T Nation

Mortgage Miscalculation


#1

Forgive me as I am not the best with mortgages and thus why I am coming here for advice. My wife and I are expecting our third child and so our current 1200 sq ft home is fixing to become even more crowded than it already is. We are looking at building a four bedroom for a cost of around $212,000 with likely $15,000 down after selling our current home.

All the mortgage calculators we have used give us a payment between $900-1000/mo @ 4.125% and then once we figure in the $4,300 in taxes, PMI $150ish, and $1300 in insurance we come up with a total payment around $1500 on a $212,000 home. The loan officer we have been speaking with has quoted us at $1,550 for a $180,000 home and near $1,900 for a $212,000 home.

We have not been able to figure out where the disparity is coming between the payments we have had calculated many other places and the vast difference he is coming up with. Does anyone have experience in this area that might be able to clear this issue up? Would it be in our best interest to speak with another lender?


#2

You didn’t mention amortization, is the lender using the same time frame as you? I know I had a few clients who had ballparked wrong mortgage payments based on using calculators with out of date amortizations(ie after the rules around max amortization changed). Bearing in mind that I am speaking from a Canadian financial point of view, not sure is the US system is that different.


#3

Principal plus interest on a $197,000 loan at %4.125 for 30 years is $954.76 per month.

Same terms but for 15 years is $1,469.56.

I would ask to see your mortgage reps numbers. He should be able to explain everything, down to the cent the way I just did.

Play around with the numbers here, and congrats on your third. Time to learn how to play zone defense.


#4

I would ask the the loan officer why theres a difference, was it an actual quote or just a guess based on what you told him.

Also, where did 4.125% as your rate come from. Posted/prime rates can change slightly daily, but each loan has to qualify for its given rate. If you’re talking PMI, your loan to value ratio must be tight and that alone might effect the rate.

Why build anyways when theres so much on the market? Financing a build is a higher risk loan anyways. just my 2 cents, If I was loaning 212k so you can build the collateral to secure it, I’d charge a higher rate due to a higher risk and lower security.


#5

[quote]TheKraken wrote:
I would ask the the loan officer why theres a difference, was it an actual quote or just a guess based on what you told him.

Also, where did 4.125% as your rate come from. Posted/prime rates can change slightly daily, but each loan has to qualify for its given rate. If you’re talking PMI, your loan to value ratio must be tight and that alone might effect the rate.

Why build anyways when theres so much on the market? Financing a build is a higher risk loan anyways. just my 2 cents, If I was loaning 212k so you can build the collateral to secure it, I’d charge a higher rate due to a higher risk and lower security. [/quote]

The 4.125% was the amount provided to us by the loan officer for a conventional loan. We are planning to build because my wife has a commute of an hour away from our current home and moving will cut that down to about 30 minutes and the town we are planning to move to has really good schools. Unfortunately, it is a smaller town and there is not a lot available for a four bedroom around $200k. The ones that are available have the fourth bedroom in a walkout basement which neither my wife or myself are comfortable putting our 5 year old alone down there. The one we are looking to build has all four rooms together on the top floor.


#6

[quote]MrZsasz wrote:
You didn’t mention amortization, is the lender using the same time frame as you? I know I had a few clients who had ballparked wrong mortgage payments based on using calculators with out of date amortizations(ie after the rules around max amortization changed). Bearing in mind that I am speaking from a Canadian financial point of view, not sure is the US system is that different.

[/quote]

We were both using 30 years. If I’m understanding you right.


#7

[quote]Dr. Pangloss wrote:
Principal plus interest on a $197,000 loan at %4.125 for 30 years is $954.76 per month.

Same terms but for 15 years is $1,469.56.

I would ask to see your mortgage reps numbers. He should be able to explain everything, down to the cent the way I just did.

Play around with the numbers here, and congrats on your third. Time to learn how to play zone defense.

That was one of the calculators we were using as well. I suppose our next step is to ask to see his numbers but I wanted opinions before I risk insulting him by questioning his accuracy.


