Home Mortgage.did we get screwed?
sunnysideup asked:
I feel a little taken avantage of. Hubby and I qualified for a $100,000 loan in Ohio (FHA loan). We are first time home owners and feel that we got the raw end of the deal. The loan itself is nice. We bought our house for $96,900. We didn’t put down a deposit on it, the lady that we bought the house from put down One Thousand and something dollars. We have a fixed intrest rate of 5.9%. Well they have also added on a second mortage for the downpayment that we didn’t put down. (I think that is what the 2nd mortgage is for) It was almost $4000, with a 7.9 fixed intrest rate. I am really confused (BTW, we have lived in our house over a year now), isn’t it like this : we bought our house for 96,900 (lady put in an extra thousand something)…but have a 2nd mortgage of around $4000. It is like we have spent $100,900 on our house??? This is probaby confusing, but I don’t want to sound silly calling up our bank and asking them. If someone can make sense of this to me…
I hope it makes sense!
Jeffrey
I feel a little taken avantage of. Hubby and I qualified for a $100,000 loan in Ohio (FHA loan). We are first time home owners and feel that we got the raw end of the deal. The loan itself is nice. We bought our house for $96,900. We didn’t put down a deposit on it, the lady that we bought the house from put down One Thousand and something dollars. We have a fixed intrest rate of 5.9%. Well they have also added on a second mortage for the downpayment that we didn’t put down. (I think that is what the 2nd mortgage is for) It was almost $4000, with a 7.9 fixed intrest rate. I am really confused (BTW, we have lived in our house over a year now), isn’t it like this : we bought our house for 96,900 (lady put in an extra thousand something)…but have a 2nd mortgage of around $4000. It is like we have spent $100,900 on our house??? This is probaby confusing, but I don’t want to sound silly calling up our bank and asking them. If someone can make sense of this to me…
I hope it makes sense!
Jeffrey
Tags: 2nd Mortgage, Downpayment, First Time Home
June 2nd, 2009 at 12:47 am
Clyde
every active loan holder will get a end of year statement from your mortgage holder. IF you haven’t gotten yours call them. You need it for income tax filing anyway.
June 4th, 2009 at 8:30 pm
Bryan
Jingle mail…
June 7th, 2009 at 7:16 am
Alicia
When you get an FHA loan you are automatically charged what is called “up front Mortgage insurance”. It is something like 3% of your loan amount. I have never heard of banks giving a second mortgage for that amount but the up front MI is a bad one.
June 8th, 2009 at 7:29 pm
Joel
Yes, it seems the second mortgage is for the downpayment you didn’t have. I would think the 4000 is included in the 96.9. Asking about it now seems a little silly. It’s probably explained in detail in the paperwork.
However, I’d simply make an appointment with the bank and get it explained again to your satisfaction.
June 10th, 2009 at 6:42 am
Lauren
It sounds to me that you loan officer/broker did you a dis-service.
You qualified for an FHA therefore you could have qualified for the Nehemiah Grant Program or the government approved Sovereign Grant Alliance.
Regardless what your LO may tell you Nehemiah is still in business. They would have provided you with the necessary funds for your down payment and closing cost. Granted this is contingent upon approval from the seller due to funds required come from his/her proceeds. Obviously the seller was not willing to part with funds.
Nevertheless you should have been advised regarding options available to you so you could make an intelligent decision on whether to buy your current home or select another with a seller that was more forgiving of your situation.
Good Luck
June 13th, 2009 at 1:20 am
Erik
It makes sense to me. You bought a house for $96,900 plus
$4,000 to cover the closing expenses (including down payment).
Yes: Your total debts are $100,900.00. This is on
2 mortgages, one for 5.9% and the other for 7.9%.
Do you have any credit card bills?
If you did not pay for the house, How much would you be paying
for a roof over your head? The answer to these questions is the
determining factor as to “BEING TAKEN OR NOT”.
The thing to do at this time is “PUT 25% OF THE MORTGAGE PAYMENTS”
in your bank account each week. If the mortgages are adjustable, add 10% more.
This will let you know how much money you have to live on without
fear of not making the mortgage paymnets (as long as you dont cheat).
If the cost of your property is less than 125% of the appraisal
of the property, you are in good condition. 99% of American
home owners start this way, 90% ruin it by taking out loans on
what seem to be free money. (THAT IS WHAT THEY WERE
CALLING THE SECOND MORTGAGE) - now you know it is
not FREE.
June 15th, 2009 at 2:00 am
Norman
I cant say for certain without looking at all of the legal doc, but it doesn’t appear that you got a bad deal. My first thought is that given that the total of both loans is higher than the value of the home it likely includes some closing costs.
Just because you qualified for 100K doesn’t mean you can get it without putting up a down payment. The FHA likely offered to give you up to 100K (in a first mortgage) subject to some down payment requirement - example you want to buy a home that is 105,250 and FHA will loan you up to100K as long as you put down 5% of the homes value. You put down 5,250 and the bank makes the 100k loan. Simple idea without closing costs etc, but it makes the point.
You have a second mortgage which acts as substitute for your down payment - in other words it meets the FHA’s down payment requirement of 5% or whatever it happens to be.
Your first mortgage is fully secured by the asset, your house. The Bank has the legal right, should you not pay, to take possession of your home and sell it to recoup the money they loaned you. Given this right, there is less risk for the bank, so you pay a lower interest rate on this loan.
Here is why you cant get a loan for 100% of the value of the house and consequently why your FHA loan was 96.9k rather than 100K: When a bank forecloses and assets have to be liquidated (sold) to recover the value of the loan, these assets (your house) rarely ever bring in 100% of the initial purchase value (in your case $100,900). Why? because you have to hire people to sell it(cost money) and the banks typically try to sell the asset in the shortest time period possible (results in a lower selling price) and many foreclosures occur when home prices are flat or going down (it might be worth less than you purchased it for). All of these factors lower the net proceeds to the bank. This is why banks don’t like to lend 100% of a homes value - they will rarely ever get all of this money back should something bad happen. Looks like they financed 96.9 % of the value of your new home - this is a very good percentage for a borrower - Banks often refuse to loan any more than 90% of the value of a home - given what has been happing in the housing market you can probably understand why.
The second loan is often secured by your personal promise to pay (credit) and rarely anything else. Sometimes it is a second mortgage (in a foreclosure the loan has a lower claim to proceeds from sale of your home).
Given the concepts above, should you default on your home loans, there may not even be enough money after the sale to pay off the first mortgage let alone the second. Your first mortgage has the right to proceeds from a foreclosure sale, your second mortgage does not - and if it does have any right it only gets money after the first mortgage is completely paid off (for your reference: this is called structural subordination).
Your second mortgage is essentially an unsecured personal loan and riskier to the bank and thus the higher rate. Anecdotally, 7.9% is not a bad rate at all on this type of loan.
As a caveat: many individuals think that they can choose not to pay their second loan without any risk to their home, because this loan has no senior claim to the assets or is completely unsecured. This is rarely true. Most first mortgages have a “cross-default” provision. This means that even if you pay the first but don’t pay the second it will still be considered a default for both loans - and the bank can foreclose.
Let me know if this answers your question or if you have any others.
Best.
June 15th, 2009 at 6:41 am
Jeanne
are you making payments on the 4 K sounds to me like that is the money the FHA loan gave to you to cover the costs, ( it is like a grant) you do not make payments on it you just have the loan there and should you sell the house the loan becomes due and payable at close if you dont i beleive it just sits there