Is this a good mortgage rate/deal or can I do better.?

Deal Score0

I’m trying to buy a 107,900 condo conversion in Madison WI, property tax is roughly 2000. I make 30,000 a year, am single, and have enough in savings pay the 5% down and closing fees. My credit score is a 768 but my debt ratio with the home will be 44%. I have been denied both WHEDA and a VA loan because of this debt ratio. My only debt is my car payment, which is up in 2010. I have been offered a plan with no PMI and 6.75 interest though a local bank. Is this a good deal or can I do better. I’m somewhat wary of this loan officer since he pre-approved me for up to 105,000 in loan amount to get a WHEDA or VA loan, when I was in that mortgage range, he then told me my debt radio was still to high. I had disclosed my debt, saving, income and credit score before I began my house search. My offer has been accepted for the place and I have until Wednesday to get financing, I do have the option written into the contract to extended my financing search up to another week if I choose though. Also I would prefer a fix rate for 30 years verses a 5 year ARM which I know is often a option.
My condo association fee covers my exterior home insurance, water and sewer plus a reserve fund. My condo insurance for the interior will be around 100 per year. The seller of the condo is covering those fees until 2010, my car is paid off with two month after I have to start paying the fee. They have counted both my condo fees and tax payments into the ratio.
If people still think this is too much for be to take, be honesty, I am willing to reconsider my decision and keep renting. My mortage including property taxes would be 80 dollars more then I pay in rent right now (I’ve been renting at this amount for two years). I think I can make it and this condo is a steal for the price plus I can get into the market before interest rates get to high. But honest opinion are greatly welcomed, I don’t want to end up in financial trouble at the same time.

I would like to buy a foreclosure home in the Madison, WI area. The home is on the foreclosure market for 75,000 but the appraisal is around 130,000. The home needs quite a bit of work and I’m wondering if I may be able to take out a mortgage for around 105,000 so that I can purchase the home and make the necessary improvments? any help or sources would be greatly appreciated. Thanks!

  1. Reply
    January 23, 2011 at 5:16 pm

    44% is too high a debt ratio. Have you seen the Good Faith Estimate for the loan approval to make sure that there is also no prepayment penalties and that it also includes your taxes?

    Frankly I think you are stretching yourself too thin by getting the condo when your debt ratio is so high. The best thing for you to do right now would be to pay off your car loan and then save for downpayment. There are a lot of expenses that comes with a house and a lot of surprises too so you need to have a decent debt ratio so that you can manage the first year of owning a home without breaking the bank. Does this 44% also include home owners insurance?

    Once you lower your debt ratio you might get better financing.

  2. Reply
    Answers Guru
    January 23, 2011 at 5:28 pm

    44% ratio is a bit high. Typically it should be less than about 36%.

    Regarding the rate itself (6.75%) seems to be OK, but a little on the higher side. Your score (768) is great, but you are putting only 5% down, as opposed to conventional 20%. Choice between 30 years fixed vs. 5 year ARM should depend on what you think about interest rates in the future – hard thing to guess. But remember, if you plan to refinance in the future, that has an associated cost as well. Without knowing a lots of other details, my recommendation would be to go for 30 years, especially if you don’t have pre-payment penalties.

    Now, regarding renting vs. buying, I would strongly recommend buying, if you can somehow make it./

  3. Reply
    January 23, 2011 at 6:17 pm

    no purchase price only less your down payment

  4. Reply
    January 23, 2011 at 6:25 pm

    If the home was listed at $ 75K then you can only get the repair allowance from the seller. You cannot inflate the price to get money back at closing, its illegal.

    You can however get a home equity line of credit (HELOC)for up to 100% of the value of that home. Thats a line of credit so you won’t be charged any interest until you start to write repair checks or whatever you need the cash for against it.

    Good luck in 2009

  5. Reply
    January 23, 2011 at 7:12 pm

    You have to check around about a few government loans and some city loans, but yes there are a few loans that will allow you to borrow to repair certain things in your property you are buying.

    FHA has a 105% loan. There are down payment assistance loans from the city and county. There repair loans from the county and city. check with your mortgage broker especially if your mortgage broker handles FHA loans. Of course you have to have a mortgage broker that understand the mortgage programs available to buyers.

    The problem with these loan programs is that you must call and see if your can qualify for them.

    You should check with the City Housing Department in your local city for any such programs.

    I hope this has been of some use to you, good luck.

    “FIGHT ON”

  6. Reply
    January 23, 2011 at 8:12 pm

    You need an FHA 203K loan.

  7. Reply
    Brother Otter
    January 23, 2011 at 8:21 pm

    The FHA has a loan program where you can roll the estimated cost of repairs into the home purchase price. However, the repair estimates must be from professional firms not your brother in law.

  8. Reply
    Scott D
    January 23, 2011 at 9:15 pm

    If you are approaching this as an investor, you may be able to get what is known as a “hard money” loan for the purchase and renovation of the property. Hard Money lenders are generally private lenders who specialize in loaning money to real estate investors. Generally they will want to limit the loan to no more than 65% to 70% of the after repaired value of the home. So if the home will appraise for $ 130K after the repairs are done, the maximum loan would be around $ 85K including purchase and repair funds. A hard money loan is a short term loan, usually 6 months, and the interest rates are very high, usually 15% with some additional fees up front. But using a hard money loan you can get the property fixed up and either resell it or the refinance into a permanet mortage. If you are planning to live in the home, the FHA 203B program may also be a good route to look into.

  9. Reply
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