Asking for a friend he building a home about 475k. I had told him to look at bankrate for best 30yr fixed rates but the builder mentioned a 15 year arm. Didn't know they even had those.

My question is, what would the incentive need to be to take the risk? If the savings per year is X then would what that number need to be interested for any ARM loan?

He said it's his lifetime house so he does plan to live in it for the long haul. Seems like that would also factor in the equation.

Also any recommendations would be welcomed.

5% down.

Typed on iPhone so grammar is terrible

This post was edited on 2/8/17 at 5:57 pm

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Posted by ItNeverRains

37069

Member since Oct 2007

25363 posts

Posted on 2/8/17 at 9:46 pm to gobuxgo5

I'm assuming this with a production builder who is carrying cost to build and he is just required to get financing on a perm loan product? If so, he's so far out at this point just get preapproved from anybody and when he's 60 days out shop the rate.

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Posted by GFunk

Denham Springs

Member since Feb 2011

14966 posts

Posted on 2/9/17 at 6:14 am to ItNeverRains

The loan amount is going to be too high for conventional financing. He'll have to use a Jumbo Loan. They're also called, "Alt-A," or Alternative A products. They're designed for higher home value mortgages. Jumbo/Alt-A is used on any home loan of $417,001 or higher, as conventional financing's limit is $417,000.00.

They aren't conventional and as such, they'll always be higher in terms of their rates offered. Even if you have good or great credit. Won't be a huge difference in all cases but just be prepared.

The ARM is more than likely just dangling the opportunity for a lower introductory rate for a longer fixed period than typical ARM's to him. It's worth exploring if he truly does plan to be there long term.

This post was edited on 2/9/17 at 6:15 am

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Posted by Pvt Hudson

Member since Jan 2013

3531 posts

Posted on 2/9/17 at 7:19 am to GFunk

You're going to have an issue with 5% down in that price range. You will likely need to split the loan in two (called a purchase first and second). The conforming loan limit is up from $417k, but you will want the "first" loan to be 80% of the sales price and the "second" to cover the remainder to avoid PMI. Many of the big banks (Chase, Wells Fargo) can lock the rate up to a year at a "ceiling" and take a better rate or switch programs once you get within 60 days of completion. There aren't many second lien banks left, so your first lien loan officer is probably the best option to find a supplier for you.

Only take an ARM if you know you will be in the home less than the time the loan is fixed. The best time for an ARM is when rates are high and trending down. This isn't that environment.

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Posted by ItNeverRains

37069

Member since Oct 2007

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Posted on 2/9/17 at 7:30 am to Pvt Hudson

Again, all this hinges on turnkey (builder carrying ctb), because unless he's a doctor no one is doing a construction to perm with 5% down.