Bd "not enthusiastic" about ARM. What would u do?

Look. I've been on boards and a 3/1 ARM is just ugly in today's economic environment. It means a buyer will all but be guaranteed to have (much?) higher carrying costs in just 3 years while the buyer's earnings may not keep pace with interest rates in such a short time. Even in boom times, I was never a fan of ARMS and 5/1's didn't thrill me at all. If you are going for an ARM, I'd want to see that you also had a more solid and deeper level of financial security than I'd ask of someone obtaining a 30 year fixed. Not double reserves, but something more.

Clearly, the board would be more comfortable if you got a 30-year fixed rate. If you can't afford the monthly carrying costs with a 30-year fixed rate, the board probably feels you really can't afford the apartment.

Try another apartment.

Yea 3/1 is a problem. The building doesn't want the exposure to your ability to refi and considering how the mortgage markets froze up not a rediculous concern. With a slight decrease in market values the LTV may limit refinancing, your credit could change and many 3/1's are designed with prohibitive margins that almost ensure default(yours may not). A 10/1 or 15 fixed or 30 year fixed is a better option. Plus rates are at rock bottom so, assuming you plan to stay in this place for a while, I can't imagine why you would want to speculate on lower rates..

Any ARM right now is a rather shortsighted choice. Rates are likely to be higher 3 or 5 years from now, so if you can't afford a regular 30-year-fixed even with today's remarkably low rates, your prospects (and your judgment) are questionable.

i would think that getting a 7/1 would make the board more at ease. yes you'll end up with approx. .2-.3% higher rate, but still significantly lower then a 30 yr fixed. most people know that a typical person stays in their apartment 5-7 years and you're covering that, especially if you're purchasing a 1 br and are young.

"i would think that getting a 7/1 would make the board more at ease. yes you'll end up with approx. .2-.3% higher rate, but still significantly lower then a 30 yr fixed. most people know that a typical person stays in their apartment 5-7 years and you're covering that, especially if you're purchasing a 1 br and are young."

Boards do not think this way.

As a board member, all I see for the foreseeable future is that eventually the applicant won't be able to afford his monthly carrying costs. Unless he attaches a statement from his employer *guaranteeing* a substantial raise at that point in the future, I'd vote "no" on this applicant.

Address the issue in your cover letter (Our firm will write one for you for a fee if you don't want to, but we're expensive).

The point is to walk the board through the scenario of a big pop in interest rates, and show that in addition to the current environment, where you have income coverage/reserves, in a higher interest rate scenario, you still have income coverage/reserves.

ali r.
DG Neary Realty
ali [at] DG Neary {dot} com

"Address the issue in your cover letter (Our firm will write one for you for a fee if you don't want to, but we're expensive). The point is to walk the board through the scenario of a big pop in interest rates, and show that in addition to the current environment, where you have income coverage/reserves, in a higher interest rate scenario, you still have income coverage/reserves."

Actually, you're MISSING the point entirely.

My building has a similar "not enthusiastic" clause in the application about ARMs. We're not going to open ourself up to potential litigation by putting an out-and-out ban in writing, so we're hoping that applicants are intelligent enough to read between the lines and won't waste our time (and theirs) by trying to buy an apartment they cannot afford without the sort of "creative financing" that blew our economy up in the first place.

I disagree. the combination of low down payment(20%) and 3/1 exposure.. well I can't see any explanation satisfying the board. They'd prefer a fixed rate mortgage and might only accept the arm with a substantially larger down payment. You are asking them to put other owners at risk should you have a problem down the road.

Appreciate the feedback.

Just to clarify, we're not doing a 5-year arm because we "can't afford" a 30 fixed. How much difference do some of you think the rates make? Its not that much. (And if a different in half or quarter points did impact whether we could afford the apartment, we wouldn't be approved as financial sound owners in the first place).

Rather, Its just the sheer fact of wanting to avoid throwing money out the door, coupled with an educated awareness of my ability to handle increased rates should we even be in this unit 5 years later, which is near impossible (in light of family growth, etc). I understand all the concerns -- and do VERY MUCH appreciate the feedback merely for the value of seeing how opposed people's predispositions are -- but an economically savvy decision is different than one by force.

