NVR gave us a horrible rate, how do I back out of the buyer contract?

[Anonymous]

Since NVR didn't find my DTI rate acceptable they said they needed to add my wife to the loan and sent over some paper work. Without my wife we qualified for lender paid PMI now we no longer qualify with my wife on the loan and the per month went from 1900 to 2600 a month due to $500 PMI for 10 years! To say the least we are no longer interested in buying a house if the case is that we will be paying almost $1 million over the life of the loan and stretches us beyond the budget.

The builder is ryan homes and yes like a dummy signed a buyer contract on 8/15/16 before getting approved for the loan. Has anyone ever been able to back out of the loan and keep their deposit due to such condtions?

[StartingOver10]

What does the contract say regarding buyer cancellation and financing? Usually, there is a paragraph specifying the terms of financing that may (or may not) help you.

The other thing you can do is go to another lender to see if you qualify for their LPMI. Each lender has their own criteria. 

[VALoanMaster]

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@Anonymous wrote:

Since NVR didn't find my DTI rate acceptable they said they needed to add my wife to the loan and sent over some paper work. Without my wife we qualified for lender paid PMI now we no longer qualify with my wife on the loan and the per month went from 1900 to 2600 a month due to $500 PMI for 10 years! To say the least we are no longer interested in buying a house if the case is that we will be paying almost $1 million over the life of the loan and stretches us beyond the budget.

The builder is ryan homes and yes like a dummy signed a buyer contract on 8/15/16 before getting approved for the loan. Has anyone ever been able to back out of the loan and keep their deposit due to such condtions?

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Have you considered getting a second opinion from another lender?

What was your DTI by yourself?

Also, LPMI options are terrible in my opinion.

Here's why. 

To cover your PMI the lender increases your rate to pay it. The problem is the rate is for the life of the loan which means the only way your payment will go down is if you spend several thousand dollars to refinance your loan! The 2nd issue is in order to refi, you'll need to have enough equity & you'll be at the mercy of what ever the rates are at that point.

If you take a loan with standard PMI you actually have a couple of options when it comes to reducing your total monthly payment down the road.

1) You can wait until you pay down your balance to 78% & the PMI will drop off without you spending a dime. On a typical 30 year amortization without you ever paying extra on your principle will take 7-8 years. 

2) The other option is you can request the PMI to be cancelled early & the servicer will order an appraisal. If you have 20% or equity, the PMI will be dropped & your only cost would be the $400 or $500 you spent on the appraisal.

My approach is to try & make sure people get the best loan/rate they can right from the start. This way if they do refinance later it will be because they want to not because they have to.  

[Anonymous]

VALoanMaster just got one from Navy Federal, theirs is $2600 and not out of budget since NO PMI. They are $2600 since we had to include the credits if we went through NVR which was about $20k. But hell I would add those $20k in options on to save 60k and more over the life of the loan. Also the closing cost were less and should save another $1000 since they say if you get a better rate they credit you $1000.

[VALoanMaster]

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@Anonymous wrote:

VALoanMaster just got one from Navy Federal, theirs is $2600 and not out of budget since NO PMI. They are $2600 since we had to include the credits if we went through NVR which was about $20k. But hell I would add those $20k in options on to save 60k and more over the life of the loan. Also the closing cost were less and should save another $1000 since they say if you get a better rate they credit you $1000.

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I'm confused,

NFCU is quoting you a payment of $2,600 which is in budget but the other option with your wife included went from $1,900 to $2,600 and that was too high? The $2600 from NFCU also includes an extra 20K that the builder is not going to credit to you because you're not using their preferred lender?

That 20K would add about $100to your payment.

I don't care what anyone says, NFCU is basically doing the same thing as Lender Paid PMI. You're paying a higher rate to avoid the PMI & like I said above the rate is for the life of the loan but PMI is not.

[Anonymous]

Sorry, yes I guess I felt it was more out of budget since we were not comfy with paying the PMI. Now that we are not paying the PMI we are comfy with the amount. Our current rent is almost $2600 a month and we still have enough left over and when we worked out a budget the high $2,000s was our max for mortage.

[Anonymous]

So One is 2600 w/PMI for 10 years and one is 2600 for the life of the loan. I am confused on why it wouldn't be better to take lender credits and shorter high payment.....

[VALoanMaster]

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@Anonymous wrote:

Sorry, yes I guess I felt it was more out of budget since we were not comfy with paying the PMI. Now that we are not paying the PMI we are comfy with the amount. Our current rent is almost $2600 a month and we still have enough left over and when we worked out a budget the high $2,000s was our max for mortage.

