Out of the frying pan and into the fire

We unloaded one house and now we're headed into a new one. We just purchased a 4 bedroom home in Newport News, VA. The housing market is double the price of anywhere we've lived before. So how did we afford a large home in a nice neighborhood? Well, it is courtesy of some creative financing (and a loving God).

Instead of the standard 30-year fixed rate VA mortgage we usually get, we tried some new products. Our hats are off to Countrywide mortgage and their local branch manager, J. Mansisidor (plug intended). He found a product that allows us to keep our payments within $300 of what we paid for a house that cost $120,000 less than the current one. Sure, we're essentially renting the new house from the mortgage company, but since we'll likely only be here a couple of years, we wouldn't build equity anyway.

Here's how we did it. First we're getting a one-month LIBOR (London Interbank Offered Rate) an index on which some ARMs (Adjustable Rate Mortgages) are based. This index is a global index which generally varies less than U.S. interest rate based ARMs. Here is some additional information about LIBORs. Because the loan is a one-month ARM, it will fluctuate each month. Looking over the last four years of data, however, the payments never vary more than about $10 per month.

Ever pay PMI (private mortgage insurance)? If you don't put 20 percent or more down on a home, you usually have to pay this insurance, even if you have perfect credit. We've paid a lot of it over the years and it can cost up to $200 per month. In our current loan package, we are taking out a second home equity line of credit to pay the 20 percent down on our house, thus avoiding the costly PMI. This means we'll make two payments on the house each month. Why no one ever suggested this to us in the past, I don't know, but it is a brilliant way to avoid PMI on 100 percent financing.

If all this financial talk has your head swimming, just remember that there a lot of loan products available today other than just a 30-year or 15-year fixed rate or standard ARM. You don't have to be an expert, just find yourself one who can guide you through the lending maze.