Author Topic: How bad is 5.25%?  (Read 1552 times)

Ian

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How bad is 5.25%?
« on: July 28, 2018, 06:08:18 AM »
Based on how many people here have mortgages nearing 3% and my research on local rates, I was hoping to do better on 5.25%, but that's what my approval letter says. I'm not sure if being self-employed killed my chances on this. But my credit score is near 800 and I have documented income and assets well above the total of the loan I requested, so I was hoping for a better rate.

I discussed a 20% down payment, but my letter indicates 5%. I am unsure if this part can be renegotiated when I actually do the final paperwork and I could reasonable expect a lower rate?

Regardless, I am trying to decide if this should affect my plans. I do have the option of waiting several more months and just buying a house in cash (technically I could now, but I don't withdraw from my FI assets as a general rule). My main goal with the mortgage was to be able to invest more and to improve my credit score. Now I am considering avoiding it or accepting this loan and paying off early. While hypothetically I could stay the course, I'm risk averse and find interest payments distasteful.

I would appreciate thoughts on the topic question and advice on my situation. Thanks.

FIPurpose

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Re: How bad is 5.25%?
« Reply #1 on: July 28, 2018, 07:24:28 AM »
Most people here are talking about their mortgages the got 2-3 years ago. The current rate is around 4.5%. So your readjustment to 20% may help, but otherwise it could just be the specific mortgage company you're working with.

Bracken_Joy

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Re: How bad is 5.25%?
« Reply #2 on: July 28, 2018, 08:21:05 AM »
Have you checked with multiple lenders? Is it a 30 yr conventional? Are you in the US?

sol

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Re: How bad is 5.25%?
« Reply #3 on: July 28, 2018, 08:54:15 AM »
Your mortgage is probably the most expensive thing you will ever buy.  You probably shouldn't take any of the first three offers you get.

Shop around.  These people are sleazy salesmen, but they do desperately want your business.  Get five offers, then take the best one back to the other four and ask them to beat it. Learn how the origination fees work, and do the math on buying down points.  A few days of your time getting the best deal on your mortgage will literally save you tens of thousands of dollars in interest payments. It's about the highest paid investment of your time imaginable.

Ian

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Re: How bad is 5.25%?
« Reply #4 on: July 28, 2018, 11:05:16 AM »
Thanks for the responses, everyone.

Most people here are talking about their mortgages the got 2-3 years ago. The current rate is around 4.5%. So your readjustment to 20% may help, but otherwise it could just be the specific mortgage company you're working with.
So I can definitely readjust later? Or do I need to go back and renegotiate the pre-approval letter?

Have you checked with multiple lenders? Is it a 30 yr conventional? Are you in the US?
1) No. I started with my own bank, since I thought they would be most favorable to my situation (they have my records and easiest proof of self-employment income).
2) Yes, though I'm open to alternatives.
3) The house is, and I will be once the deal is finalized.

Your mortgage is probably the most expensive thing you will ever buy.  You probably shouldn't take any of the first three offers you get.

Shop around.  These people are sleazy salesmen, but they do desperately want your business.  Get five offers, then take the best one back to the other four and ask them to beat it. Learn how the origination fees work, and do the math on buying down points.  A few days of your time getting the best deal on your mortgage will literally save you tens of thousands of dollars in interest payments. It's about the highest paid investment of your time imaginable.
Not what I hoped to hear, but perhaps what I needed to hear. Still going to push me toward considering just buying in cash.

Bracken_Joy

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Re: How bad is 5.25%?
« Reply #5 on: July 28, 2018, 11:54:34 AM »
Your cash would better serve you in stocks. Especially if you have space in tax advantaged accounts.

Sounds like you definitely need to shop around.

Mother Fussbudget

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Re: How bad is 5.25%?
« Reply #6 on: July 28, 2018, 02:03:41 PM »
It sounds high, but when you consider there's a 63% chance the FED will increase the FED rate by .25% in Sept, and a 93% chance the FED will increase in December...  that doesn't sound like such a bad rate if you can lock it in today.  In 2 years, I suspect we'll ALL be wishing we had taken out mortgages below 5%.

kenmoremmm

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Re: How bad is 5.25%?
« Reply #7 on: July 29, 2018, 12:20:11 AM »
suggest checking out rate30.com. i used them to refi a few years ago down to 3.375 on a 30 year. they hand the loan off to a bigger bank after you execute and get payments rolling for a few months. i think i was with penn financial for 2 months before chase assumed the loan.

secondcor521

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Re: How bad is 5.25%?
« Reply #8 on: July 29, 2018, 05:14:11 PM »
So I can definitely readjust later? Or do I need to go back and renegotiate the pre-approval letter?

I think what the other poster meant was if you talk with your bank and point out that you'll be putting down 20% rather than 5%, then they should give you a lower rate than 5.25%.  Putting down 20% will also (or it used to anyway) get you out of PMI, which will lower your overall loan costs quite a bit (or it used to anyway).

I started with my own bank, since I thought they would be most favorable to my situation (they have my records and easiest proof of self-employment income).