#8

He should not be insulted if you ask to see his numbers. For most people, this is the largest purchase they will ever make. In fact, if he were insulted, I’d be wary.

You wouldn’t go into a restaurant with no prices on the menu, would you?


#9

Are you sure that the bank is going to give you 4.125% with no points? That is a pretty good rate today. Most banks are quoting rates higher than that, and even then you assume perfect credit and not a new construction. You didn’t say what rate the loan officer was using, but I bet it was higher.


#10

[quote]BeefEater wrote:
Forgive me as I am not the best with mortgages and thus why I am coming here for advice. My wife and I are expecting our third child and so our current 1200 sq ft home is fixing to become even more crowded than it already is. We are looking at building a four bedroom for a cost of around $212,000 with likely $15,000 down after selling our current home.

All the mortgage calculators we have used give us a payment between $900-1000/mo @ 4.125% and then once we figure in the $4,300 in taxes, PMI $150ish, and $1300 in insurance we come up with a total payment around $1500 on a $212,000 home. The loan officer we have been speaking with has quoted us at $1,550 for a $180,000 home and near $1,900 for a $212,000 home.

We have not been able to figure out where the disparity is coming between the payments we have had calculated many other places and the vast difference he is coming up with. Does anyone have experience in this area that might be able to clear this issue up? Would it be in our best interest to speak with another lender?[/quote]

Just a hunch, but the escrow for insurance and taxes is probably higher, on the theory that the bank give you a refund each year for over payment.

Also, if you are paying PMI, you can’t afford the house and need to lower your expectations.


#11

Also, something to consider is that he is probably going WAY conservative on the numbers in case the market takes a turn for the worse and interest rates deteriorate before they are locked.

I would MUCH rather tell a client a higher number and then come back with a lower number than the opposite. Also, with the new disclosure laws, originators are very cautious about how they disclose rate. And the original GFE can in fact be binding. Even if the market shifts completely. So it is very likely that your guy is simply covering his ass a bit and throwing you some conservative numbers.


#12

[quote]Dr. Pangloss wrote:

You wouldn’t go into a restaurant with no prices on the menu, would you?[/quote]

Actually, I would, lol. If the steak is good enough to cost $90, so be it. I don’t need to be told upfront I’m paying for that kind of quality.

But as it relates to a house, you are 100% correct IMO.


#13

[quote]Silyak wrote:
Are you sure that the bank is going to give you 4.125% with no points? That is a pretty good rate today. Most banks are quoting rates higher than that, and even then you assume perfect credit and not a new construction. You didn’t say what rate the loan officer was using, but I bet it was higher.[/quote]

The 4.125% was the number he provided to us.


#14

[quote]Jewbacca wrote:

[quote]BeefEater wrote:
Forgive me as I am not the best with mortgages and thus why I am coming here for advice. My wife and I are expecting our third child and so our current 1200 sq ft home is fixing to become even more crowded than it already is. We are looking at building a four bedroom for a cost of around $212,000 with likely $15,000 down after selling our current home.

All the mortgage calculators we have used give us a payment between $900-1000/mo @ 4.125% and then once we figure in the $4,300 in taxes, PMI $150ish, and $1300 in insurance we come up with a total payment around $1500 on a $212,000 home. The loan officer we have been speaking with has quoted us at $1,550 for a $180,000 home and near $1,900 for a $212,000 home.

We have not been able to figure out where the disparity is coming between the payments we have had calculated many other places and the vast difference he is coming up with. Does anyone have experience in this area that might be able to clear this issue up? Would it be in our best interest to speak with another lender?[/quote]

Just a hunch, but the escrow for insurance and taxes is probably higher, on the theory that the bank give you a refund each year for over payment.

Also, if you are paying PMI, you can’t afford the house and need to lower your expectations.[/quote]

My understanding (limited as it may be) is that PMI doesn’t deal with debt to income ratio but with the amount that you place down on the home. If you place less than 20% you have to pay PMI. We will only have $15,000-$20,000 to put down so it is likely we will have to pay PMI with any loan we secure over $100,000 if I understand this correctly.


