Nearly Identical Loan Quotes - Which bank?

[m4ha7m4]

Hello everyone,

I have two nearly identical loan quotes from a regional bank and a local bank.  None of the other lenders on and off this site could come close. The decision has become difficult because the quotes are so similar.  They essentially matched other after going back and forth a bit and here is what I am left with:

Terms for both:

7/1 ARM 100% LTV on a $395,000 physician loan @ 3.2%. No origination fee and all other fees identical except as noted below.

 

Regional Bank:

Pros:

• $750 processing fee minus $435 "lenders credit" = $315 in total fees


• Have given me great service with my current condo loan

Cons:

• This loan requires escrow account for taxes and insurance, which come out ~$5500 yearly. I'd rather manage that money on my own and pay the bills using a rewards credit card if it suits me based on fees.


• A regional bank but underwriting was slow and cumbersome with my previous FHA loan.

 

Local Bank:

Pros:

• No escrow account required after initial prepayment.


• They handle our practice's accounts and have bent over backwards to give me great service throughout the process thus far.


• Local bank. Loan specialist's office is literally across the street from my office.

Cons:

• -$695 Commitment fee

Typing all this out is making me lean towards the local bank and pay $380 premium on closing fees to drop the escrow and have the peace of mind that comes with of working with a local bank.

And yes, we can afford the home even if one of us stops working. I prefer the 7/1 ARM due to $20k less in interest over 7 years (vs 30 year fixed) as we plan on building a home at that point. Let's keep the discussion on the loans themselves.

Any other things I should look out for or research?  We are under contract as of yesterday and I need to decide quickly.

I also want to thank everyone on this forum and the team behind WCI! I found WCI just 1 month before putting an offer on a home and already it has saved me an incredible amount of time, money and stress!

[blowhard]

Are the escrow requirements for the life of your loan? Two previous loans I have taken out allowed me to cancel the escrow after the first year. Having said that, I think if the Local Bank is comparable (and it looks like it is), that's the way I would go. Support your small banks, local economy, etc.... And if you have a personal connection, you'll feel better as closing time approaches and something goes wrong, like it always does.

 

Good luck!

[DMFA]

Going from an FHA to an ARM, huh? You're begging scrutiny, esp on a debt-averse board...I'll do my best to hide mine.

Sounds like a pretty small escrow. My taxes and insurance on my $250k house are about $7500 per year.

I'm guessing you're rolling closing costs into the loan, and starting out in a negative-equity situation, with the closing costs bearing interest as well?

The bank might just sell your loan to a big bank anyway after originating it, though non-confirming loans like this are a bit less likely to be sold.

In 7 years you can either refi or sell if you're certain you'll be out of the house, and an ARM can be okay...I just don't like exposing that much to interest without equity. If you're in 25% bracket, that rate comes out to 2.4%, which is okay in today's rates, I suppose.

[Zaphod]

I prefer escrow accounts. There are just too many things going on in life and I have no desire to miss a tax/insurance payment. Its a major convenience. I changed my rental property over to an escrow account last year, and the simplification it offered is priceless.

[ENT Doc]

DMFA wrote:

My taxes and insurance on my $250k house are about $7500 per year.

Click to expand...

Holy ************************, and I thought my taxes were bad as a % of property value.  TX?  I suppose that's a bargain when incorporating the 0% income taxes.

[DMFA]

2.8% here. So depending on what the ratio of your home value is to your income, it can be higher. Fortunately I can still take it as an itemized deduction.

[m4ha7m4]

Ah the WCI scrutiny!  Here is our situation: No points, no costs being rolled into the loan, no negative equity. Outside of pre-paid escrow, closing costs are less than $5k total due to haggling back and forth.

We have enough saved to buy the home outright with our only debt of $55k left on a 15 year fixed FHA at 4%.  All of the credit goes to our mommies and daddies for paying for our entire graduate education.  Because I married a woman much smarter than I will ever be, we have lived like residents and saved over 70% of our income. I am 3 years out of residency and she has been working as a pharmacist for 6 years.