While your own bank might be the easiest, they are very unlikely to give you the best offer.  As an example, I like using USAA for insurance, but they've never been competitive on their 30-year rates.  What @sol said is right - you need to shop around and you also need to educate yourself on origination fees and discount points.

Another thing you should probably look at is a 10 year fixed or even a 5 year fixed if you can find one.  Since you can afford the higher payment, shortening the loan term is one of the easiest ways to get a lower rate.  There are other products too, like a 3/1 ARM or 5/1 ARM, which might give you lower rates too.

ender

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Re: How bad is 5.25%?
« Reply #9 on: July 29, 2018, 09:01:02 PM »
Mainly you should realize that many of the "bad" loan deals happen because people don't shop around.

A friend of mine was buying a house very close to when we did. Our interest rate was lower AND we had $1k+ less closing costs. He was... not happy when he realized how much more expensive their mortgage was compared to ours. I guess it never occurred to him to look.

You can also trivially check current rates too all over the Internet, so in my 10 seconds I can see that 5.25% is far worse than current rates.


I am unsure if this part can be renegotiated when I actually do the final paperwork and I could reasonable expect a lower rate?


Your rate will end up locked well before your final paperwork. When we signed, rates were nominally lower, but there wasn't anything the bank could do. The flip side is true too though, if your rate is locked lower and existing rates go up... well that's lucky for you.

Nate79

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Re: How bad is 5.25%?
« Reply #10 on: July 29, 2018, 11:19:16 PM »
Don't just look at the interest rate but should consider all the closing costs as well.

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Spitfire

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Re: How bad is 5.25%?
« Reply #11 on: July 30, 2018, 09:27:28 AM »
+1 for shopping around. When I bought in 2015, my real estate agent's wife was a mortgage broker so I applied there and she came back with a 4.75% rate. That seemed high so I checked around and found one for 3.5% pretty quickly with little difference in projected closing costs or points. It's worth jumping through a few hoops to prove self employment income if you can get a better rate.

tralfamadorian

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Re: How bad is 5.25%?
« Reply #12 on: July 30, 2018, 12:33:19 PM »
+ for shopping around. Also, it's best to do it within a short period- a couple of days, I think is the window- so that it's only one hard pull on your credit report.

Fishindude

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Re: How bad is 5.25%?
« Reply #13 on: July 30, 2018, 01:21:59 PM »
I think my first home loan was 9%, so 5.5% doesn't sound all that bad.

robartsd

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Re: How bad is 5.25%?
« Reply #14 on: July 30, 2018, 02:18:01 PM »
My understanding is that the pre-approval letter is mostly to assure the seller that you are legitimately able to purchase the home with your offer. You don't need your final funding to even come from the same institution that issued the letter as long as you can come to close with the needed mortgage on time. In my experience lenders aren't willing to lock in rates until you are under contract for the property and have paid for the appraisal, so the rate in your letter is just an estimate.

PizzaSteve

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Re: How bad is 5.25%?
« Reply #15 on: July 30, 2018, 02:54:39 PM »
Agree with Sol.  Also, even after negotiating good terms, read the loan contract completely at closing. 

Banks have been known to sneak in advantageous (for them) terms within the fine print.

Read the contract!
« Last Edit: August 01, 2018, 09:48:16 AM by PizzaSteve »

affordablehousing

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Re: How bad is 5.25%?
« Reply #16 on: July 30, 2018, 06:41:55 PM »
If you want to chase a low rate you could consider a 5 year ARM, especially if you have the cash to pay it off should rates rise and adjust to above what you can earn in the markets. We just closed on a place a few weeks ago and got a 30 year fixed 80% LTV loan at 3.25% APR, with a credit to cover half our closing costs, so low rates are still out there, you just have to look hard for them and the banks that want your business. We were very happy about it but it took a lot of searching.

tralfamadorian

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Re: How bad is 5.25%?
« Reply #17 on: July 30, 2018, 07:22:50 PM »
If you want to chase a low rate you could consider a 5 year ARM, especially if you have the cash to pay it off should rates rise and adjust to above what you can earn in the markets. We just closed on a place a few weeks ago and got a 30 year fixed 80% LTV loan at 3.25% APR, with a credit to cover half our closing costs, so low rates are still out there, you just have to look hard for them and the banks that want your business. We were very happy about it but it took a lot of searching.

That is an absolutely amazing rate. Do you mind sharing what bank/credit union you used?

Better Change

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Re: How bad is 5.25%?
« Reply #18 on: July 31, 2018, 11:13:02 AM »
I just got 4.27% APR at Watermark Home Loans (30 year fixed).  That was the lowest I could find with a moderate amount of searching and reviewing.  I might switch if I can find a lower rate between now and when we really start rolling on the purchase.

affordablehousing

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Re: How bad is 5.25%?
« Reply #19 on: July 31, 2018, 12:12:19 PM »
I can't share where I got the rate, no joke they include NDA terms in the loan docs, but I can say if you're buying a house in a bad neighborhood, it might qualify for CRA credit for a bank and you have extra leverage in getting a good rate as the bank is getting additional regulatory return on your loan, plus you get the benefit that they'll keep the loan on their books (if you like their servicing). Check which banks have misbehaved in your territory and pitch them on your gentrification efforts.