Before everyone jumps the gun and says dont do it, please hear me out! Option Arm's?? How can I make this loan work for me! I have read several horror stories that people have lost thousands by choosing this type of loan. I would like to hear some success stories with individuals who have used a loan like this or similiar to this! I realize the risks involved, I am not trying to buy a bigger house than I can afford. I will be buying a home which the interest will only option will still be managable for us! But would still like the option of paying less so we can fix up the house we purchase. We plan on buying a home thats not cosmetically sound in a good neighborhood and fixing it up! I understand the market has cooled, but I don't believe this will stop people from buying a good home in a good neighborbood for a good price when I choose to sell a couple years from now! I am not trying to make a million, but would like to turn a good profit in turn so we can buy a better home!!
2007-01-02 05:28:53 · 8 answers · asked by CEESONE 4 in Business & Finance ➔ Renting & Real Estate
This is how it works, if you have an interest only ARM that adjusts you are banking on appreciation. Before you do this you need to seriously examine the market you are in.
I really doubt a total collapse of the market will happen, but a stagnant market will also be damming to you.
Lets say you buy a 200K home on this type of loan. Spend 25K fixing it up and can sell it for 250K in a few years. That gives you a 25k profit on price, but then you have to pay commissions which are being paid by the seller more and more which at 6% is 15,000. Plus other closing costs on the sale, lets just say 3k, which is probably low.
of your gain 25k, 18k is gone, you are only up 6K. That is not very good return for an investment of that size of multiple years.
This type of loan can work for you, but before if I where going to do it I would examine the best case and worst case senario. If the best case is great and the worst case is a disaster, are you ready to risk that, if the answer is yes go for it if it is no, consider other opportunities.
2007-01-02 05:42:24 · answer #1 · answered by Jerry 3 · 1⤊ 1⤋
It seems to me that you understand that type of loan pretty well. The Option ARM is a great loan for people that know how to manage money. I am a loan officer, I have sold the loan several times and I only sell it to people I personally feel will follow good financial rules. Many Americans use this loan and have no problem, if your going to be in the home for a short period say 2-5 years, go for it. How ever I did make a mistake once and sell it to a neighborhood who made the minimum payment for 11 months and he was getting in a neg am situation. I will never do a loan for him again.
With that said, if you manage the loan properly you can have major success. Good luck! Please don't take advice from people that are not expierenced in finance. Most people buy 2-3 homes in a life time. I closed over 190 million last year. I know what I am talking about!
2007-01-02 05:35:54 · answer #2 · answered by xsvideo 1 · 1⤊ 0⤋
The Option ARM is only good for investment property where the loan programs available do not compare with what an Option ARM will do as far as providing a lower payment and a break even cash flow at much lower levels than standard fixed rate investment property loans.
The problem with the loan is that too many borrowers use it as their only means of affordability. If you can only afford 100% financing and an Option ARM payment then you do not qualify at the purchase price you are looking at. Any pullback in value combined with negative amortization is dangerous at 90%+ financing.
In closing, an Option ARM loan may have been suitable for residential applications when values were rising more rapidly than the negative amortization. However, with those values leveling..or pulling back...there are better options available for residential lending.
2007-01-02 05:37:50 · answer #3 · answered by loanman46 2 · 1⤊ 0⤋
Depends on how long your arm will lock in? If you plan to stay in your home for 5 years and your arm is locked for only 1 year at a time might not be so good.
However if your home can be flipped where you can double your money or make a sound profit after all is said and done...
I would say this also that if you think you'll be ready to sell in 5 years plan for another year to sell just in case the market is upset when your ready to sell or if you don't have proper pricing and it takes you longer to sell than expected...
2007-01-02 05:41:05 · answer #4 · answered by Scott 6 · 1⤊ 0⤋
ARMs are risky and it takes a lot of discipline in your part to make it work. Research thoroughly before committing! Go to ABC.com and listen to advice on mortgages. Many people have regretted committing to an ARM. Checkout the link below.
2007-01-02 05:44:22 · answer #5 · answered by WebXen 4 · 0⤊ 1⤋
Only use it for a year or so
2007-01-02 05:30:56 · answer #6 · answered by god knows and sees else Yahoo 6 · 1⤊ 0⤋
Bad Idea.
2007-01-02 05:30:49 · answer #7 · answered by Anonymous · 0⤊ 1⤋
.
2007-01-02 05:30:26 · answer #8 · answered by Mister Moose 1 · 0⤊ 2⤋