Help me understand a loan please

Financing, Hard Money Lenders, Private Money
1

Just need a bit of clarification when we go in to apply for our loan on what we should be asking and checking before we sign.

We are trying to get a 100% financed loan on a new primary residence OO and pay interest only as we will only keep it for 5 years max. Let’s say we go with a 5 year interest only ARM. After 5 years what are our option? I assume we can refinance or sell the house and pay off the loan and take out the equity. what do i need to be careful of to make sure that if we sell it, all i have to do is pay back what we borrowed? anything i should look out for? What questions should I ask.

Thanks again. After this one we’ll hopefully be buying our first renter so we’ll see how it goes soon.

2

Howdy Aquollie:

You may be confused with the 5 year part. If this is your home you may not want to do a 5 year loan that balloons in 5 years. In other words where you are forced to sell or pay it off. I do not think your 5 year ARM will make you do this. Make sure you understand exactly what is going on. Some can be a fixed rate for 5 years and then adjustable. Some are interest only and some are amortized over 30 or 15 or 20 years. Again make sure you know what is happening and try not to get hooked with a loan that you have to payoff in 5 years.

Hope this helps

3

I guess I didn’t explain very well.

I mean an ARM that is fixed for 5 years then adjusts after that. We only plan on keeping the house until that time. I just want to be sure when that time comes, we can sell the house and buy a new home and not have to worry about it. I’ve read some places there are certain restrictions that can be put into loans and I just want to be clear on what to avoid.

thanks again

4

Make certain you understand if there is a prepayment penalty. Even if there is, it usually never lasts more than three years

You should also know what is the margin, the table it is based on and how much it can raise after five years - just in case you need to keep it longer

5

Just need a bit of clarification when we go in to apply for our loan on what we should be asking and checking before we sign.

We are trying to get a 100% financed loan on a new primary residence OO and pay interest only as we will only keep it for 5 years max. Let’s say we go with a 5 year interest only ARM.

There is a difference between a 5 year balloon and a 5 year fixed with an adjustable rate that follows

After 5 years what are our option?

Assuming that this is a 5/25 loan which means fixed for 5 years then goes adjustable you will need to know what your index and your margin and Cap that will tell you what potentially what your rate will change to. You can Refi if you want to or you can just keep the loan that you have and now it is an adjustable loan

with a 5 year balloon you will either have to refi or sell those are your only option with that type of loan.

I assume we can refinance or sell the house and pay off the loan and take out the equity.

Yes you could do that

what do I need to be careful of to make sure that if we sell it, all i have to do is pay back what we borrowed? anything i should look out for? What questions should I ask.

Definately ask for what the Pre payment penalty is now depending on how long you plan on keeping this property then you should negotiate either 0-3 year PPP.

Ask what the terms of the loan are is it a balloon, or a 5/25 loan

Thanks again. After this one we’ll hopefully be buying our first renter so we’ll see how it goes soon