Financing in South End>Question Details

Bostoncondos…, Home Buyer in Boston, MA

Is a Mortgage Contingency worth 0.75% point charge at the beginning?

Asked by Bostoncondosearch_southend, Boston, MA Mon Jun 29, 2009

We won a condo in the south end at an auction yesterday. However, the preferred lender is charging points up front for the condo purchase. We have the option to use another lender but we will lose the mortgage contingency for the purchase. We were also pre-approved with a local lender that does not charge points at the beginning. This will save us about 2,700 in closing costs in going with another lender. Is it worth considering using another lender if we are losing our mortgage contingency?

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Are you already approved with the lender who currently holds title to the condo at this time? Have you used the mortgage lender who you pre-approved you before. Are you confident they are reputable and can get the job done?
Upfront points usually 'buydown' the interest rate on your fixed or start rate. These are tax deductible on a home purchase.
As Andrews said, Fannie Mae/Freddie Mac both have a mandatory loan level adjustment on condos with a LTV equal to or under 75% of 0.75 point. If you don't pay for it in upfront dollars at closing the additional cost is folded into your rate (0.25 to 0.50 higher interest rate).
If this condo is not a 2-4 family or conversion, I have a great program which allows you to finance 85% (CLTV) of the purchase price by obtaining a first mortgage of 75% and a 2nd mortgage (Home Equity Line) of 10% of the purchase price. By doing this you won't have to pay points on a condo purchase with an LTV over or equal to 75. Your credit must be excellent (FICO score 720 or above, no exceptions).
If you bought the condo at auction, my guess is the condo it will appraise high enough to get a loan, since it is likely your accepted offer is at market value or below.
0 votes Thank Flag Link Mon Jun 29, 2009
It's worth it if you end up not getting approved....I don't care how good your LO is things happen...what happens if it appraises low? Or if the condo is non warantable? If you are going to another lender I would make sure there is a real benefit. Is the upfront cost in addition to the regular closing costs or just an upfront fee.
0 votes Thank Flag Link Mon Jun 29, 2009
Interesting question here, the preferred lender is trying to lock you into using them for your mortgage needs. You should review when the mortgage contingency is due and work with your local lender to see if they can deliver the commitment on time. Quite frankly, no, it is not worth the extra $2,700 if you are working with a reputable lender that can deliver your mortgage.
0 votes Thank Flag Link Mon Jun 29, 2009
We had to put down 5% of the purchase price at P&S - this was equivalent to roughly ~$20K. Our mortgage contingency is nullified if we go with another lender.

Also, can someone discuss the pros and cons to a 30 year mortgage vs. a 20-20 mortgage?
0 votes Thank Flag Link Mon Jun 29, 2009
You really need to way out all the options. If you put down 50k, then is .75% worth protecting your money if you lose a job or are unable to close for some reason. I think so...but this is something you should discuss with your significant other, as it is a gamble. You are paying for insurance in this instance. I would also discuss with your realtor and the lender you were pre-approved with. Maybe they can beat the deal with the mortgage company that is preferred and so worth your while. ...
0 votes Thank Flag Link Mon Jun 29, 2009
You'd have to have a real serious talk with your mortgage professional. This is one of the quirks of auction purchases. Alot would depend on how much you have to put down and risk vs. the potential savings. This is why having a rock solid ready to go mortgage pre-approval & a pro-active & involved mortgage professional working with you is super important. There are alot of variables to consider that are missing, perhaps you should have your own personal attorney review the documents and give you a legal opinion as well.

Good luck & let us know how you make out,
0 votes Thank Flag Link Mon Jun 29, 2009
If you are putting less than 25% down Fannie Mae and Freddie mac charge an additional .75% regardless of credit score.
0 votes Thank Flag Link Mon Jun 29, 2009
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