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80-5-15 Question

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TXDevil
Established Member

80-5-15 Question

I'm purchasing new construction from Village Builders (arm of Lennar) and have been pre-approved to finance through their lender, UAMC.  Due to the incentives offered, this seems to be the way to go, despite the less than stellar service.  We are scheduled to close in the next 60 days.  

 

Here's my question: we would like to place 15% down and take out a 80/5 to avoid PMI.  When asking my loan officer to provide me the proposed numbers, he came back with a substantially higher interest rate for both loans (4.3875 v 3.875 for straight conventional - our middle FICO's are 700 and 724).  I spoke with him and presumed  the 4.3875 was for the subordinate lien, asking him to recalcultate the numbers at 3.875 for the 80 and 4.375 for the 5 (assuming it was an oversight).  HIs response was that both liens would be 4.3875 since the lender is assuming more risk.  Does this make sense to anyone?  Why would the senior lien be at risk and require a highter interest rate?  All I can think is it's more lucrative for UAMC to sell my single loan with PMI than 2 without.  I'm tempted to shop around but am more inclined to accept the incentives and re-fi as soon as I can.  

 

Any thoughts are greatly apprecaited.  Thank you very much.   

Message 1 of 7
6 REPLIES 6
StartingOver10
Moderator Emerita

Re: 80-5-15 Question

Remember, a lender can price their loans however they want to price them. In my experience if the lender doesn't want to do a particular loan product, they will price it high - or not carry that loan product at all.

 

You have to do what is best for you. Do you think you will be able to refi right away?  I ask that beause usually builders get top dollar - more than market and it prevents a refi in the short term as it won't appraise.

 

Before you make your decision on which way to go, talk with a lender with whom you would consider your refi and ask what the max LTV would be on a quick refi - assuming it appraises. 

 

EDIT:  I agree with you to about the BS answer you got from UMAC about the first taking on more risk. That is a load of hooey IMO - still in first position at a 80% LTV - only the second is taking on the risk. Did you ask about an 80-10-10 rather than an 80-15-5?  The terms are better and you get a larger sellers contribution that is allowed from an 80-10-10 than an 80-15-5. There are additional overlays with only 5% down

Message 2 of 7
TXDevil
Established Member

Re: 80-5-15 Question


@StartingOver10 wrote:

Remember, a lender can price their loans however they want to price them. In my experience if the lender doesn't want to do a particular loan product, they will price it high - or not carry that loan product at all.

 

You have to do what is best for you. Do you think you will be able to refi right away?  I ask that beause usually builders get top dollar - more than market and it prevents a refi in the short term as it won't appraise.

 

Before you make your decision on which way to go, talk with a lender with whom you would consider your refi and ask what the max LTV would be on a quick refi - assuming it appraises. 

 

EDIT:  I agree with you to about the BS answer you got from UMAC about the first taking on more risk. That is a load of hooey IMO - still in first position at a 80% LTV - only the second is taking on the risk. Did you ask about an 80-10-10 rather than an 80-15-5?  The terms are better and you get a larger sellers contribution that is allowed from an 80-10-10 than an 80-15-5. There are additional overlays with only 5% down


Thanks for the insight; I'll inquire about the 80-10-10 and see how it goes, as well as reach out to my non-UAMC lender regarding the quick re-fi.  

Message 3 of 7
Anonymous
Not applicable

Re: 80-5-15 Question

any update on the 80-10-10?
Message 4 of 7
TXDevil
Established Member

Re: 80-5-15 Question

They do offer 80-10-10's but had to shop for the junior, as they don't originate those in house.

 

I ended up going conventional (putting down 12-13%) and will get my house re-appraised as soon as the pool is completed in the hope of getting rid of the PMI.  Original appraisal came in high, so it's very likely.  We close tomorrow, so pretty excited to get this over with.  

Message 5 of 7
DallasLoanGuy
Super Contributor

Re: 80-5-15 Question

pmi will remain on the loan for a minimum period. even if you add $1MM in improvements tomorrow. 

 

read your paperwork. specifically the promissory note.

 

 

first lien rate should stay the same on combo loans.

they fed you a line of bull.... typical builder's lender crapola

 

 

 

 

Retired Lender
Message 6 of 7
CaliforniaLoaner
Valued Member

Re: 80-5-15 Question

It sounds like it's too late, but for anyone reading this for info: Next time, ask them to move the interest rate higher and trade it for lender credit so you can have them cover as much of the costs as possible. The credit can cover any cost including any 3rd party cost, taxes, insurance, prepaid interest, reimbursement of the appraisal at closing, etc. If there is no prepayment penalty, refinance that sucker to get your lower rate and remove PMI and you just made out with the builder credit and the lender credit. The price for taking the higher rate for the credit at closing would generally take you anywhere from 5-7 years to recoupe, so you should take the lender credit up front since you'll be refinancing out of PMI anyways.

Message 7 of 7
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