Don't base loan selection on affordability alone

REThink Real Estate

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted May. 26, 2011

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REThink Real Estate

Tara-Nicholle Nelson
Inman News™

Q: I have a real estate agent who cares only about her commission. I don't think she cares about the type of loan I am getting. I'm in contract to buy a house for $275,000, and the loan officer said I can get a $275,000 5/1 adjustable-rate mortgage (ARM). But I don't want an ARM loan, because it is not fixed. I want to continue shopping for a loan to get the best one I can. Please advise, especially about the ARM loan. --Queen

A: Regarding your real estate agent, you've got bigger fish to fry, sister. Some agents know a lot about loans and get very involved in their clients' financing arrangements; others, not so much. But you should let your agent know that closing the deal depends on a satisfactory financing situation -- she might take more of an interest then.

More important, though, I'd advise you to get a new mortgage broker -- and fast. Is an ARM the end of the world? Not necessarily. The rates are super-low. The FHA versions have quite reasonable lifetime caps. A fully amortized ARM avoids the issue of dramatic increases in payment, which resulted in so many foreclosures on the interest-only and negatively amortized ARMs of yesteryear.

I've written extensively in the past and will, I'm sure, have occasion to write extensively in the future about how the ARM feature itself was not the problem. With that said, at today's low interest rates and home prices, if you can get a long-term, fixed-rate mortgage that is well within the bounds of your budget, you should be in very, very good shape for the long term -- assuming that you don't further leverage your home later.

But, in your situation, none of that matters. It's irrelevant, because the ARM is not the issue. If you don't want it, it doesn't work. Period -- point blank. And if your loan officer is doing whatever she is doing to make you feel ignored or like she's trying to shoehorn you into a loan that you are uber-clear does not work for you, she is the wrong loan officer for you.

To be completely fair, it's possible that the ARM rate is so low that it's making your payment low enough to be able to afford a house you wouldn't otherwise. It's possible.

Yet, that's not what you've related that she's telling you -- you should definitely ask her whether she's saying this is the only way you can qualify for that loan amount (in which case you might need to reconsider whether this home is affordable for you) or whether that's just the option she is suggesting you take, despite your overwhelming preference for a fixed-rate home loan.

Instead of walking into a bank branch off the street and working with whomever happens to be on desk duty that day, I urge you to ask your friends and relatives for their mortgage broker's name and number, immediately. Actually, I'm going to urge you to ask your agent for a referral to a service-oriented mortgage broker, too, and let her know that whether the deal closes or not hinges entirely on your ability to secure a loan that meets your needs.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   
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