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Overwhelmed First Time Home Buyer

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Overwhelmed First Time Home Buyer

My husband and I are first time home buyers. We have new construction, which is supposed to finish mid-September. Up until now we've been working with the builder's preferred lender (Eagle Home) but over the last 2 weeks I've been researching the crap out of mortgages. Eagle Home (EH) is giving us 4.5% for a 30-year conventional fixed-rate. We are in the "jumbo" loan catgory due to the area and we are making a 20% down payment.

 

  • Type of Loan:
    Initially we were set on 30-year. Honestly because it's what our parents recommended (don't laugh).
    But after doing all this reading (not saying I'm an expert) I don't think the 30-year conventional loan is really in line with my and my husband's goals.
  • The home we're buying is beautiful and we bought this because we REALLY wanted new construction. However, it is really far from our jobs. It's ~42 miles from my job. Both of us will have around a ~90-minute commute. We want to stay in this house for ~5-7 years and then we want to sell and move closer to our jobs.
  • So now we are warming up to doing either the 7/1 ARM or 10/1 ARM.
  • Is anyone in a 7/1 ARM or 10/1 ARM? Can you share your experience? Pros? Cons?
  • Obviously the rate is much lower for the first set years but then the max interest rate is 8.375% (based on a quote from WF)!!!!! I know we want to sell in 5-7 but I guess there is always that risk of the unknown. You just don't know what may happen or what the economy will look like in 7-10 years. What if one of us loses our jobs? And the economy goes completely downhill? I know that's just me thinking the absolute worst.

Credit Scores:

  • My husband and I had pretty good credit scores.
  • Then in the last year we agreed to take out a car loan for my mom in my husband's name. My mom (mistakenly) missed 1 payment (30 days late). It brought my husbands score from 776 to 700. He was so upset (understandably).
  • I've talked to a few different lenders and it seems like based on the lender, they have different protocols. Some lenders (i.e., PNC) will take the mid-lower score (so they take my husbands). Other lenders (i.e., Wells Fargo) will take the mid-higher score so they'll use mine.
  • It's unfortunate what happened but it is what it is. My husband has already tried to dispute but there's nothing we can do. I think taking into consideration this credit mishap, it makes even more sense to do the 7/1 ARM or 10/1 ARM. In 7-10 years our credit will *hopefully* be in a better spot once again and then we could refinance? And by then we'll have made a small dent in the loan amount so we'd be refinancing a lower amount.
  • My mid credit score is 726. But I have a lot of debt due to law school. My husband has zero debt (but then he has that 30-day late payment in the last 6 months). 

Buying Points:

  • I honestly had no idea what the heck this was is and didn't understand this at first. But now I get it.
  • Has anyone done this? Do you recommend it?
  • Based on what I've read I think it really comes down to finding the breakeven point. I don't think it makes sense for me to do this with a 7/1 ARM or the 10/1 ARM...

Lenders:

  • As I said above we've been doing all the work with Eagle Home but honestly this is not the best choice for us. The only "perk" they're giving us is they will cover closing cost (estimated around $12,000). But after researching I think the $12K closing costs is inflated. Based on what I read closing costs should be ~1% of the purchase price.
  • When I started looking into other vendors it looks like a lot of them offer "credits" for closing costs.
  • PNC: Although I loved the mortgage lender that I met he even said PNC is not the best choice for us and he can't compete with the rates that other lenders have provided. Through other lenders I get discounts through my job (i.e., BoA offers 0.5% discount).
  • Who did you work with? A large well known vendor (i.e., Chase, BoA, Wells Fargo) or did you go with something smaller? If you've dealt and have experience with both, can you please share your experience? Pros and cons?

 

Overall I think the 7/1 ARM and 10/1 ARM makes the most sense. The monthly mortgage estimates I've seen are totally in line with our budget (hell they're less then what we paid for while RENTING) but I'm just really worried what may happen if we're at that 7 or 10 year mark and we are not in a position to sell...

 

If you took the time to read all of this, I appreciate it! I really look forward to hearing about your journey and any advice you can offer. I've been reading through a lot of the threads on this message board.

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Valued Contributor

Re: Overwhelmed First Time Home Buyer

The Gold Standard in Mortgage Lending is Lowest Middle Score. You would be surprised at how many Loan Officers do not even know how it works. I’d be very surprised that you received accurate info. I believe your received bad info.
And you found out why you never never co-sign for anyone unless you make the payments yourself and they pay you.
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Re: Overwhelmed First Time Home Buyer

@ JVille: I was surprised to hear that Wells Fargo doesn't take the lowest middle score. I walked into 2 different WF locations today, did not provide details, and explained I was just trying to get all the information to educate myself. At both locations they told me that at WF they take the highest earner's middle score and that they are different from other mortgage lenders in that sense.

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Re: Overwhelmed First Time Home Buyer

How long ago was it that your husband "disputed" the late payment on the auto loan?

Accounts in dispute don't necessarily 'help' your credit score and you will want to be certain the dispute has been removed before your loan rate is locked.

 

Have you looked at the possibility of increasing your investment in this home?   What about considering a 15, 20 or 25 year fixed loan?  Each loan program allows you to invest more of your monthly payment in principle which ultimately generates more equity down the road.  I recommend running amortization schedules with your scenario to see what the payments and balances will be in 7 years and decide which outcome  you prefer.  

 

While interest rates are likely to be steady/stable for a while the long range impact of potentially higher rates are really the only dangerous unknown for you in the event that home prices don't increase it might be helpful to see (and select) where you could be standing on the equity side in the future.

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Licensed NC Mortgage Loan Originator
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