I found a home. Bid will be submitted tomorrow. My question: the loan company has mentioned an 80-15-5 loan. Could some please explain this to me, preferrably in english. Type slow because I ain't a fast reader. Thanks, os
Found this online... <i>80/15/5 loans are also described as combination financing and offer a convenient way to provide creative financing in a purchase, refinance, home improvement, or debt consolidation transaction. In a purchase transaction, a second trust is frequently used in combination with a first trust to avoid paying Private Mortgage Insurance or PMI. The first trust is always set at 80% of your purchase price which eliminates the need for PMI. We add a second trust of 15% of the purchase price and you supply 5% cash.</i> http://www.nva-mortgage.com/80_15_5.htm Sounds like a way to avoid PMI. I guess a lot depends on what you are putting down. Are they going to require escrow? I guess if they suggested this, you probably will have to do escrow, correct?
Thanks for the link. Yep...I'm probably going to put between 5-10% down. Any pluses/minuses to doing an escrow? Thanks again, os
If you can avoid escrow, it is a good thing. For example, my sister-in-law went with an escrow account even though she didn't have to have one. This is so she can pay one bill each month. The distinct disadvantage is that they choose her insurance coverage for her, which means she is subject to the cost they determine. Recently, I switched carriers and got a much better rate. With escrow, you don't have that kind of flexibility. Mortgage companies do it to protect themselves from you bailing out on them, particularly with a small down payment or poor credit history. We paid a lot down (50 percent) on our house and had good credit so we didn't need escrow. To go back to my sister-in-law, she got a note from her mortgage company saying her bill was going to go up for two reasons: 1. Insurance rates in Texas have increased dramatically. 2. They mis-calculated her insurance rate last year charging her too LITTLE. The adjustment to her monthly mortgage was more than double what she had been paying. Bottom line is that escrow accounts are required by mortgage companies for some reasons but you don't want it if you can avoid it. Escrow takes the control over your insurance rates and, subsequently, your overall payment to the mortgage payment every month out of your hands.
you can also avoid escrow by doing an 80-15-5 as your primary loan is not more than 80%. 80-15-5 is definitely the way to go.
Jeff I am curious as to your comment about escrow controlling your insurance provider. Are you talking about homeowners insurance?We have always had a choice of providers. My wife has been involved in home loans for a number of years and this has never been an issue. Generally you are escrowed for 3 items: 1. PMI (Moot point if loan to value ratio is 80% or less) 2. Taxes 3. Insuarance Homeowners insurance is generally paid once a year and is "prepaid" - probably in November. Property taxes are paid twice a year. I believe this is May and October. As y'all have mentioned if you can do without escrow, that's great. Mortgage compaines do good faith estimates of your taxes and insurance, but they can change. This could lead to a shortage in your escrow account which will be made up in your next year's loan payments. The only good thing about escrow (in my opinion) is that you don't have to come up with 3 big payments throughout the year. Instead you make 12 smaller payments. Hopefully, buyers without escrow are disciplined enough to save that money so that they can make their tax and insurance payments.
Jeff: What bobrek said is my question as well. I had a choice of insurance carriers as well. Escrow sucks, but it's easier than paying three big bills.
What happens if the mortgage company overestimated your taxes, insurance, etc. and you have a surplus of cash in your escrow account? Does that money roll over to next year, or do they apply that to your mortgage?
boomboom If there is a big overage, you generally have a choice of getting the cash or reducing your payments. When we bought a home a long time ago, they severly overesitmated our taxes (it was a condo and, I think, there was a homestead exemption issue). It runed out that we got a check for over $800.00 the following year.
I'm also looking to buy a house and have looked at the 80-15-5. You will pay a higher interest on your 15% loan (about 1.5% more or therabouts, depending) than on your 80%, but according to calculations I have done, it would be cheaper for me to pay the higher interest than to pay mortgage insurance. Also, they don't require you to do escrow, but you'd better be a well-organized person if you don't want to do it because of the stakes involved. I haven't decided whether to do escrow or not, but if I do I'll open a new savings account to run my own escrow. The thing that gets me about it is that I don't think they pay you anything at all in interest on that money.
