Hello,

I'd like to get more information on pros/cons of ARM vs. conventioanal loans.  I initially applied/was approved for a 30 year conventional refi with a cash out for home improvement projects.  With a credit score of 701 I'm being offered a straight 30 year fixed rate of 5.25.  Unfortunately, appraisal came in much lower than expected so I won't be able to get enough out to complete badly needed home improvements on my very old house.  I'm toying with idea of ARM with lower interest rate in order to get lower payments/more cash. My lender(Wells Fargo) advises against unless I'm absolutely certain I'll be selling my house at the end of the ARM. Lots can change in 5 years but I'm honestly not sure what I'll be doing then (with exception of working for a living and sending a kiddo to college).   I'd like to get some other opinions/input on this from other mortgage prfessionals.  Comments or ideas anyone?

HI,  did any one mention giving looking into a 203k loan/renovation loan for you.  This allows you to refinance or Purchase a home while paying off the mortgage and providing money for improvements and additions to the home.

with a refinance you need some equity(not as much as a cash out refinance)  but the loan is based on the after improved value of the home.  There are lenders that do them but they take 60 to 120 days to close.  Many lenders do like offer them or do not have enough experience to mention the program.

Currently my firm is at 30 to 45 days to close.  You should be able to use a fixed rate.   If you plan on staying in the home for more than 5 years than a fixed rate is the way to go.   Rate will rise and if you can afford it now the best thing is to take a fixed rate.  

Paul Denmon

Paul.Denmon@prospectmtg.com

888-876-RATE

Heather,

I am actually happy Wells tried to steer you away from the arm, shows they are thinking of your interest.   Nothing wrong with an arm if you are staying in your home within that time period.  Rates are crazy low right now, no reason to think in 3, 5, or 10 years you can put yourself in the interest rate environment you are in now.   I don't think I am following how an arm puts more cash in your pocket.  Are you talking about using the monthly savings toward improvements? What did house appraise at?

Hi Jeff,

Thanks for the reply. 

I was actually thinking that an ARM would lower my payments enough so that I could afford an additional line of credit payment, but after talking more with Wells, it sounds like I'd have to have the same loan to value ratio for a line of credit(something I didn't know as I have tried to avoid using credit like the plague).  I haven't had time to look in to the 203k program yet, btu suspect that it would make payments much higher with mortgage insurance which I really don't want to do.  I wouldn't say I'm on a fixed income, but like most people, I have to make it stretch out and budget for things like summer camps, and looming college costs in the next five years.  -Suspect I may just have to get very creative with the funds that are available to me. 

I still owe $145,000 on my house and it appraised for $178,000.  -Just noticed the appraisal also listed a 'cost approach(if developed)" appraised value of $205,000. but I'm not sure what that means. 

One more question:  Does 5.25 on straight 30 yr with a credit score of 701 seem right?  I've talked to my lender about trying to get lower interest rate since rates have dropped significantly since starting this process, but she keeps telling me that this is still a good rate with my credit scores.  I've shopped around and have been offered lower rates with other brokers,(down to 5% two weeks ago) but the increased cost of refi with brokers doesn't offset the lower interst rate in my calculations.  Total fees for refi including everything if I stick with Wells is righ around $3600.(prepaids. closing, etc)

Any additional input you have would be appreciated!

Thanks,

Heather

How long has she been quoting 5.25%?  I think you should be seeing something below 5%, there's only a slight hit for a 701.  Saying that you're getting a good rate for that credit score makes it seem as if you're on the low end, but that's a good score.  You should be able to find a lender who's charging a similar fee as Wells with a better rate.  Rates do fluctuate so there's always going to be somebody who says they can get you something better, but tell them what you're looking to do and what you've been quoted and see what that gets you.  Good luck.