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odarkshineo · Joined: 04 Mar 2010 Posts: 4 2.13 Dollars($)

I'm currently looking at taking a 30 year 5/1 ARM at 5.75% on 150,000. Max it can raise is 1.5% ever 5 to a max of 6% increase I know on average the percentage is almost a point high, but there are a number of other factors involved. I only decided less then two months ago that we were going to go ahead and buy a starter house. We only have around 3500 dollars for a down payment, but the bank we are looking at going with (the nc state employee credit union) would require no money down, where as most other banks with a fha loan are looking for at least 5500 down. 5500 would pretty much leave me without a dime in my pocket. The state employee credit union also won't require us to carry PMI on the 0 down loan.

With all of that being said is 5.75 a reasonable rate? I only plan on keeping the house for 7-10 years at most. They are willing to finance closing cost if the seller doesn't pay as well. We're obviously trying to get in on the 8k tax credit. We have already located the house we are interested in.

Thoughts and or opinions welcome

Thanks!

gmakerley · Posted: Thu Mar 04, 2010 9:57 am Post subject:

the deal you're getting (interest rate aside for the moment) is not matchable by any other lenders. for the credit union to allow you to borrow closing costs, as well as invest no money as downpayment is pretty much unprecedented, even given the creative financing of the last 10 years.

clearly, this is the kind of lender we speak of when we discuss those who are willing to think outside the box and grant loans that make sense, in lieu of automated underwriting and fannie/freddie or fha guidelines.

of course, we have to assume up front that you're a good credit risk - i would hope the cu wouldn't take excessive risk to begin with. that being said, if you can swing the payments with ease, i have to think it's a pretty good deal for someone without a lot of cash to invest.

is the rate good? well, that's debatable, of course; but given the concessions they're making to you and the opportunity to make this purchase with no investment whatsoever, i think they're doing you a service rather than a disservice. you didn't say whether there are points or not, so i gather there are not. that's good for you.

under the circumstances, i think i'd run for this if i were you. grabbing that tax credit will put you in good shape, give you plentiful reserves - please don't splurge and blow it - and allow you some piece of mind while you make your payments on this risky loan.

and don't forget...if you build some equity, make every payment on time and wait a reasonable period of time...you can refinance this loan into a fixed-rate or another less expensive arm in the future.

gmakerley · Posted: Thu Mar 04, 2010 9:57 am Post subject:

oh yeah...i trust there are no prepayment penalties here.

odarkshineo · Joined: 04 Mar 2010 Posts: 4 2.13 Dollars($)

another note from OP: actually I mispoke, it isnt 5/1 - it is simply a 5 year adjustable rate. can only adjust ever year to a max of 1.5% and lifetime of an additional 6%. also no origination fee. once i have 10% paid i can request to have the loan reevaluated, which may drop an additional 1%

gmakerley · Posted: Thu Mar 04, 2010 10:55 am Post subject:

that's a bit riskier for you than i thought originally - 1.5% annually could bump you pretty good, although i wouldn't anticipate the maximum bump right away, nor every year, for that matter. make sure they give you the history of how the index they're using has performed. that will give you an indication of what you might be able to expect to see on your deal.

do you have any idea how long they've been using this product? have they commented on its track record?

odarkshineo · Joined: 04 Mar 2010 Posts: 4 2.13 Dollars($)

sorry maybe my clarification was confusing. at first i thought it was annually, but had my facts mixed up with another lender I spoke with. It is only adjusted every 5 years at a max of 1.5% every 5 years, and a lifetime of 6% max increase

it seems to be a strong program for them. they no longer even offer a 30 year fixed. I'm trying to find more track record information. I have numerous other accounts with them, and always find their rates (usually) and service to be stellar.

gmakerley · Posted: Fri Mar 05, 2010 8:34 am Post subject:

that sounds a lot better, then. i am a firm believer in credit unions - that's the only place i'll go for car loan(s), checking, etc. rates and service is overwhelmingly good, particularly in comparison with banks.

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5.75% 5/1 arm no money down no pmi reasonable