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Yeah, well he put his score of 746 in his original post too.

I'm also going to disagree that you need an FHA loan. The advanatage of an FHA loan is "typically" found in qualifying home buyers who do not have funds for a down-payment and/or they have credit challenges. With a 746 score, your credit is great and you obviously have money for a down-payment.

An FHA loan can actually finance up to 97.75% of the $200,000 sales price you are considering. You would need to contribute 3% or $6,000 towards the purchase of the home.

A conventional loan could also go up to 97% but you were trying to understand the difference between doing one loan at 95% of the sales price vs. 2 loans for 95%.

To answer your earlier question, PMI can be pretty accurately estimated given the information we know about your transaction.

Assuming a loan for 95% of the $200,000 sales price, your monthly private mortgage insurance would be approx. $124 per month. So...

If you finance one loan for $190,000 at 6.25% you would pay $1,170 for principal and interest PLUS $124 for private mortgage insurance (PMI). total = $1,294.

If you finance two loans, $160,000 at 6.25% you would pay $985 on the first lien and $30,000 at 7.25% would be $205 so your total payments would be $1,190.

Now I'm not 100% sure on that 7.25% rate. I took it from the numbers on your original post and calculated it. But using this math I think you can see why the loan officer at Chase was suggesting 2 loans instead of one with private mortgage insurance.

SECONDLY

Here's why I wouldn't suggest an FHA loan for you. I love FHA loans, but I don't think you are best suited for one.

For the sake of argument, let's just say you put down 5% on the FHA loan so either way, for comparison sake, the loan amount would be $190,000.

You already know the payments for an 80/15 scenario so here's the FHA scenario.

The FHA loan has 2 pieces of mortgage insurance. First is the monthly mortgage insurance premium which on this loan would be $79 per month.
The second part is the Up Front Mortgage Insurance Premium which is a lump-sum you can pay as a closing cost or add to the amount you borrow. Let's assume you add it to the loan amount of $190,000. The UFMIP is $2,850 so your total loan amount is $192,850 at 6.25% is a principal and interest payment of $1,187.

So your monthly payment would be the same on an 80/15 as it would on an FHA (assuming you get the same interest rate on a FHA loan). However, you would be borrowing MORE money because of the financed UFMIP.

There's nothing wrong with an FHA loan...it just isn't for you in my opinion. I think Chase has given you a pretty good deal.

good luck.

Welcome to the learning curve!

The lender suggested an 80/15 or 80/15/5 which is a two transaction. You are borrowing $160,000 on the first loan so that the amount you borrow stays at 80% of the sales price. By doing this, you do not have to pay a private mortgage insurance policy (PMI). However, you do end up financing the remaining $30,000 in a second mortgage note which will be at a higher interest rate.

I would ask the loan officer to show you figures on doing one loan to 95% of the sales price vs. doing 2 loans 80 + 15 to get to the same point. The 2 loan transaction may still be best, but you should see the comparison.

Another reason for doing this even if the monthly payments are the same between the two options is that private mortgage insurance is only tax deductible up to $114,000 annual household income. If you make more than that, it isn't deductible whereas the higher rate on the second mortgage still creates a "deductible" interest expense. So for tax purposes there could still possilby be a reason for doing 2 loans instead of one even if the payments were the same.

Based on the payment and other information, it looks like your first mortgage is at 6.25% and your second mortgage was quoted at 7.25% If you are paying no origination and no discount points these seem fair quotes to me.

good luck

I would call the loan officer who pre-qualified or pre-approved the buyer and ask them 20 questions. If at the end you don't feel they have truly reviewed the buyer's qualifications then don't accept the offer. The lender won't give you every piece of information you ask for and some of that is restricted by law for privacy purposes. Still, it isn't against any law for you to ask questions.

I don't think pre-approval letters are "worthless" but they are if you take them at pure face value without talking to the loan officer directly.

First Time Homebuyer Programs:

Let me begin by conceding that in many cases, the term has been used to simply market loan programs without there being anything special for someone who is actually buying their first home. That being said, let me help you with some suggestions:

1) Sources of money for down-payment and/or closing costs for FTHB.

The first thing is that there are sources of funds for you that can be used with any loan program or with a specific list of loan programs. State, local and federal government sources exist for these funds and most have a household income maximum. If you make too much money, you may not qualify. A local real estate agent and/or mortgage loan officer will know about the local or state resources. Search for "down payment grant or gift" to use the internet.

