Non-conventional loans require a PPP for the best pricing (rates). The reason there is a charge (rate or points) for no PPP is those loans are less valuable (profit) in the secondary market. If your state does not allow a PPP then the value of the mortgage doesn’t take quite as much a haircut in value…but the value is still less than if it had a PPP.
If you are not comfortable with a 2-3 yr…you do have the option for a 1 yr. That will at least give the property time enough to appreciate a little. You are doing a 100% loan and you would have to bring $ to the table for closing costs if you went the conventional route
I’m purchasing a house with an 80 20 arm at 7.9% on the first and 11.9% on the second. my credit is 640. i am told that i am sub-prime by the lender. my ? is shpuld i buy out the prepayment penalty for 140.00 extra a month to allow me to refi when my credit gets better? ultimately i want a 30 year fixed conventionl loan.
The only reason they are giving you a pre-pay is becuase they want to make some money from the back end (they don’t realy have to give you a pre-pay with most loan programs), try to negotiate the pre-pay, maybe pay a little more in points and remove the pre-pay, let me know if you need help with your financing, www.assistuloans.com
The prepay penalty should only be 2-3 years. I think you should consider what the payment will be with mortgage insurance for a conventional loan. If you will wait 2-3 years then the house will appreciate and you won’t have to pay as much mortgage insurance when you refi. Mortgage insurance INCREASES as the loan to value increases.
If you want to avoid MI then when you refi, do a conventional 1st @ 80% and the rest can be a 2nd mortgage or home equity line.
If in fact your lender must take you subprime, you can usually also buy down the prepayment penalty to a one year prepayment penalty. The cost isn’t quite as bad as buying it out completely, and then you can work on your credit over a year’s time and refinance then. The loan would still be fixed for 2 years, so you could refi any time between 13-24 months. Also, then you will not be restricted by which lenders will allow appraised value to be used to determine your loan-to-value ratio when you refi (if you refi sooner than 12 months, many lenders have restrictions in which they will only use the original sales price for value, therefore, you would likely have to bring closing cost money to the table since you have no equity).
Do you have 2 months reserves in the bank? A 640 score is not generally sub-prime unless you have a ton of old collections or something on your credit stopping you. By score, a 640 is not sub-prime material generally.