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Hi Jgr210,

This is a perfect opportunity to try & change your perspective.

Your current perspective is PMI is bad, I cannot, will not pay PMI because everyone says it's bad.

We already know you're willing to pay PMI as long as it isn't called PMI. See above.

Now here is where you can change your perspective.

PMI is a premium you pay to keep YOUR money in YOUR pocket instead of tying it up in your house.

In my opinion the idea of putting 20% down is outdated for now & here's why.

Back in the day it made sense because you would have been paying 10, 12 16% interest on your mortgage so it you would have seen a bigger difference & much shorter break even point. Fast forward to now where you're talking about the ability to borrow money for 30 YEARS for an interest rate under 4%! When you put 20% down now, it pushes your break even point out to where it doesn't make as much sense.

Here's what I mean:

Let's say you have a purchase price of $400,000. The norm would be to put 5% down & pay PMI so here is how that payment would look.

$380,000 at 3.5% your P&I payment would be $1,706.37 plus $285.00 in PMI with 20K down.

Now we'll look at the numbers with 20% down.

$320,000 at 3.5% gives you a P&I payment of $1,436.94 & obviously no PMI at this point.

Now let's figure out your break even point.

We take the difference in the down payment (5% VS 20%) $60,000, & divide by the difference in the payment, $5554.43 to get a break even point of 108.21 months or 9 years! That means it will take you 9 years of saving $554 per month to recoup the additional down payment of $60,000.

[CaliforniaLoaner]

I'm going to throw a wrench in your theory just for fun (Yes, I am a loan officer as well). Every situation should be treated case by case. There are a lot of variable factors here:

1. You cannot look at this as a dollar for dollar scenario. There are also tax advantages to add to the equation i.e. PMI is not tax deductible, while mortgage interest is. So by raising the rate and paying for it that way, you are saving on your taxes.

2. Think about what you were doing 5 years ago. Really stop and think about how different your situation was compared to now. For most people, a ton has changed. Their salary, maybe kids, changed jobs, etc. My point is that you never know what's going to happen, so why would you take long term savings that might not ever materialize?

3. Rates - Everyone wants to talk about how rates are going up. There are many different factors that go into this, and while the Fed says they will edge up, they don't have complete control over this situation. Foreign investors are attracted to US Treasury bonds. It is very difficult to find yield around the world right now, making the US one of the safer places to put their money and get a better yield. This drives interest rates down. Point here, is how do you know rates won't go down, home prices go up, etc. etc.? You don't.

While I respect your opinion very much, it is my opinion that the majority of people should choose to save the money up front by choosing the LPMI option many cases. The average person does not stick to such a long term plan, and the same model will not work for everyone. These factors need to be included in the decision along with the risk tolerance of the borrower.

[VALoanMaster]

Hey Cweber,

I agree with your point, one size doesn't fit all.

You point about the tax implications is only partially right because PMI IS tax deductible for people with an AGI of $109,000 and less for now. 

There's an old saying, hope for the best but plan for the worse.

In this case, the poster was basicaly dead set against paying PMI just because it's PMI even though the monthly payment was going to be the same.

My point was to make sure the poster has as much information possible so they can make an informed choice. Part of that is pointing out the fact that PMI will drop off in 5-7 years for the cost of an appraisal at most while the lender paid PMI is for the life of the loan because it's included in the rate. So by taking the PMI option the borrower is set up to have their payment drop by almost $300 per month in 5 -7 years for the cost of an appraisal.

On the other hand, if they take the lender paid PMI option, the only way they can ever lower their  payment is to refinance the loan to a lower rate at the cost of several thousand dollars. This also assumes that rates will be low enough to actually make it worth while to refinance.

Here's one of the biggest lessons to be learned from the sub-prime fiasco back in the day. A lot of people got caught up in this mentality of I'll  take whatever loan I can get to get in the house & I'll just refi later to get a better deal. Well life happens & for one reason or another a lot of those people were not able to refi & they lost everything. Now this maybe a little bit of an extreme comparison but the lesson is what's important. Hope for the best & plan for the worse. So worse case scenario is rates are going to go up & I won't be able to refinance my loan later to get a lower rate & payment. On the other hand if I take the PMI option, I don't have to worry about what interest rates do, I can request my PMI be cancelled & pay $400 - $500 for an appraisal & as long as I have enough equity my PMI drops & my payment goes down.

This may not be the right fit for everyone but it should be carefully examined.