My parents are buying a home. They have poor credit, but the home they are buying appraised for 281,000 and they agreed to buy it for 269,000. Two mortgage companies have agreeed to write up the purchase agrement as 281,000 and all closing costs and down payment will be included. The difference is, one has a prepayment penalty of $5,000 if payed off/refinance before 2 years and $150 cheaper a month, and one has $4,000 more closing costs, but no prepayment penalty.
Both have 8.9% interest on a First (80%) and 11% on a second (20%)
Remembering that they have poor credit, is it wiser to take the one with a lower payment, and not worry about refinancing or selling before the two years are up, or take the one with a higher closing cost and payment, and refinance sooner when their score improves?
Thanks!
Answers & Comments
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There are a couple issues at play here. Lenders will only allow the loan to be the lesser of the sales price or the appraised vale. If the purchase agreement says $269000 then that is the maximum you can borrow. Play one lender against the other. They should be able to qualify for a fixed rate even with poor credit. When looking at closing cost you have to really look closely. Some lenders will not include homeowners insurance which is required, some will not include your taxes and insurance neccessay to get the escrow accounts caught up. Loan origination is what the lender is charging on the front of the loan. The other problem with that is unfortunalty many lenders hide junk fees under different names like funding fee, commitment fee, underwriting fee etc. These are legit but I have seen them range from 100 to 1200 dollars. If you have more questions or would like an impartial third party to look at the good faith estimates to give you a heads up let me know. Good luck
First of all, the pre payment penalty shouldn't be an issue because it wouldn't make any sense to refinance before the 2 year mark anyways...
You will want the credit to improve enough that the new mortgage will be the last they have to get, and it will take around 2 years to get you there...
My question is how much are the closing costs being offered?
My company prides ourselves on our low closing cost loans, and i have not found another company out there that can match us..
I could do a purchase loan usually for under $4000...total costs!!!
If you want, give me a calll and i can let you know what they will qualify for... Even with low credit, i may be able to do better on the interest rates as well!!
My name is Jason Fry, and I am a loan officer with Providential Bancorp, a nationwide mortgage lender. I'd be happy to assist you in purchasing a home, or at least be able to let you know exactly what YOU QUALIFY FOR. You can then make a more informed, and educated decision whether it would be the right move for you.
Feel free to give me a call at 312-264-6448, or
you can email me at [email protected].
Thank You,
Jason Fry
Providential Bancorp
312-264-6448
Take the lower payment because they don't want to refi for at least a year anyway. Your parents should try to go into any refinance with 12 mo clean on their mortgage history if at all possible. Also, most banks will make you use the purchase price of the home if you refinance with less than a year in it. Some do 6 months, but wait the 12; there are more options available at that time.
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