2) Banks are required by the federal government to lend money to moderate and low income borrowers.

This means that there are specific loan programs through banks that provide really attractive terms for home buyers as long as they don't earn too much income. This tends to fit MOSTLY first timers but it is not exclusive to them. Call your bank or a mortgage loan officer in a bank for more information.

3) First Time Homebuyer Education classes and providers

This is easy to do an internet search for providers in your area. Call them and ask them what lenders they know of and/or endorse for loan programs catering to or specific to first-time homebuyers.

These 3 sources should give you a head start and a good overview of your best options.

good luck.

True. But so could amortizing loans depending on the rate of depreciation.

Interest-only financing is simply a cash-flow alternative. As another person stated, there's just not enough information about the scenario and the individual needs of the borrower to determine if an interest only loan is appropriate.

There is no restriction on an interest only loan preventing a borrower from making principal reduction payments. However, it does provide a lower minimum monthly payment and so a better position when owning a rental should you have a period of vacancy on the property.

If the tenant moved out, would you rather pay $583 or $655 per month using the example stated earlier on $100k borrowed? On a larger loan amount the spread between the two is even greater.

I don't believe other websites are going to be more or less help. If you feel strongly about this, as it appears you do, why not have a meeting or conference call with you, your sister and the loan officer to discuss it specific to her needs/wants?

Ben....wipe that smirk off your face :)

Nice job and follow-through.

The 2% cap on seller concessions for investment properties has been a Fannie Mae guideline for some time. What has happened is that non-conventional financing for investment properties is getting more difficult to find. In order to be "more conforming" those non-conforming programs are migrating towards Fannie Mae requirements.

Fannie Mae's Desktop Underwriter is a computerized underwriting system. It didn't "lay out" the parameters as much as it underwrote the transaction the loan officer, processor or underwriter asked it to consider. The Fannie Mae guidelines are available on-line from Allregs.com and yes they can be read. However, many lenders are going to create a loan with the plan to sell that note or are acting as a broker for another lender entirely. Because there are few lenders dealing directly with Fannie Mae they read the guidelines of the company they plan on selling or brokering the loan to.

As to interest rate availability, you can get current rates on bankofamerica.com by clicking on mortgages. From there you can input your purchase price and amount of down-payment and it will show you today's rates. You can also sign up to have rates e-mailed to you for a particluar scenario.

Bankrate is providing you interest rates that are self-reported by companies who are paying money to Bankrate for "leads". While it is one perspective to say that this shows the most aggressive rates available, my feeling is that it encourages false rate estimates. Furthermore, Bankrate does not require daily updating so the rate averages they show can be off due to market movement.

If you need any more help with interest rates on bankofamerica.com ask and I'll help you out.

Ken

There are areas more prone to foundation issues due to the moisture contnet of the soil. However, if you noticed in my last post, plumbing leaks are a bigger source than anything and those could happen on any home. Working with an experience real estate agent in the area can help you avoid parts of Dallas with more issues.

Property values are low as a result of property taxes, an over-abundance of land, and average household income. In places like southern California, property values increase because there is very little undeveloped land left. One thing we have an abundance of in Dallas is land. Property taxes combined with household incomes create a problem for homeownership and the fact that taxes grow proportionately with property values while income does not is another factor.

I agree with Scott in that the lender is unlikely to settle short. At that equity position they are probably going to ride it out. Like you said, it's only time invested on your part and you get a little education out of it.

When you asked how to find a more direct route, the thing that I wanted to say was you should talk to the property owner about an offer for the mortgage payoff. The math you've given is pretty close to making this work. If you payoff $315k plus say $5k in closing costs you can still turn an over 50k profit on the sale. Again....that's assuming your math is good in the first place which is why in this game it is ALL ABOUT THE MATH!

good luck :)

Welcome to the forums and good luck executing your plan. I think when you crunch numbers you are going to find the cash flow goals you seek to be very difficult to come by in your first 5 years.

Long-term buy and hold realestate strategy is a process of trading cash-flow today for greater cash-flow tomorrow. I know and work with very few serious investors who started their portfolio with the same goals you have stated. Certainly duplexes will help the math when rented.

Let me ask you a question for thought:

What is the most expensive factor in owning investment property?