We're finding it difficult to find a single family home in our desired Chicago, IL neighborhood that falls into a comfortable price range, so we're considering financing a condo that we love, but which is smaller than we like, using an FHA 5/1 ARM, so that we can build some equity quickly and trade up in the next 5-7 years. I have a little bit of finance background, but trying to figure out the possible pitfalls/risks is boggling my mind, possibly because new baby=lack of sleep. I've seen a lot of really good advice on these boards for other situations, so any help identifying catches or unforeseen risks would be appreciated. Here's the scenario: Purchase price: likely ~280-300kTotal cash available to us for down payment/closing: ~35kCredit: 780+First-time buyers, currently renting month to monthWe can easily afford the payments on this loan on our salaries, including insurance and assessmentsI also have a second contract job, which pays another $1200 a month that can go entirely to extra paymentsI know that FHA ARM 5/1s have an initial rate cap of 1% and a life rate cap of 5%, which gives me a bit of comfort, as we could afford the payments at 8%, albeit not comfortably.This condo is in a very stable neighborhood, so I wouldn't expect huge price appreciation or depreciationI'm assuming we can remove the PMI after 5 years to compensate for the first years rate increase, if any What am I missing? Will I be in a good equity position after 5 years or will I be scrambling madly for a re-fi, if we're not ready to move yet? Would I be better off just getting the 30 year fixed? Is there anything I'm failing to consider here? Thanks for any advice!
Chicago,IL | Jul 5th 2011
by maggiem...
Answer
by jchenoweth
Hello there!I am a loan officer in the Quad Cities area and I am licensed to do loan in Iowa and Illinois. From your email, it seems you are very educated in the financing department. FHA does offer very good loans and we can look at doiing an ARM or even a fixed rate too if you desire as the rates right now are historically low. In order to do a full assessment, I would need to talk to you and fill out a full application. I will be out of the office tomorrow for a charity event but would love to hear back from you. Can you email me at jchenoweth@bncnationalbank.com today or tomorrow and let me know if you are interested? It only takes a few minutes on the phone or you can apply online at www.chenoloans.com. I can get back to you first thing on Thursday when I get back in the office. The application doesn't take much time and is at no cost or obligation to you.Thanks for your inquiry. Look forward to hearing from you.Jamie ChenowethLoan OriginatorBNC National Bank563-344-7778 Jul 5th 2011
by terry@r...
It sounds like you have some good information.The only question that I have is, have you checked to see if the condo is FHA approved?If you would like to give me the name of the condo and possibly the address I can check on the FHA website.Terry Taitel 847-359-5300 or terry@resourceplus.com Jul 5th 2011
by bmcfed
In this scenario you are really better getting a 30 yr fixed. Take the risk out of your loan. I never think a 5/1 arm is a good idea when putting 3.5%-5% down on a property. Pretty good chance your expenses will be higher than you think and you probably will not build much equity. What if the property value declines? I think you posted this scenario before, so my answer is the same. www.guidetomortgageplanning.com Jul 5th 2011
by mconvin
hi: I would sit down and compare the 5 yr arm payment vs a 30 yr fixed. If you see a difference pending your financial status and employment stability, then weigh the pros and cons. With FHA you have that monthly PMI either if you put 20% down. If interested I work with private investors that fund residential loans with no MI just a 30 yr fixed no prepay as an alternative. (Mike 703 505 5300) Jul 5th 2011
by JamesBa...
Hi Maggie. You are asking some very important and specific questions. You might be surprised to know that there are other mortgage strategies that you could leverage your money and cash flow better than what you have proposed. As a Certified Mortgage Planner in the Chicagoland market, would be happy to discuss your home loan options with you. You can reach me at james@jamesbarath.com or call me at 219-662-0166 x21. BTW: Hope you're enjoying this beautiful day in Chicago with the baby. Jul 6th 2011
by fstadler
I would look at this scneario assuming that the value will stay the same and not increase. Chicago is home to many condo's and thier are lots of condo's for sale and many condo's have dropped in value over the years. I recently had to decline a loan for a borrower due to the fact that the condo that he purchase 3 years ago at the lofts on belmont in Chicago value decreased by over 50%. This borrower put over 100K down payment on this property. I don't see this value increasing by that much any time soon due to all of the condo's on the market.You should go with the fixed rate shuld be able to get a 30 yr fixed fha product at about 4.25 to 4.375 %. FHA loan is assumable, so 5 years from now when you are planning on selling buyer can assume your 4.25% even if rates are int he 6's.Many people stopped making thier mortgage payments when values decreased vs. increased. So you should make your decision to buy based on the fact that the house suits your needs and not that you anticipate the values will appreicate.Frank J. Stadler Senior Mortgage Banker American Portfolio Mortgage Inc.The Smart Relationship for You and Your Money!www.firstmortgagedept.com 800 E. Northwest Highway Suite 323Palatine, IL 60074 Phone: 888-302-2762 Ext. 143Mobile: 847-875-2020Fax: 800-783-1401e-mail: fstadler@american-portfolio.com Jul 6th 2011 |
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