#15

[quote]angry chicken wrote:
Also, something to consider is that he is probably going WAY conservative on the numbers in case the market takes a turn for the worse and interest rates deteriorate before they are locked.

I would MUCH rather tell a client a higher number and then come back with a lower number than the opposite. Also, with the new disclosure laws, originators are very cautious about how they disclose rate. And the original GFE can in fact be binding. Even if the market shifts completely. So it is very likely that your guy is simply covering his ass a bit and throwing you some conservative numbers.[/quote]

This could be the case but we still aren’t even close on numbers.


#16

[quote]BeefEater wrote:

[quote]Jewbacca wrote:

[quote]BeefEater wrote:
Forgive me as I am not the best with mortgages and thus why I am coming here for advice. My wife and I are expecting our third child and so our current 1200 sq ft home is fixing to become even more crowded than it already is. We are looking at building a four bedroom for a cost of around $212,000 with likely $15,000 down after selling our current home.

All the mortgage calculators we have used give us a payment between $900-1000/mo @ 4.125% and then once we figure in the $4,300 in taxes, PMI $150ish, and $1300 in insurance we come up with a total payment around $1500 on a $212,000 home. The loan officer we have been speaking with has quoted us at $1,550 for a $180,000 home and near $1,900 for a $212,000 home.

We have not been able to figure out where the disparity is coming between the payments we have had calculated many other places and the vast difference he is coming up with. Does anyone have experience in this area that might be able to clear this issue up? Would it be in our best interest to speak with another lender?[/quote]

Just a hunch, but the escrow for insurance and taxes is probably higher, on the theory that the bank give you a refund each year for over payment.

Also, if you are paying PMI, you can’t afford the house and need to lower your expectations.[/quote]

My understanding (limited as it may be) is that PMI doesn’t deal with debt to income ratio but with the amount that you place down on the home. If you place less than 20% you have to pay PMI. We will only have $15,000-$20,000 to put down so it is likely we will have to pay PMI with any loan we secure over $100,000 if I understand this correctly.
[/quote]

Right, and not to speak for JB, but what he is saying is, if you don’t have enough to put down to not have PMI, you’re shopping out of your league.


#17

[quote]BeefEater wrote:

If you place less than 20% you have to pay PMI.
[/quote]

That is correct.


#18

[quote]countingbeans wrote:

[quote]BeefEater wrote:

[quote]Jewbacca wrote:
Also, if you are paying PMI, you can’t afford the house and need to lower your expectations.[/quote]

My understanding (limited as it may be) is that PMI doesn’t deal with debt to income ratio but with the amount that you place down on the home. [/quote]

Right, and not to speak for JB, but what he is saying is, if you don’t have enough to put down to not have PMI, you’re shopping out of your league. [/quote]

Correct. Yeah, you might “qualify” for more house, but it is bad business decision to do so if you have to use PMI.

Always borrow WAY LESS than you qualify for. Just what you HAVE TO HAVE.

I lived in two bedroom with 4 daughters for years and stashed away cash like a madman. All my lawyer buddies were leasing BMWs and putting 1% down on thee million dollar mansions.

They are still running along in place on that treadmill.

I have four houses and multiple businesses in multiple continents.

And it started with the first extra $100,000 I gathered by eating rice and beans and beans and rice.


#19

Eh, in a perfect world we’d all pay cash for our houses and never carry any debt.

BE’s income is a much more important determinant of whether he can afford the house or not than the amount he’s able to put down.


#20

[quote]Jewbacca wrote:
And it started with the first extra $100,000 I gathered by eating rice and beans and beans and rice.[/quote]

Another Dave Ramsay Guy!!

also, there could be additional fees incurred with a construction loan. They tend to be riskier and there could be some front sided fees. also remember that with most construction loans you don’t get all the cash up front. you have to hit certain benchmarks along the way (framing done, under roof, ect) before additional funds are released.