I was thinking about getting an ARM... I know about the subprime etc... etc...

But here is the deal:

I could get an 2 yr ARM, 1% max increase each time, with 100% financing w/ payments about 1400 a month w/ escrow for $220,000. I could refinance in 2 years or so for cheap w/out origination fee if rates get too high.

Or I could get an FHA loan at around 6% with 3.5% down and payments would be about 1700 with escrow/mortgage insurance.

Or I could wait until May 2010, have 20% saved up and get a conventional 80/20 mortgage.

Right now my rent is $710.

If I wait until may 2010 for the conventional mortgage I would still have the interest rate risk because rates could go up between now and then. So with the ARM and 80/20 I would have interest rate risk when I refinance/get loan in 2010.

If I get the ARM I would save the $7,000ish spent in down payment with the FHA loan and have guaranteed lower payments for at least 4 years because of the 1% cap.

So I was thinking about getting the ARM because if I wait for conventional I would still have that interest rate risk. And I would have a ton more liquidity with the ARM than the FHA...

What do you think?

go w/ country wide imo

It is not an exotic loan, its a first time homebuyers program. It is not negative amortizing or anything...

We could afford payments of up to $2000 easily...

Home prices where I live probably won't drop anymore.. they are pretty much flat.

Simple answer... No. We are experiencing inverse market conditions. Fixed rates are lower or the same as ARM rates.

What state? 100% is not available unless it is in a rural area to my knowledge. USDA loan, and they are out of funds right now. Who is going to do the new loan with no fees? That truly doesn't exist. You have title fees, you have registration taxes to pay, and NO ONE works for free. Slaves even got some type of food and hydration. Rates should be at all time lows, but the confidence in the Mortgage Backed Securities (MBS) market is lacking. The spreads are significantly higher then past to entice investors in this risky propisition. With that considered, rates are still pretty good. If you think the home will appreciate in 2 years, you should seriously evaluate what is going on with the housing market. If you are refinancing a FHA mortgage in a couple of years, you will have to pay the upfront mortgage insurance premium again. You will get a small prorated refund for what you paid the 1st time, but it is going to be used up quickly. The other thing to consider is what mortgage programs will be available in a couple of years... I would take a fixed now, if you find a really good deal on a home. If you over pay for the home any advice given means nothing.

The ARM isn't the concerning part of your post, though a 2yr ARM doesnt make much sense to do, IMO. It can't provide you that vast of savings on your monthly payments to make it worth it, unless I'm completely off on where rates are at right now.

1. DO NOT DO 100% FINANCING!

2. Why have you decided that you must buy now?

The ARM you mention is very similar to the type of financing that is contributing to this meltdown. People took low interest ARMs with the idea that they would be able to refinance. But the property values have gone down so much that no one will refinance their mortgages, so now they are stuck with a very high interest rate that makes their payment more than they can afford.

Not sure I'd be too quick to get into the housing market right now. No one really knows where the bottom of the market is; and no one really knows how many "toxic" mortgages will result in foreclosures and an even bigger glut of property on the market.

Your rent is reasonable and if you are not desperate to move, save that extra $700 a month and you'll be poised to strike when the market starts to recover. And you'll have a bigger down payment.

do it! Maybe the govt will buy your mortgage too. It's never too late to get on the gravy train of irresponsibility.

I would not assume that the value of your home will rise or stay the same over the next five years.

I would not assume that you will be able to sell it for what you pay for it within the next five years.

 

Originally Posted by dolphin13

oh and you must have all your credit cards paid off and at least 6 months worth of mortgage payments in the bank. If you can't do this, you shouldn't be owning a home.

Dolphin,

Are you including this with a down payment as well? I mean the credit card one I think is pretty obv to not have a balance but 6 months of payments in the back?

I just bought a house putting 5% down (about 9k) with keeping about 3 behind (2 mortgage payments.) To bank another 6K would have been about another year by the time you get through the fact I'm losing the tax benefits of owning a home.

And your calling for at least 6 months of payments backing?

I'm curious to your thoughts on this (by the way I'm not arguing with you just looking for more of an explanation.)

If you can lock in at a 6% loan then you would be a fool to do an adjustable rate mortgage.

I say there is about a 2% chance to get an arm in December close...

Maybe 20% chance to get FHA December close...

50% chance to get FHA in May ... would have at least 20K in cash

28% chance I would wait till later, possibly May 2010 when I would have 40K for 20%

Right now we are saving about $2000 a month

I am just worried if I wait until may 2010 interest rates will be 8 or 10%...

I bought a house about 4 years ago. At the time, I planned to stay there between 5-7 years, and then move to a bigger house in a better school district. My mortgage guy said that an ARM would be my best fit, but I told him that I was more comfortable in a fixed rate, since you can't predict life.

Well, now I couldn't move if I wanted to, and getting mortages are difficult (though my credit is solid, so I think I could get one). Also, my kid that I assumed would be 3-4 by now is still not even conceived, so there is no rush to get to the better school district.

The point is, you don't know where you'll be in the future for sure. Fixed rates won't cost you that much more in the long run, and give you greater flexibility for life (rarely are you going to kick yourself for having the extra cushion, and this isn't just an investment, it's where you live).

I also slightly disagree with you on 'interest rate risk'. Ok, you have it with an ARM or just getting a mortgage in 2 years, yes. However, in 2 years, if something wacky has happened, you have the option to not buy a house, and wait another year or 2 (if super inflation hits and the rates hit 20% or something, you can wait it out, though that's highly unlikely, did happen in the 70's). If you have the house, then your stuck, you have to do something, you can't just not have a mortgage.

So, I would wait until you have a downpayment of some sort, and you can get the conventional loan.

Wow. I looked at where you're from and think i can add a little perspective. Unless you KNOW that you'll be there a very long time, I wouldn't even buy in that part of NC. I bought a house back in 2001 about 18 miles north of you, due to a job transfer (from Las Vegas to there was a bit of a change...). When I got transferred again, it took me 9 months to sell my house at a loss...in 2004...when things were 'good'...

That area of the country is SO depressed in it's housing market you will NEVER have any equity with a 0 down ARM. You'll be upside down on day one because there are literally no buyers there. I would even say save your $ and keep renting. As someone said earlier, life happens and you will be so thankful that you aren't stuck with a boat anchor like that when life hits you on the head with something major. I wish I hadn't bought there when I did, but I learned my lesson.

Good luck with whatever you decide.