How To Get Home

Understanding your mortgage loan choice is very important. Picking the program that gives you the lowest payment without giving any thought to the program details is a risky move. If you are going with an ARM, you need to understand how that loan can change, how much it can change, and when it will start to change.

Former Federal Reserve Chairman Alan Greenspan made some interesting comments back in October 2004. Some of the highlights of the speech:

- “Debt leverage of all types is often troublesome when one judges the stability of the economy. Should homes prices fall, we would have reason to be concerned about mortgage debt; but measures of household financial stress do no, at least to date, appear overly worrisome.”

- “The persistently elevated bankruptcy rate remains a concern, as it indicates pockets of distress in the household sector. But the vast majority appear able to calibrate their borrowing and spending to minimize financial difficulties.”

The ability to budget and make timely payments is largely based on a stable housing expense. For home owner’s who are in ARM loans or who are looking at buying with an ARM loan, need to understand the worse case scenario when the reset happens. There are many, 24% according to the bankrate.com survey, who do not plan to be in a home when their ARM will reset. This assumption is based on the confidence that they will be able to sell the home before said reset occurs.

36% plan to refinance their debt before the reset occurs. The ability to refinance is based on assumptions of current home value (loan-to-value restrictions) and current ability to get approved for a new loan (credit score, income, debt levels all a factor).

My point is that a buyer needs to think about their exit strategy when considering an ARM loan and to try and evaluate the possible market conditions and personal financial conditions down the road to determine the overall risk of such a decision.

Talk with your Mortgage Planner about the options available to finance your home purchase and be sure you understand the details of the program you decide on.