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Hey guys,

My parents are buying a 2 family house in a close proximity to NYC. Commute is excellent from the town. The second unit will rent out at about $1500 to $1600 monthly with utilities being separate.

total jointly income is about $86k before taxes

father's credit score is 800
mother's credit score is 700

My folks are putting down 15%.

They have applied to 3 different lenders.

1st - directly to Chase.

Chase said that they only qualify for an FHA loan.

2nd mortgage broker got them approved for a conventional loan at 4% initial interest rate and 4.535% APR = monthly payment $2,648

3rd mortgage broker gave them a GFE with 4.25% initial interest and 4.489% apr = monthly payment $2,594


The 3rd option looks the best since the closing costs are pretty much the same as the 2nd broker but the monthly payment is $50 less.



Can you explain to me the different interest rates in the loan?

It shows that the initial interest rate is 4% and than the GFE shows that the APR is 4.535% . I don't quite understand this. Is the initial 4% interest rate for the whole amount of money financed? And then the APR 4.535 is an additional interest on annual basis on top of the initial interest rate of 4%

Which rates should I use to compare the loans?

from looking over at the terms it looks tome that the 3rd option is the cheaper one.

Member Summary

sikorskius said:   
Which rates should I use to compare the loans?


APR is interest rate + what the money costs you. It's reasonable apples to apples, but the mortgage industry makes the whole thing hard to compare (intentionally).
Here are the details: https://www.lendingtree.com/mortgage/interest-rate-vs-apr-article

In terms of what to compare, APR is a good place to start. Ask for a GFE (good faith estimate) and throw out the fees that are 3rd party that the lender has no control over, as they typically manipulate them (too low).




Also, you need to do more shopping. I've never had lenders that service my loans be the best place to initially qualify, which makes no sense.. Instead, find a good mortgage broker - one that's honest (you may have to shop).
Use lendingtree.com for general comparisons.

Watch out for:
1) Ask up front for lock period and confirm when you're locked. If your lender doesn't indicate that you're locked, they may float the rate on their side, hoping that it goes down and pocket the difference. IF it goes up, you pay.
2) Don't ever pay an application fee. Ever. Be honest with your credit and financial situation, but don't pay for a lender or broker to run your credit as part of the process.

I always wondered about the application/credit check fee... You just tell them straight up, you're not paying? Deal breaker for you if they insist?

dcg9381 said:   sikorskius said:   
Which rates should I use to compare the loans?


APR is interest rate + what the money costs you. It's reasonable apples to apples, but the mortgage industry makes the whole thing hard to compare (intentionally).
Here are the details: https://www.lendingtree.com/mortgage/interest-rate-vs-apr-article

In terms of what to compare, APR is a good place to start. Ask for a GFE (good faith estimate) and throw out the fees that are 3rd party that the lender has no control over, as they typically manipulate them (too low).




Also, you need to do more shopping. I've never had lenders that service my loans be the best place to initially qualify, which makes no sense.. Instead, find a good mortgage broker - one that's honest (you may have to shop).
Use lendingtree.com for general comparisons.

Watch out for:
1) Ask up front for lock period and confirm when you're locked. If your lender doesn't indicate that you're locked, they may float the rate on their side, hoping that it goes down and pocket the difference. IF it goes up, you pay.
2) Don't ever pay an application fee. Ever. Be honest with your credit and financial situation, but don't pay for a lender or broker to run your credit as part of the process.


We have two mortgage brokers which came highly recommended by friends who did numerous business with them.

Two contingency plans are:

-Chase offering FHA loan

- our credit union. Their interest rate is 4%, I don't know their APR yet, will find out tomorrow.

Unfortunately, both brokers ran our credit reports. But the only cost that we have is the appraisal fee. No application costs.

Basically my parents will not sell this house for the next 30 years or ever. It's a great location and the price is just too good. Multi-family houses in that town can be counted on one hand. If they ever decide to sell it, they will move back to their home country to retire.

Edit:

Also I just noticed that the loan with 4.25% actually is financing a smaller amount of money. So now I can't compare directly these two loans.

Bottom line is which interest rate should I look at as the best indicator for the better deal? ( sorry I am still confused with the ARR vs regular interest rate thing)

NikeFace said:   I always wondered about the application/credit check fee... You just tell them straight up, you're not paying? Deal breaker for you if they insist?

