Financing!

So, I had been doing my homework. I had been watching zillow.com daily, and knew that the rate for a 5/1 ARM was 5.88%. And about half a point higher for 30 year fixed. I thought I was in good shape, because I might flip this house when/if the market picks up, so no need for a 30 year loan.

So I get my pre-qual letter from Ed Sunday at 2:12 and a credit authorization form arrives at 3:38 not even 90 minutes later. That's a good sign. I sign it that night, and send it back.

Monday evening, I get an email from Ed. It starts out:

We are starting to realize some of the fallout of the mortgage meltdown in your pricing.

That does not bode well for me getting a low rate!

It continues:

At 20% down, 30 yr fixed is at 7%, and a 5/1 ARM is NOT available, believe it or not. Probably, of course, because it’s non-owner occupied.

Doh! That's more than a point more than I had expected...or $3000/year or $250/month. Not a good start to the project. Since it is not interest only (IO), there's also another $250 or so in principal pay down. This is starting to get more expensive!

My spidey sense is tingling on this, so I go to zillow.com. Zillow has a service which allows you to enter your loan parameters and get like 10 offers back, and you remain anonymous. I love this, because it gives you a good benchmark for the market, even if you have your own guy. I stuck my parameters in, and found a woman who offered:

Loan Details

August 12, 2008 11:15AM PDT

Loan amount:$312,000

Down payment:$78,000

Loan product:7/1 ARM (Interest-Only)

Interest rate:6.5 %

Assumed rate lock:30-day

Note due in

30 years

APR:6.22 %

Pre-payment penalty:No

Interest only loan:Yes

So I wrote to Ed: Can I get that from you? Expecting that if the loan's out there, he can find it the same as she did.

He replied:

David, I see the quote but it’s hard to believe they can deliver. We’ve checked with 15 lenders this morning and can’t find anything close to that price.

Today, the 30 year fixed is available at 6.875% and I can deliver a 10/1 interest only ARM at 7%. And, over the years, one thing I have learned is that there is “NO magic money”. And the 5/1 IO ARM (with 10 years interest only) is not even getting to par on their quote, but my guess is that the par price is about 6.875% - 7%.

So, let me know if you plan to go elsewhere so I can call off the appraiser. Just make sure you get a lock and good luck on getting it closed at the quoted rate, fee and program.

I took this to mean that he couldn't get this loan. If you disagree with my reading on this, please leave a comment. I expect that if I were a lender, I would try a little harder to match a competitor's rate.

I do take his point though that finding cheap money off the internet might not be the best way to go, so I continue to investigate.