5/1 ARM 6.75% 10% down - w/PMI - good or bad deal?

[Mackie]

I have been focusing for so long on trying to find the "right" property that I haven't put much thought into financing the property when I find one that works.

So I decided to call some brokers in my area to get a feel for the market.  I was surprised be a few things:

1.  That 3 families are considered higher risk then 2 families.
2.  Most lenders require 10% down for an investment property
3.  The most mortgage brokers are not willing to "work" with an investor.  They give you only what you ask for instead of laying out all options.

So far the best deal I have found is a 5/1ARM with 10% down, PMI and a rate of 6.75% with 1 point.  Any thoughts on this...we both have great credit and income with some debt.

Also I really feel lost when dealing with finance people...I just don't feel confident enough to know if I am getting a bum deal and I really don't know the right questions to ask.  

Thanks for any thoughts....

[kdhastedt]

As a comparison, I just did an 80% 'cash-out refi' at 5.75 for 30 years fixed...no PMI, no points.

- Is the property currently rented?  
- Is it 'at market'?  
- Did the broker take those numbers into account?
- Is there a lifetime cap on the maximum interest rate?
- What is the loan indexed to?
- What do you mean by "great credit"?

Keith

[Mackie]

Thanks for the fast response Keith...

1st - what is a "cash-out refi"?

As a comparison, I just did an 80% 'cash-out refi' at 5.75 for 30 years fixed...no PMI, no points.


- Is the property currently rented?  Yes -  all units rented with 1 year leases.
- Is it 'at market'?  By this do you mean is it comparable with other properties in the area, with the same sq footage, units etc?  If so then yes - it may be a little under market.  If you mean assessed value then no - the property is listed for $40K over assessed value.
- Did the broker take those numbers into account? - No he didn't ask about any of the above information.
- Is there a lifetime cap on the maximum interest rate? I didn't ask - I have never dealt with an ARM before (my personal residence is a 30 year fixed).
- What is the loan indexed to? LIBOR
- What do you mean by "great credit"? My mid FICO is 770, my husband's mid is 780

Keith

[kdhastedt]

A cash out refi means that I own the property outright and refi'ed it and the bank give me the cash in-hand...your mortgae rate takes a 'hit' for this.  I also did an 80% rather than a 70% LTV -- another hit on the rate.

Yes, by 'at market' I mean are the rents received at the average for the area, size, and condition.

You're getting financing on a 3-plex, you have 'income with some debt', and the broker wasn't interested in the income that the property is/will generate?  I find that quite odd.

I would find out about the cap.  WIthout the cap, the mortgage company could conceivably raise the interest in years 6-30 by 1% per year (obviously, the LIBOR probably won't run amouk but it could happen)...if the interest runs up to 14%, can your cashflow handle that?

Yes, "great credit"...

[ClayHomeSavers]

IMHO, sounds to me like you need to make a few more calls.
With a credit score of 680 in FL I can do 100% 80/20 No PMI.

[Dave T]

Yesterday, I was quoted 5.875% on a 3/1 ARM with no points.  The loan officer did not care that the property was a 4-plex, the rate is the same for all investment properties from single family to 4-family dwelling.

Curious as to why a tri-plex is more risky than a duplex.  Risky for whom?  I would think that there is less risk for the investor because you have three units generating income.  An extended vacancy in one unit should not seriously impact ability to service the loan.

Are you really talking to a mortgage broker, or to a loan officer?  The difference being that a loan officer can only offer loan products from his employer.  A mortgage broker is an independent agent with access to several different funding sources, many of which should be offering loan products for investors.

Ask your mortgage broker (or loan officer) if the rate quoted is for a conforming loan or for a non-conforming loan.  Conforming loans meet the guidelines for sale to Fannie Mae, Freddie Mac.  Conforming loans require more documentation, but usually get a cheaper interest rate than non-conforming loans.

[snowbank]

"2.  Most lenders require 10% down for an investment property"

If you have excellent credit, you should have no problem obtaining 100% financing.  If you don't want money out of your pocket, just get a seller concession to cover closing costs.  We lend to investors all the time with no money down.  

Bill

[newdad]

It may be true that most lenders require something like 10% down on a NOO property (Non-Owner Occupied).  Someone commented earlier on working with a broker - smart advice.  Through a broker, your loan will be shopped and placed in the best possible place for you to be.

If your main objective is 100% financing, usually that can be done.  Get your app into a broker, maike your primary objectives clear, and see what comes back.

[newdad]

Oh yeah - I think just about anything with PMI shows you got someone who either doesn't know what they're doing, or doesn't care.  These days, there are tons of legit ways around PMI.

I have been focusing for so long on trying to find the "right" property that I haven't put much thought into financing the property when I find one that works.

So I decided to call some brokers in my area to get a feel for the market.  I was surprised be a few things:

1.  That 3 families are considered higher risk then 2 families.
2.  Most lenders require 10% down for an investment property
3.  The most mortgage brokers are not willing to "work" with an investor.  They give you only what you ask for instead of laying out all options.

So far the best deal I have found is a 5/1ARM with 10% down, PMI and a rate of 6.75% with 1 point.  Any thoughts on this...we both have great credit and income with some debt.

Also I really feel lost when dealing with finance people...I just don't feel confident enough to know if I am getting a bum deal and I really don't know the right questions to ask.  

Thanks for any thoughts....