Question about higher interest rate and origination charge credits

[Catacam]

I did a little more research (and I am meeting with her again today to discuss more), but she said that because we are closing in May and have to pay the upfront insurance due to it being FHA, we can use the credit that we will recieve for the remaining year and apply it towards the actual cost to refinance, so we wouldn't have to pay anything out of pocket.

The kicker for me is that in order to pass UW, we need to pay that $2300 in collections. This amount is throwing a serious wrench into our costs for closing. I can probably gift the money from my parents, but then I am worried about underwriting taking so long due to having to source their funds as well.

Interestingly, I thought our loan was going to be through FGMC, but she went with Acceptance Capital Mortgage Corporation. She said that she feel we can get through UW easier with them (I think she has a relationship with them). I'm not 100%, but I will find out more information today.

Thanks everyone for the support!!

[K_J]

IMO I wouldn't take a higher rate and refinance later, I personally was a victim of that 5 years ago with the sub-prime lending scheme.  Remember you have to come out of pocket to refinance and interest rates may go up. In my situation I was told I had too many debt, inquiries etc. also score could deep after you sign the mortgage and you may not qualify for the refinance.

[Catacam]

So a little update. We talked with our LO today and we still haven't decided on whether or not we will take the hit on interest rate. We would still be right at 5%, which in all reality, is good. It also still puts us in our comfortable payment range, actually $100 more then we were comfortable with. We are going to float the interest rate for a while and wait for Fannie Mae to start buying back some loans so the market improves. We don't close for 43 days, so we have some time to decide.

She said the reason the refi wouldn't cost us anything is because we will get a refund in our escrow account. They will credit it all back.

[StartingOver10]

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@Catacam wrote:

So a little update. We talked with our LO today and we still haven't decided on whether or not we will take the hit on interest rate. We would still be right at 5%, which in all reality, is good. It also still puts us in our comfortable payment range, actually $100 more then we were comfortable with. We are going to float the interest rate for a while and wait for Fannie Mae to start buying back some loans so the market improves. We don't close for 43 days, so we have some time to decide.

She said the reason the refi wouldn't cost us anything is because we will get a refund in our escrow account. They will credit it all back.

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She is being a little disingenuous which is a red flag.

1) Yes, when you pay off a loan the amount in your escrow account is refunded to you - but it generally takes about 30 days to get the refund.  Any money you have put into an escrow account is money you put in either right from the beginning of the loan or money you have paid monthly.

2) When you go to closing you will have to pay all the third party costs involved with the refi. The only costs the lender has control over are lender costs. All the other costs and governments are not controled by the lender.  To test her, get a detailed closing cost estimate for loan 1 and loan 2. It should be 2 pages. Each figure ought to be itemized and she should show you which fees are lender fees, which fees are government fees and which fees are title fees. Download the GFE that Shane posted in the stickies to see which figures she should fill out.

3) Ask her how she gets paid. Ask to see the ysp (yield spread premium) that she is making on the loan. You are entitled to that information and it is on your closing statement if she is a broker, and she certainly is behaving like one. Don't get me wrong - I believe that brokers are worthly of a profit too. But to be charged a surcharge of approx 1.25% for the life of the loan is a large amount on the front end. And she is getting paid on the back end too.  Ask her what the PAR rate is and then ask why your premium is so high.

You can do this in a professional and non-aggressive manner to get the best results. She ought to respond professionally. If she can't respond right then and there, find another lender.

[chan85]

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@Anonymous wrote:

I was also given this option. So far, I have paid out of pocket $500 earnest money and $450 for my appraisal. Seller is paying $4k in closing.

My options were to lock at 3.875 and only get back a tad over $300 at closing or lock at 4.0 and get back all $8xx but I chose to lock in the lower rate. I did the math when I was given the option and for about the first 2 years I would save money taking the higher rate but morecash upfront but I definately plan on staying for more that 2 years. I didn't consider refinancing later, but I would have been scared rates would be higher anyways so I wouldn't have done it anyways.

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How do i do that math?? lol my state offer a dream ownership program, they have 2 loans avail, one at 3.875 for the loan, and another that gives you $5000 towards costs upfront that is tacked on the loan as a second mortgage that doesnt have to be repaid until i move out or refi, but the rate is 4.125. i cant figure out which would be more beneficial?