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Posted by Jeff Strickland on April 20, 2006, 8:26 pm
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>
>> You might run into issues with qualifying because your income is on the
>> low
>> side, as you already acknowledged.
>
> RESPONSE: There is no might about it, he will not qualify if he
> followed your advice (took a 3/1 or 1/1 ARM on the existing property)
> unless he went no doc.
>
Agreed.
>> In any case, I suggest a 3/1 on the new property, and your choice of the
>> 3/1
>> or 1/1 on the existing property. Take both with an Interest Only note.
>> This
>> will get the payment to its lowest possible number, for two reasons. The
>> 3/1
>> product represents more risk for you, and less risk for the lender, they
>> reward you with a lower rate, and the interest only has no principle
>> repayment. YOU CAN ALWAYS ELECT TO ADD PRINCIPLE REPAYMENT IF YOU WANT,
>> JUST
>> WRITE A LARGER CHECK. But, you want the lowest possible payments to
>> calculate your qualification. Assuming the SAME rate, 6.5%, the Interest
>> Only payment will be $400, or about 20% less than the fully amortized
>> payment. When the existing house is sold, then refinance the new house to
>> a
>> 30-year fixed.
>
> RESPONSE: I suggest that consider taking a HELOC instead of a 1/1 or
> 3/1 in your instance because, 1) You can access the money for free
> (HELOCs are no cost/low cost borrowing instruments; a 1/1 or 3/1 would
> cost several thousands of dollars to access the money in your existing
> home); 2) You can borrow just what you need for the downpayment with a
> HELOC; some lenders impose a min. loan amount that might require that
> you borrow more then you require with the 1/1 and 3/1; 3) You are only
> borrowing the money on the short term (HELOCs are not recommended for
> long term lending for a number of reasons that aren't important to you
> because you are borrowing short term). You will be in a stronger
> qualification position with only a 10-20K HELOC balance on the books as
> opposed to a 30-40K 1/1 or 3/1 ARM.
>
These are all good points. My only counter is that a HELOC might turn out to
be more costly IF the term gets stretched to the 3 year time frame. I
haven't run the numbers, and only suggested the 3/1 and 1/1 as viable
alternatives to consider.
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