closing costs.</p>

<p>I think you can do better than 7%</p>
 
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