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Tighter lending standards are creating hurdles for condo owners who want to sell their units. One seller wasn't able to sell his condo in April to a buyer who was prepared to put 30 percent down on the unit. The buyer, a military officer, couldn't get financing. The sellers may face foreclosure, even though they have a ready, willing, and able buyer with excellent credit and who has a huge down payment. Often, if the condo complex includes commercial units, has the look and/or feel of a hotel (a front desk, for instance), or fits any number of other disallowed underwriting criteria, a conforming loan (sold on the secondary market) may be hard or impossible to obtain.
However, we are not willing to listen to a lender tell us that his or her “hands are tied” when referring to underwriters who are making all the decisions. It's not completely true that there is no condo financing available; our friends at First Resort Lending say otherwise. For the educated and disciplined borrower, there are loan products available. I asked Joan Jardon to comment on what loan products work best when financing a condo purchase.
“If a borrower does not think they will keep the property more than five to seven years, they can be saving thousands of dollars over that five to seven year period. Many borrowers are not in a home more than five to seven years, and if they are, many refinance their mortgage within that same period of time. An Adjustable Rate Mortgage (ARM) can still be a very beneficial mortgage option if structured appropriately. These are not the risky ARM products that got people into mortgage trouble recently. The initial rate is not a "teaser rate" and these loans don't have the skyrocketing adjustments. The following example is based on First Resort Lending (1stBank) mortgage programs, and ARM mortgages can vary from lender to lender."
Based on a 20% down payment and a mortgage amount of $300,000, Joan has compared a 30-year fixed rate mortgage to a Firm 7/30 mortgage, which has a low, fixed rate for 7 years, then adjusts annually after that. This example also assumes owner-occupancy (primary residence or second home). Rates are from August 5, 2009.
Loan Type 30 year fixed 7/30 ARM
Loan Amount $300,000.00 $300,000.00
Interest Rate 5.25% (5.31% APR) 4.375% (3.913% APR)
Monthly Principal & Interest Payment $1,657.00 $1,498.00
The ARM loan saves $159 each month, or approximately $13,350 over the first 7 years of the mortgage. Potentially, the $159 could be put into a savings account each month, then used to supplement new mortgage payments if the borrower is still in the mortgage after the initial 7 years and the payment increases.
What if you're still in the ARM after the first 7 years...? The Firm 7/30 is fixed for the first 7 years of the mortgage and then adjusts annually based on 2.75% plus the 1-year treasury index. The maximum initial adjustment is 3%, and in all subsequent years the maximum annual adjustment is 2%. Finally, there is a 5% lifetime cap. So, if you obtained a 7/30 ARM today, your maximum interest rate ever would be 9.375%. As of August 5, 2009 the 1-year treasury index was .49%. Therefore, if the mortgage rate adjusted today, the new interest rate would be 3.25% for one year, or LESS than today's initial rate. So there is an alternative to the 30-year-fixed mortgage! Contact Joan Jardon joan.jardon@efirstbank.com for more information on adjustable mortgages, and how one could help you get into that condo you're wanting to buy!
However, we are not willing to listen to a lender tell us that his or her “hands are tied” when referring to underwriters who are making all the decisions. It's not completely true that there is no condo financing available; our friends at First Resort Lending say otherwise. For the educated and disciplined borrower, there are loan products available. I asked Joan Jardon to comment on what loan products work best when financing a condo purchase.
“If a borrower does not think they will keep the property more than five to seven years, they can be saving thousands of dollars over that five to seven year period. Many borrowers are not in a home more than five to seven years, and if they are, many refinance their mortgage within that same period of time. An Adjustable Rate Mortgage (ARM) can still be a very beneficial mortgage option if structured appropriately. These are not the risky ARM products that got people into mortgage trouble recently. The initial rate is not a "teaser rate" and these loans don't have the skyrocketing adjustments. The following example is based on First Resort Lending (1stBank) mortgage programs, and ARM mortgages can vary from lender to lender."
Based on a 20% down payment and a mortgage amount of $300,000, Joan has compared a 30-year fixed rate mortgage to a Firm 7/30 mortgage, which has a low, fixed rate for 7 years, then adjusts annually after that. This example also assumes owner-occupancy (primary residence or second home). Rates are from August 5, 2009.
Loan Type 30 year fixed 7/30 ARM
Loan Amount $300,000.00 $300,000.00
Interest Rate 5.25% (5.31% APR) 4.375% (3.913% APR)
Monthly Principal & Interest Payment $1,657.00 $1,498.00
The ARM loan saves $159 each month, or approximately $13,350 over the first 7 years of the mortgage. Potentially, the $159 could be put into a savings account each month, then used to supplement new mortgage payments if the borrower is still in the mortgage after the initial 7 years and the payment increases.
What if you're still in the ARM after the first 7 years...? The Firm 7/30 is fixed for the first 7 years of the mortgage and then adjusts annually based on 2.75% plus the 1-year treasury index. The maximum initial adjustment is 3%, and in all subsequent years the maximum annual adjustment is 2%. Finally, there is a 5% lifetime cap. So, if you obtained a 7/30 ARM today, your maximum interest rate ever would be 9.375%. As of August 5, 2009 the 1-year treasury index was .49%. Therefore, if the mortgage rate adjusted today, the new interest rate would be 3.25% for one year, or LESS than today's initial rate. So there is an alternative to the 30-year-fixed mortgage! Contact Joan Jardon joan.jardon@efirstbank.com for more information on adjustable mortgages, and how one could help you get into that condo you're wanting to buy!
