should i do an arm and refinance after one year?

hi, i have been reading this forum all morning. very informative.

here is my situation:

i had a ch 7 discharged jan 06. my scores are all low 600's. i have done everything possible to clean up my credit report. i got a ton of stuff deleted because many creditors failed to respond.

i made an offer on a house today. it shoud be accepted.

here's the question:

should i do one of those arm loans for a year and refinance when i get out of the subprime categorey a year from now?

or should i do a fixed rate and still refinance when i get into the prime category? any advice would be great!!

I would advise a fixed rate. That way there are no surprises and you'll always know what your payment will be. I recently posted an article about the danger of ARM's.....I'll see if I can dig it up...........

....found it.......http://bkforum.com/showpost.php?p=76118&postcount=4

Rates are creeping up. I, personally, don't see ARM's going anywhere but up.

If you're gonna buy now, then I'd definitely go fixed.

While you think today that you might refi in a year or so, you can't say what the future will hold. You may have to sell and move for a job. The costs to refi may prolong that for a couple extra years. Who knows what will happen between now and then??!!

As BassBoy said, no surprises down the road on the loan. Just incremental increases in your escrow payment for increased costs of taxes and insurance.

BassBoy and SF are right - go with what you KNOW you will be paying for the length of the loan. Several of our forum members have been forced into bankruptcy and/or lost their homes solely due to the increases in their mortgage payments as their ARMs matured and their mortgages increased beyond their ability to pay. Every single one of them thought that they would be able to absorb the extra when the ARM hit because they expected raises, that they could refinance, or they were going to get a better job by then - you never know what life is going to throw at you.

If you've already filed, then you don't have the bankruptcy safety net to fall into again for years. Why take the chance? Either you can afford the fixed payments or you can't. If there's one life lesson bankruptcy I learned the hard way, it's that hubby and I must live within what we earn. No excuses and no shortcuts.

Several of our forum members have been forced into bankruptcy and/or lost their homes solely due to the increases in their mortgage payments as their ARMs matured and their mortgages increased beyond their ability to pay. Every single one of them thought that they would be able to absorb the extra when the ARM hit because they expected raises, that they could refinance, or they were going to get a better job by then - you never know what life is going to throw at you.
This is part of our reason for having to file BK and ultimately, surrendering our home. And the raise thing, well my hours were reduced, salary decreased..so..as the ARM went up, my income was reduced, thus burying us. And looking for a better job? With the jobs in the Northeast Ohio area drying up, it was slim pickings.

I can only answer your question as what would I do, so here goes:
1. Clean up credit and rebuild until scores are at least 675.
2. While doing this save until you have 20% for a downpayment and then only for a 15 year fixed rate loan.
If you will not do this you are going to fall back into the "soup".
This way you own the house and it does not own you.
Good luck,
emoney

hi, i have been reading this forum all morning. very informative.

here is my situation:



i made an offer on a house today. it shoud be accepted.

here's the question:

should i do one of those arm loans for a year and refinance when i get out of the subprime categorey a year from now?


or should i do a fixed rate and still refinance when i get into the prime category? any advice would be great!!



You have to weigh your options, a fixed rate is probably going to give you more stability with your rate but the rates are going to be higher. You should not definitley get into a loan planning to refinance in a year because chances you may not be able to refinance in a year and most loans that you will be able to get are going to have prepayment penalites. There are some new laws reguarding loans in Ohio that I am assuming from your signature that is where you are buying. Have you been offered any programs or rates that you could post here so we could see if what you have been offered is in line? Are you doing zero down?

i was quoted: 80/20 8.5% & 11.5% zero down on house with a purchase price of at least 75k, 30 year fixed.

on a house under 75k, 9.5 zero down, and 9 with 5% down.

i was looking to spend anywhere between 65-100k.

obviously a fixer upper if i go in the lower range.

that's why i was considering looking into an arm because from what i understand in a year from now i will qualify for much better rates.

i know it might not be a bad idea to wait, but i really need a bigger place. i have 5 cars, the landlord only allows me to keep 2 here. i really need a garage so i can finish a couple of my projects, and i need a 3rd bedroom for my watch business because it is taking over my dining and living room!!

so i really can't wait any longer. i was just wondering the best course of action.

by the way, i really appreciate the input.

