As many people know, banking has become much tougher, and financing options have drastically shrunk since the recent banking implosion. It no longer is just signing a purchase and sales and waiting for the closing. Buyers in this market need expert advice on how to navigate banks and if paired correctly with the right mortgage product can save substantial money or actually make it to the closing.
In a recent deal, my buyer finally found a house that worked well for their family but needed updates to make it feel like home. After reviewing the needed work and the intended down payment, we realized that the cash required for improvements wouldn’t allow them to put 20% down forcing them to pay for Private Mortgage Insurance (PMI) – an added expense we were planning to avoid. I suggested they talk to Citizens Bank who recently launched a 80/10/10 program that alleviates the need for PMI. How it works is the buyer puts 10% down, the bank issues an interest only 20 year home equity line for 10% and remaining 80% is financed conventionally. This saved my client $1476 per year, allowed them to pay it down without penalty at anytime and keep cash on hand to work on the house.
The alternative was to put 10% down and pay PMI unitl the loan was paid down to 78% of the sales price (which would conventionally take around 6 years) or pay for a new appraisal in 2 years and see if the value rose enough to have 22% equity in the house.
The numbers went as follows:
Purchase Price – $372,500
Option 1: 90/10
90% loan to value with a $335,250 mortgage at 4.75% – principle and interest would have been $1,748.82 plus PMI of $145.28 for a total of $1,894.10
Option 2: 80/10/10
80% loan to value with a $298,000 conventional mortgage at 4.75%, priciple and interest was $1554.51 plus a $37,250 home equity line at prime plus 3.74% or 6.99% today interest only of $216.98 for a total of $1,771.49.
Long story short, the right mortgage product can save you money, help buy a property you thought wasn’t an option and make the home buying process a much more enjoyable experience. A good agent should know about all the current products and steer you in the right direction for the most succesful outcome possible. If you have any further questions on current products or some suggestions you may not have thought about give me a call.