The 3.2% rate on a 7/1 ARM with 100% LTV is nearly identical to the best 15 year fixed even with 80% LTV. Both banks stated their physician loans have lower rates than their conventional even at 80% LTV, which is very unusual after getting quotes from 10+ banks

[m4ha7m4]

blowhard wrote:

Are the escrow requirements for the life of your loan? Two previous loans I have taken out allowed me to cancel the escrow after the first year. Having said that, I think if the Local Bank is comparable (and it looks like it is), that’s the way I would go. Support your small banks, local economy, etc…. And if you have a personal connection, you’ll feel better as closing time approaches and something goes wrong, like it always does.

 

Good luck!

Click to expand...

I tried asking yesterday, but the regional bank did not respond after 12 pm on a Friday despite multiple attempts. More food for thought.

[DMFA]

If you're not being scrutinized, you're not being helped. Did you want cheerleaders or coaches?

What are you doing with the money that you're not putting down on the home? Seems a fairly odd shift in behavior to nearly pay off a home loan and then go zero-down on another unless you're not going to sell it, like renting it out. I imagine the gain is tax-free (< $500k for MFJ). Is it being invested? Are you sitting on it to put into the next house? Depending on your time horizon, the market might be more risk that it's worth. Some people would just hold it in the house as equity, but that also exposes it to property value risk...so idk if there's a right answer there.

I may do something fairly similar when I leave my current house, whether to sell it or rent it and get a zero-down loan on the next house, though idk about getting an ARM...though if you do hold it up to the adjustable period, one could just refi, though that's subject to interest rate risk. Our rate is 2.875% fixed before taxes (1.93% after) since we got in right before the rates went up. I see billboards offering 4% like it's actually good rate and shake my head...

I'm sure everything will be fine since you're miles ahead of the pack with your income, savings, and budgeting habits. Your loan scenario seems pretty good for your overall situation. Even if things get messed up, which is unlikely, you've got a very firm foundation and a big safety net.

[Craigy]

m4ha7m4 wrote:

Ah the WCI scrutiny!  Here is our situation: No points, no costs being rolled into the loan, no negative equity. Outside of pre-paid escrow, closing costs are less than $5k total due to haggling back and forth.

We have enough saved to buy the home outright with our only debt of $55k left on a 15 year fixed FHA at 4%.  All of the credit goes to our mommies and daddies for paying for our entire graduate education.  Because I married a woman much smarter than I will ever be, we have lived like residents and saved over 70% of our income. I am 3 years out of residency and she has been working as a pharmacist for 6 years.

The 3.2% rate on a 7/1 ARM with 100% LTV is nearly identical to the best 15 year fixed even with 80% LTV. Both banks stated their physician loans have lower rates than their conventional even at 80% LTV, which is very unusual after getting quotes from 10+ banks

Click to expand...

If you have the money to buy the home outright, and you could get a 15-year fixed rate with 20% down that's the same rate as the ARM, why not lock into a 15-year loan?  We're only talking about $395,000 here... that's about a $2,800 payment, should be no problem for you.  Then again, once the 7 years is up, you could always just pay the house off, so there's not a huge risk there, but it seems unnecessary.  Seriously curious on this one... what is the appeal of the ARM to you?

As for the original question, I'd probably give it to the local bank, especially if the escrow issue is important to you.

[adventure]

ENT Doc wrote:

DMFA wrote:

My taxes and insurance on my $250k house are about $7500 per year.

Click to expand…

Holy ************************, and I thought my taxes were bad as a % of property value.  TX?  I suppose that’s a bargain when incorporating the 0% income taxes.

Click to expand...

Yeah, holy yikes.

Our is much, much less. And ours doubled in the past 5 years. Perhaps this should be mentioned in the geographic arbitrage discussions.

[adventure]

m4ha7m4 wrote:

blowhard wrote:

Are the escrow requirements for the life of your loan? Two previous loans I have taken out allowed me to cancel the escrow after the first year. Having said that, I think if the Local Bank is comparable (and it looks like it is), that’s the way I would go. Support your small banks, local economy, etc…. And if you have a personal connection, you’ll feel better as closing time approaches and something goes wrong, like it always does.

 

Good luck!

Click to expand…

I tried asking yesterday, but the regional bank did not respond after 12 pm on a Friday despite multiple attempts. More food for thought.

Click to expand...

Perhaps you should take up golfing on the local courses!