What kind of rate will we get on our loan (mortgage)?

Deal Score0

This July we are closing on our condo. The condo is located in Chicago and we bought it for $ 370k. We make a little over $ 70k together a year. We pay our cc bills each month and in whole. We are putting more than 20% down to avoid PMI and to give us some equity if we choose in the future to buy more property once our salary increases. We will probably put down ~$ 90k. The only real debt we have is my $ 19k in student loans, which will go into deferment because I am back in school. We were preapproved for $ 250 or 280K (I am not able to locate the document at the moment) but had lower credit scores, a tab bit lower income and did not have as much saved up for a downpayment a year ago when it was done.

1 – What kind of interest rate could we expect?
2 – Do you think banks will offer better rates than a mortgage broker?
3 – When should we apply for a loan?

*Not bad for 2 – 25yr olds huh?
02/2006 Fico scores
EQ / EX / TU
Mine – 784 / 778/ 777
His – 771 / 780 / 781
Correction – Value of condo should be $ 360k. It should not be $ 370k. So we’re looking at a loan of ~$ 270k. Sorry about that!

I am buying a duplex and am trying to decide on financing. I have narrowed my choices down to two companies who are still accepting 10% on investment 2-unit properties. I would like to know which one to select and reasons for your opinions:

Option #1: 90/10 loan with 1.0 pts @ 6.875% on a 30 year fixed conventional; plus PMI monthly payments of ~$ 840.00

Option #2: 80/10/10 loan with 0 pts @ 7.0% on the 1st and 9.14% on the 2nd, both 30 year fixed rates; no PMI, monthly payments of ~$ 778.00.

With option #2 my cashflow will definitely be better and that is what I am trying to maximize. I know I am paying more in the long run but I know I can refinance in the future, as I am already buying this property at a 75-80% discount.
Cashflow has to be a big factor when looking at loans, however, with a good rate of 6.875% on the other, I just want to make sure I’m not overlooking anything, taking the 80/10/10 over the 90/10.

Please let me know your thoughts. Thanks!
The payment in Option #1 INCLUDES the monthly payment AND PMI ($ 755.00 + 85.00). Option #2 has not PMI and thus not factored in.

  1. Reply
    January 26, 2011 at 5:11 am

    1 – What kind of interest rate could we expect?
    I think around 7%
    2 – Do you think banks will offer better rates than a mortgage broker? I am really not sure on this one
    3 – When should we apply for a loan? I would say ASAP, if you shop around now, you can get rates locked in for a few months (usually they charge some amount around $ 200 I think. But as long as you get a loan with them you get this money back), plus then you’ll know for certain how much you can expect to get as an interest rate. Rates are currently going up so you want to get locked in if you can.

  2. Reply
    networker Ca. (916)
    January 26, 2011 at 5:34 am

    im in cali. so it could be a little different but you guys are what we call in the industry “A” paper. if you keep it under 80% LTV (loan to value) you will not take a hit in the rate, but because its a condo & not a SFR (single family residence) you could be looking at about 7.0% – 7.75%
    as long as it is your primary residence…
    Congradulations on those credit scores very impressive!

  3. Reply
    January 26, 2011 at 5:55 am

    1- You are looking at a rate of 6.25% in IL. I ran it through Provident Funding as a 30yr fixed, full doc, 80% LTV/CLTV, second home, $ 288,000 loan amount, with a 21 day lock period. This assumes all the information you supplied is accurate, and that your DTI (debt to income) does not go above 50%.

    That is a rate that the mortgage company would be ok with selling you. If you are being quoted higher than that, then feel free to talk to me and I will let you know if you are getting a fair deal or not.

    2- Your Mortgage company can usually get you at least as good of rates as your local bank, unles you typically carry a very high ballance with them. You would be surprised … you Mortgage Company is propbably signed up with your bank to do loan through their wholesale side, as opposed to your retail rates they would offer you direct.

    3- When a good time to go through with it is completely up to you. If you are in a situation where you can offord it, and are comfortable with it, then do it now. No one can make that decision but you.

  4. Reply
    January 26, 2011 at 5:55 am

    With those credit scores and 20% down, you should get the best available rate. You can check with your local bank, but larger lenders have the ability to underwrite and price to a larger variety of banks – giving you the best available rates.

    The best time to apply is now, so that you can develop a working relationship with a trusted loan officer – and to make sure you get approved for the best avaialble rate. A more important question is “when should you lock in the rate”. All things being equal, the closer you lock to closing, the better the rate. Today’s 30 day rate is about .125% better than the 60 day rate, which is .125% better than the 90 day rate. However, we are in an era of expecting increasing rates. However, if it is new construction, you can lock up to 6 months ahead of time at today’s rates.

  5. Reply
    Rush is a band
    January 26, 2011 at 6:21 am

    Something isn’t closing properly on your math. Your loan for the 90% of the purchase price in Option #1 is at 6.875%. That part is ok, but on the second loan with 80% at 7% and 10% at 9.14%, the blended interest rate on that package is 7.24%. Your higher interest rate option has the lower payment which doesn’t add up with the statement that the both loans on the second option are 30 year fixed.

    The rates may be fixed for that long, but the 10% loan is likely an interest only where the principal isn’t repaid. IF you are ok with that, go ahead, just make the realization that these two packages are not an apples-to-apples comparison.

    good luck!

    ps – the game for rental properties is almost always cash flow

    EDIT – If you can find a lender willing to do the 90/10 and let you avoid PMI, then it seems like that is your best bet. Cash flow is king.

  6. Reply
    Ed Atun
    January 26, 2011 at 6:58 am

    Both loans are attractive. Neither is a clear winner. Most rental properties are not profitable unless you put 30% down payment. That has been true for most of the last 40 years. No one ever has that much money, so everyone struggles to make the best choice from limited options. Flip a coin.
    I guess i’d pick the 90/10.

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