I mis-spoke. You can choose providers, however, a lot of mortgage companies require specific types of coverage that may be more than you want or need. I know what you mean about paying big tax bills. Someone suggested to me that the best way to handle it is to get a money market or even just a savings account and put away your total estimated taxes divided by 12 each month. It earns interest and you don't have to worry about those giant bills at the beginning of the year. I'm to freakin' lazy to have done it, you understand, but it SOUNDS like a good idea.
Juan Valdez, I believe that the no interest is the real savings on not having an escrow. Perhaps I'm lazy and disorganized (many on this bbs might agree) but I have an escrow and focus on paying the sucker off quicker.
I didn't get a chance to meet with the broker today so I'll put the bid in Friday morning. The house is listing for $124,800. It's appraised (2002) at $133,000. My offer is going to be for $121,000 and have the sellers pay the closing costs. I don't know if they'll bite or not. My broker tells me they had it listed in the 130's in February and have come down a lot obviously since then. The one thing that scares me is the house is one of the higher appraised homes on the street...I don't know if that'll make it harder to sell in the future. Wish me luck. os
You should always double check your Mortgage Co's figures on your escrot acct. I've found yr after yr that they always over-estimate and I usually am able to get my monthly payment lowered by going over each item you are escrowing with the mortgage co's rep. You'd be suprised at how much you can save. I've dropped mine $80, $130, & $30, respectively. They escrot my school and county taxes as well as my homeowners insurance. They're usually zealous on the homeowners and "projected" county taxes.
Damn...so I should have offered even lower?? [[[ second thoughts start to flash thru Old School's head ]]]
When we were still in Houston we made and offer on a house on a Friday. Over the weekend we started having second thoughts. The sellers countered (basically, it was a $500 difference) and since we had second thoughts, that gave us our 'out'. We decided not to purchase. Later, we heard that their realtor called ours afterwards and said they had been trying to sell that house for around a year and ours was the FIRST offer they had received (this was when the housing market really sucked in Houston). We all could not believe that they blew the sale over five hundred dollars!
I've been hearing that the housing market was sufficiently strong that negotiating down is hard nowadays. My brother bought a house not long ago and was actually outbid by another buyer when my brother offered the asking price. The other buyer ultimately dropped out because of some disagreements over repairs and my brother was able to get it at asking price.
While I hope to get the house, I won't be heartbroken if it doesn't happen. I wouldn't call it my "dream house". It's nice, in a decent area but not one that I want to live in after I win the lottery. Seriously, I think it would make a good starter home but I'm sure there are more out there just like it. os
I've spent the last several months looking for a house, and I know www.har.com about as well as I know www.clutchcity.net Despite the poor economy...especially for Houston...the housing market wasn't strictly a buyer's market. I've seen plenty of houses sell...and sell quick....but I've seen plenty more that just sit there. It's amazing to me, but people are willing to pay a stiff premium for houses that are "perfect," while houses that have a few issues sit there forever. If the house you are looking at isn't perfect, and it's been sitting there a while, don't be afraid to lowball. Knock 15% off the price, and give them a legitimate list of the reasons why you think it's overpriced. If the house has sat there long enough, and you can't give them a list, then you haven't done your homework. Point out recent sales in the neighborhood (your agent should be able to give you some comps...otherwise use www.hcad.org (if you're looking in Harris Co.)) Point out problems with the house with estimates on repair. No house is perfect, so there will be things to point out. If you've already made the offer, don't dispair. You'll be having an inspection before you close, and your inspector will find lots of stuff for you to bargain with. If they don't want to bargain further, act like you want to walk away. You have the power. BTW....where are you looking?