It's a deal breaker for me. Now, that being said.. With 700-800 FICO, they should qualify for the best rate.
What I ask brokers, in this case, is to quote me for the best available rate based on my % down - assuming great credit. Rates are point-in-time, so you're asking for the rate at that moment.
If the APR looks good, I ask for a GFE and use both of those to shop.

When you're ready and decided on a mortgage broker - and you've checked for complaints against them - then you can consider paying a *reasonable* fee, less than $50. Brokers are trying to use application fees in the $100-$200 range as both profit centers and means to get rid of people that might be trying to shop them. I've never paid a fee, but I know they exist. Edit: As you've got credit scores in hand from other brokers, just get a copy and insist on providing them. No fee.

If a broker refuses to provide today's rates based on % down and "assuming best credit" without an application, then you walk... That's the deal-breaker. And they're most likely hiding something.

If you were to misrepresent your credit, debt-to-income, or down payment and the rate changes.. well, that's on you...

The reality is that it does cost brokers something to check your credit, but it's not much, and it will certainly wash in the money they make on your loan.

sikorskius said:   
We have two mortgage brokers which came highly recommended by friends who did numerous business with them.
Two contingency plans are:
-Chase offering FHA loan
- our credit union. Their interest rate is 4%, I don't know their APR yet, will find out tomorrow.
Unfortunately, both brokers ran our credit reports. But the only cost that we have is the appraisal fee. No application costs.
Basically my parents will not sell this house for the next 30 years or ever. It's a great location and the price is just too good. Multi-family houses in that town can be counted on one hand. If they ever decide to sell it, they will move back to their home country to retire.
Bottom line is which interest rate should I look at as the best indicator for the better deal? ( sorry I am still confused with the ARR vs regular interest rate thing)


I know that my local credit unions can't match the rates that I get on the open market.
I've never seen a major bank willing to give me the rate I could get with a broker, even if my loan ended up selling to that bank. And yes, I've tried to go direct.
I would do two more comparisons:
1) PenFed. They're big enough, they're a credit union you can join, and they have very favorable rates on loans.
2) Use bankrate.com to check current rates in your area. See how those compare... Just watch out, as the guys that advertise are high-volume.

For initial comparison, compare APR to APR. Use that to narrow it down and then look at the GFEs. Heck, provide the GFEs here and we'll help - just strip the personal info.

No big deal on having brokers run the credit. Once it's pulled, you can pull more inquiries of the same type w/o a credit hit. IF you have a copy of those pulls, keep it and provide it as a basis for quoting you a current rate without an application / credit pull. Literally a broker can just look it up in a few minutes.

Remember, it gets harder as rates change. It's point it time.

I'd forget about comparing APRs. Different lenders might make different assumptions about what comprises APR. For loans with the same term (length), do a side-by-side comparison of interest rate and fees.

Make sure the loan amounts are the same. I woulcn't consider rolling loan costs into the loan, both for comparison and as a matter of general principle. If you roll in costs, you'll pay interest on those costs for the lifetime of the loan, unless you reduce loan principal by the total costs rolled into the loan.

dcg9381 said:   sikorskius said:   
We have two mortgage brokers which came highly recommended by friends who did numerous business with them.
Two contingency plans are:
-Chase offering FHA loan
- our credit union. Their interest rate is 4%, I don't know their APR yet, will find out tomorrow.
Unfortunately, both brokers ran our credit reports. But the only cost that we have is the appraisal fee. No application costs.
Basically my parents will not sell this house for the next 30 years or ever. It's a great location and the price is just too good. Multi-family houses in that town can be counted on one hand. If they ever decide to sell it, they will move back to their home country to retire.
Bottom line is which interest rate should I look at as the best indicator for the better deal? ( sorry I am still confused with the ARR vs regular interest rate thing)


I know that my local credit unions can't match the rates that I get on the open market.
I've never seen a major bank willing to give me the rate I could get with a broker, even if my loan ended up selling to that bank. And yes, I've tried to go direct.
I would do two more comparisons:
1) PenFed. They're big enough, they're a credit union you can join, and they have very favorable rates on loans.
2) Use bankrate.com to check current rates in your area. See how those compare... Just watch out, as the guys that advertise are high-volume.

