I was recently contacted by a home buyer in Seattle who wanted to know what mortgage programs we have available for a sales price of $500,000 with a 10% down payment. With less than 20% down, the loan will probably have mortgage insurance unless they can find a Fannie Mae Homepath property.
Let's review some scenarios assuming the home buyers have excellent credit (scores over 740) and a 30 day closing with a loan amount of $450,000. With a 10% down payment, the seller can pay up to 3% (Freddie Mac) or 6% (Fannie Mae) with a conforming high balance mortgage. Rates quotes are effective as of 5:00 pm on January 24, 2012.
Conventional 30 Year Fixed with Private Mortgage Insurance.
4.375% with a PIMI (principal, interest and private mortgage insurance) payment of $2543.03 and with closing cost of $3074 (apr 4.858).
4.125% has a PIMI of $2477.17 and will cost more in discount points with closing cost of $7988 (apr 4.686).
4.500% has a PIMI of $2422.58. The payment is lower due to the lower pmi rate since a portion of it is paid for "up front' as a "split premium" similar to FHA except at a much reduced cost. Net closing cost, after lender credit applied with rebate pricing is estimated at $5063, including the upfront pmi (apr 4.856).
For the above scenarios, it will take about 7 years for the private mortgage insurance to drop off of the mortgage payments, at which time, the home owner will benefit from having a reduced payment. When considering a second mortgage piggy back scenario, you may want to estimate how long you will have the second mortgage and what the cost will be over the life of the loan compared to private mortgage insurance.
Fannie Mae Homepath will require the buyers find a Fannie Mae REO property that is eligible for financing utilizing a Homepath mortgage. I just checked Homepath.com and found the most expensive home currently listed in Seattle is $449,000 (which you can actually purchase with as little as 3% down payment). Homepath Mortgages do not require an appraisal nor do they have private mortgage insurance. For the comparison purposes, the following quote is based on a $500,000 sales price with 10% down payment using Fannie Mae Homepath:
5.125% for a 30 year fixed with a principal and interest payment of $2450.19 and closing cost estimated at $2762 (apr 5.187).
FHA is an option for these buyers however I would only recommend it IF:
- buyers are considering allowing their mortgage to be assumed in the future;
- buyers are converting existing home into a rental since FHA requires less reserves than conventional financing;
- credit scores are lower
Here is how an FHA high balance loan would compare based on today's pricing:
3.750% for a 30 year fixed with a PIMI of $2513.91 with $2782.50 for closing cost assuming the upfront MIP is financed (apr 4.397).
I am seeing sellers very open to paying for closing cost. I'm also hearing from my clients in the Seattle area that homes that are new on the market and not short sales have been moving fairly quickly.
If I can provide you with a rate quote or help you prepare for buying a home anywhere in Washington, please contact me.
