First Time Buyer -7/ARM Interest Only Yikes! Help!

mary · Joined: 19 Jun 2005 Posts: 2

Thanks for reading this if you have chosen to help me!

I'm a first time homebuyer age 46. Single mom. Salary about 70K. (Time to buy a home!)
I have put down a deposit 12K on a new townhome in Calif. It's a brand new development, gated community. HOA dues are 250/month.
The price of home is 500K. I have 100K inheritance to put down. Loan would be 400K. The only way I can get in is 7 year ARM, Interest Only. My FICO is 800, I have no debt at all.
This townhome is beautiful and I love it. There is a waiting list of 300 people.

Other facts:
I am currently renting at $1050 per month. Of couse no amenities, apartment living. You get the picture. Being in my own townhome with a nice yard, etc. is a dream to me and I've been saving for a long time. However, my apartment rent is very good for this safe community in California. Plus, my child attends an excellent public school. As a renter in this apartment, we have no financial worries at all. I am maxing out on 401K and ESPP at work. Good chunk of $$ to spare every month.

Problem:
Family tells me to buy but friends tell me that kind of loan is too risky.
Family says good opportunity, finally a home within my reach. Friends say stay put, the market will correct. I can't make up my mind because both sides have great points.

I need to make a decision to "go to contract" in one week and sign the purchase agreement. Townhome won't be built for a few months.

My thoughts are that even if the market corrects, aren't there huge amounts of buyers who have been waiting on the sidelines that will pounce on those foreclosures/deals? Wouldn't that just drive the market up again? Also, I'm told that Interest Only loans are for those who will come into cash in 5 years. That's not the case with me.

I really need help here. Any advice? Thank you.

chow · Posted: Mon Jun 20, 2005 12:11 pm Post subject:

The foreclosures will drive the prices down-not up. I'm in Indiana, and we had a party the other day when we found out that we have dropped down to 5th on the list of states with foreclosures! (we're used to being #1)

You need to keep a firm handle on what your Homeowners and Taxes will be in a couple of years. Both usually go up. I don't know if CA has the real estate taxed on raw land on new construction, but we do here. The taxes usually go up about $100.00 per month. I would suspect if your taxes are prorated like ours-your's will be much higher. please check into that issue. I'm about the same age you are, so the townhome is a better choice than a house if you think about it as a single woman.

here's a good place to read some market conditions, and email a few people and ask them!

http://realtytimes.com/rtnews/CN-MKTC?readform&id=nmn.htm&link=http://mktc.realtytimes.com/mktc/stateviewjs/California?open&pID=cnbundle

mary · Joined: 19 Jun 2005 Posts: 2

The link you sent to me was very nice but it listed opinions of those in the real estate business. Not very objective. I have heard the contrary, that the market is cooling off and people are sick of high prices. The math just isn't there. Too many people don't make enough money to afford these homes. Many of these people are taking out risky, interest only loans in order to afford these prices.

chow · Posted: Thu Jun 23, 2005 5:49 pm Post subject:

Personally, I have a I/O second mortgage or Home Equity Loan. I borrowed 7500.00 on it last week. the bill came for less than 10 dollars. You only take these loans out if you pay off as fast as possible.

I understand the concern. There is a member here who's a old gum shoe in the RE market in CA, and he gives out some sage advice. His name is Marvin. I'll call him and ask him to check in with you.

I make a living selling loans, just as those people in that link- make a living off Real Estate. There is one thing most of us who have chosen this profession have in common. We live and die by referrals! I know some of the people from the indy listings there. They are good Realtor's. They are some of the cream of the crop around here.

We don't want to give out BAD advice, and NONE of us own a crystal ball. Our intention with referrals is to help people. You just need to find a comfort zone. The internet is not a good way to do that unless you actually meet some of the people-or at least talk to them. We depend on referrals for our future income! sites are built for infomation and interaction. I am an interent lender, I always ask people who are doing a first time purchase to go sit and talk with a Loan Officer-Face to face. maybe even a couple. Just talk to them.

Loan Officers are very nice people. (I am one!) We sell money. But for you to accept the money we offer you, you have to be comfortable with our terms, service and follow up.

If the only way you feel safe buying some thing is on a fixed rate, then buy what you can afford, live within your means, and move up as your income increases, or your profit increases.

Don't be too scared. It's California! :wink:

chow · Posted: Thu Jun 23, 2005 6:15 pm Post subject:

Mary, check your private message area. I spoke with Marvin and he said he would check in with you.

RVD · Joined: 05 Jul 2005 Posts: 2

i'm not a pro or anything (but i have worked in the mortgage industry indrectly) but 7/1 int only loans are pretty good...i think they're great (pretty much a no brainer) if you plan to stay in this home for less than 7 years. if you plan to stay there forever, then a fixed will probably be better in the long run.

nobody really knows what will happen with interest rates but it's pretty safe to say that if you will be in your home for 30 years, a 30 year fixed will be best in the long run. a 7/1 int only will likely force you to do a refi after like 9 years or so.

what i like about int only loans (i have one) are 2 things:

1) the lower interest rate
2) the option to pay less

personally, i can afford a 30 year amortized loan but i still went with a 5/1 int only because i like having the option to pay the int only payment each month. i'm very diciplined with my spending so currently put into an investment account what would have been my 30 year amoritized amount, take out the int only payment, pay my lender the int only payment, and save the rest in various mutual funds, etc. after 5 years, i can use the "principal" money that i had saved up in these various funds and pay towards principal on my loan or get a refi or both.

the only downside is if rates go up a lot. if they do, i'm fine with that too because after 5 years i will likely pay to reduce my principal and then refi the smaller amount with an ARM or something like that and the game continues.

RVD.

RVD · Joined: 05 Jul 2005 Posts: 2

oh yeah, as far as California is concerned...i currently live in Southern California and used to live up in Northern Caliofornia.

i don't know if the market will correct itself...seems like it probably will at some point but that's what everyone was saying 2 years ago too. personally, i don't think the entry level (those in the sub $500k range) will go down much even in a correction. the days of $200k 3 bedroom 2 bath condos and townhomes in southern california are pretty much over.

$500k for a new townhouse sounds pretty good though depending on the area. nobody really knows how much higher it will go before the market corrects itself...your $500k townhome can go up to $800k and then correct itself down to $650k (which would be huge) and you'd still be looking pretty good.

RVD.