For initial comparison, compare APR to APR. Use that to narrow it down and then look at the GFEs. Heck, provide the GFEs here and we'll help - just strip the personal info.

No big deal on having brokers run the credit. Once it's pulled, you can pull more inquiries of the same type w/o a credit hit. IF you have a copy of those pulls, keep it and provide it as a basis for quoting you a current rate without an application / credit pull. Literally a broker can just look it up in a few minutes.

Remember, it gets harder as rates change. It's point it time.


Indeed, it seems that mortgage brokers found me better deals than going directly to the lender.

My credit union is offering 4.0% so it would match one of the broker's GFE.

I will try PENFED tomorrow. We are qualified to join based on my brother being in the Army.

I will provide the GFEs tomorrow, so that will help you guys decipher this for me because I am dazed and confused by all of this.

is this owner occupied? can they put down an extra 5% so they don't pay MI? have you checked provident.com? your parents seem to be a good fit for them and they have aggressive pricing. you may want to look into joining https://friends.perkspot.com/Login.aspx?ReturnUrl=%2f and then getting an additional .25 point rebate for their MB program if you choose to go with them. More info: http://slickdeals.net/f/4713354-Mortgages-Refinance-or-Purchase-at-3-125-with-0-closing-costs-or-even-a-credit-towards-closing-with-Box-Home-Loans?

boxerbrief said:   is this owner occupied? can they put down an extra 5% so they don't pay MI? have you checked provident.com? your parents seem to be a good fit for them and they have aggressive pricing. you may want to look into joining https://friends.perkspot.com/Login.aspx?ReturnUrl=%2f and then getting an additional .25 point rebate for their MB program if you choose to go with them. More info: http://slickdeals.net/f/4713354-Mortgages-Refinance-or-Purchase-at-3-125-with-0-closing-costs-or-even-a-credit-towards-closing-with-Box-Home-Loans?

Yes, it will be owner occupied.

Unfortunately, if there were no closing costs or reserves requirements by banks they would have just enough money to put down 20%.

I will check out the links. Thanks!

Edit:

I did some digging and their customer service seems on the low side. They are very stringent tracing bank funding etc. I don't want to end up explaining every little transaction to them through email.

My parents' situation is complicated in terms of gifts from family, international wire transfers from sale of overseas property that I don't want to be wooed in for a rate that is .3% better only to find out that at the end of the road they might find some bogus reason not to give the loan.

The house is underpriced, great neighborhood, my parents can't afford to lose this house. They are immigrants here and generally life here in America threw a lot of obstacles for them, this house seems like a pot of gold at the end of a rainbow. So good person to person customer service is important in this situation.

I might try Penfed since they have similar rates to Provident.com .

Thanks for all the help so far guys. It's great! I will post the GFEs tomorrow.

sikorskius said:   

My parents' situation is complicated in terms of gifts from family, international wire transfers from sale of overseas property that I don't want to be wooed in for a rate that is .3% better only to find out that at the end of the road they might find some bogus reason not to give the loan.

The house is underpriced, great neighborhood, my parents can't afford to lose this house. They are immigrants here and generally life here in America threw a lot of obstacles for them, this house seems like a pot of gold at the end of a rainbow. So good person to person customer service is important in this situation.


Be up front with the lenders about the source of the down payment. If they own property overseas, just be able to provide proof of ownership or sale. If it's really complicated and you've got what looks to be odd sources of income coming from overseas w/o documentation, I think you'll have problems. Transfers that are more than 6 months shouldn't be a problem - "seasoned funds".

All standard lenders (or their underwriters) are going to look carefully at the source of the underlying funds. You can't escape it with a standard market loan. We've swung to "way too careful" after the banking melt down. Transferring funds is no problem, but you'll need to show a source for each of the funds and if you have gifts, be prepared for those parties to provide statements regarding those transfers. Keep gifts reasonable.

I sold a tractor ($10k) just prior to a re-fi. In TX, tractors are non-titled and it was a cash sale. It caused a 2-day delay.

Penfed will NEVER finance you with that kind of complicated funding.

I have used BoxHomeLoans (I love them) but I don't think they will touch this either.

What's wrong with an FHA? Is it because of PMI? Get the FHA and then refi it to conventional.



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