How about rent some warehouse space for your business at 25-50 cents a square foot or something instead of getting involved in a terrible mortgage.

How about rent some warehouse space for your business at 25-50 cents a square foot or something instead of getting involved in a terrible mortgage.

Thats always another option. Explore all of them.

If you do buy a house, an arm is relatively safe at this point in time. The fed rate has been on hold for over 6 months, and over the next year is more likely to be cut than raised. You need to do some homework using amoritization calculators, and try to determine how much lower your rate would actually be in a year, vs. the cost of refinancing, and figure out if it would actually save you any money in the long run.

i was quoted: 80/20 8.5% & 11.5% zero down on house with a purchase price of at least 75k, 30 year fixed.

on a house under 75k, 9.5 zero down, and 9 with 5% down.

i was looking to spend anywhere between 65-100k.

obviously a fixer upper if i go in the lower range.

that's why i was considering looking into an arm because from what i understand in a year from now i will qualify for much better rates.

i know it might not be a bad idea to wait, but i really need a bigger place. i have 5 cars, the landlord only allows me to keep 2 here. i really need a garage so i can finish a couple of my projects, and i need a 3rd bedroom for my watch business because it is taking over my dining and living room!!

so i really can't wait any longer. i was just wondering the best course of action.

by the way, i really appreciate the input.

When were you quoted those rates? Rates may be a little higher because of the new Senate Bill that was passed in Ohio senate bill 185 if you want to do some research on it. There are laws against predatory lending and disclosure to applicants. One thing that comes to mind form the bill is you are not allowed to have a prepayment penalty on a loan under 75k which is no problem but if your credit is not the best and you need to go a subprime route for a loan and it is under 75k even if it is an 80/20 and the first is under 75k the law still is in effect. What that means is the lenders are not going to say we will give you the same rate without a prepay, generally with subprime lenders if you do not have a prepay your rate usually goes up .75%-1% over what you would have been offered and they generally will not compensate the broker for your loan so you can end up with a higher rate and more costs because your loan is under 75k. This bill also is trying to ger rid of the No Documentation loans and many stated loans, because in the bill the lender can not make a loan for someone where they have no reasonable information that someone can repay the loan. That is somewhat ok because many times these loan types are used to get someone into a home they can not afford anyway, but will hurt some self emplyed people that make the money but do nto show it on their tax returns.

I think you may be ok to do an ARM if you get a great deal on the house because you will already have some equity built up in the home by the time you need to refinance and you will get good terms on your next loan assuming everything on your credit remains clean.

It depends whether to go with a fixed or a ARM. Since you are just out of a 7 you will probably land in the Sub-prime/ alt A lending area. The reason lenders offer a 2 year ARM is because the rate is lower than what a fixed rate would be. So obtaining the loan at a fixed rate may be difficult given your lending profile. Also you have to look at the rates in both scenario's. it might benefit you to take an ARM and refi a year later or less.
The biggest consideration is that dont just compare the rate in the ARM to the fixed rate you qualify for. A year later you may and most likely will qualify for a conforming "A" paper rate which would be much lower.
If you now qualify for an 8% 2 yr ARM a 8.75% fixed rate. If you take the lower short term rate, than a year later qualify for a conforming A paper loan and the rates even rise to 7.5% you are still lower than your ARM rate. So why waste money paying a higher fixed rate when you would qualify a year later for a lower rate and would most likely refinance anyway. The object of a 2 year ARM is to get you in a situation in the next year to get a lower A paper rate so you may be wasting money on a fixed rate anyway.

I did a arm adjustable rate and regret it beacuse even being out of BK 7 a YEAR does not help us .. They say two years to get a decent rate. Now we are selling ... My rate went from 7.5 to 10.5 and next 13.5.. it is horrible never again will I do a arm .. then you have additional closing fees eating up your equity you built .. stay away is my oppinion..