That said, from an approval standpoint, the savvy thing to do may be to just opt for the 30 year or a longer ARM.
Thanks for commenting so quickly -- we're moving quickly on this and it helps!

Why would you not JUMP at a ridiculously cheap 30-year fixed? The time for ARMs is when interest rates are high overall and you anticipate a benefit from refi and/or rate adjustment.

bobjunior. It really comes across you are choosing the mortgage product with the lowest up front payment and perhaps being too aggressive.

Matt, we can't tell whether the OP can't afford this apartment, or is simply gunning for cheapest financing possible. If it's the latter, I agree with Riversider that looks aggressive, but in my experience (and I've done this a few times) boards are sensible and can have things explained to them.

ali r.
DG Neary Realty

"Matt, we can't tell whether the OP can't afford this apartment, or is simply gunning for cheapest financing possible. If it's the latter, I agree with Riversider that looks aggressive, but in my experience (and I've done this a few times) boards are sensible and can have things explained to them."

Oh we're just as "sensible" as any other board, and you can explain all you want.

The answer will still be "no".

Why would you waste your time, our time, and the applicant's time trying to beat a dead horse?

Dead? Maybe.
Horse? Don't flatter yourself.

Matt, if someone showed up with 20% down who had another, say, 30% of the purchase price in the apartment in reserves, 2 steady sources of income, referral letters that made them sound neighborly and not the type to pounce on every last dime, you'd really turn them down because they took a 3/1 rather than a 30-year-fixed and thus weren't "reading between the lines" correctly?

That would make you a very unusual board to say the least.

ali r.
DG Neary Realty

MAtt why would you assume every board is identical to yours?
Why have building boards then?

bobjunior
If you go with the 5 year ARM, I'll side wager $500 with anyone (preferably Matt) that you pass.

The 3/27 or 2/28 is just a red flag. Poster child for subprime. And by not allowing it the board doesn't have to open itself up to bias claims. They can merely say these are our guidelines plain and simple.

Someone's gonna say it so it may as well be me: why on earth would you buy an apt in NYC with only a 3-5 year time horizon right now? I'm about as bullish on owning as anyone on here, but I think that time horizon is kinda nuts. If it were me, I'd be renting.

Actually most boards are not like matt's. Many coop board would not even consider a purchase for only 20% down. That's what condos are for.

Kyle, exactly.

bob: 1. "It's just the sheer fact of wanting to avoid throwing money out the door..." 2. "...should we even be in this unit 5 years later, which is near impossible (in light of family growth, etc)."

Given your two comments above, why are you even buying "now"?

Maybe the Q is for Mrs Bobjunior? :)

Oh Alan ... when are you finally taking me out for that drink?

Matt, why is it in anyone's benefit to be so rigid on this? There are situations in which 5/1 ARMs make sense. What if applicant's financials check out in every way -- income, assets, liquidity. And what if applicant has a valid reason for preferring a lower interest rate for the first 5 years (there are myriad reasons why this would benefit some - but not all - borrowers).

Why is it in the building's interest to reject this applicant? Any why derail the seller's sale process by enforcing an unwritten rule? Seems it is in the collective owners' interest to either be explicit about the rule, or to be reasonable.

The question isn't so much if 5/1 arms make sense for the buyer but whether they make sense from the coops stand point. What's in it for them? Other than a potential exposure and head ache.

"Matt, why is it in anyone's benefit to be so rigid on this? There are situations in which 5/1 ARMs make sense. What if applicant's financials check out in every way -- income, assets, liquidity. And what if applicant has a valid reason for preferring a lower interest rate for the first 5 years (there are myriad reasons why this would benefit some - but not all - borrowers). Why is it in the building's interest to reject this applicant?"

Because the applicant simply does not meet our criteria.

Why do some buildings require only 10% down, while others require 100% down? Why do some buildings require more post-liquidity than others? Why is the sky blue? Why is water wet? Why why why???

The finances of buying, even on a 4-5 year turnaround, clearly outweigh the loss of renting. By simple math, with mortgage rates, tax deductions, etc, its a no brainer. Almost every young family I know is in a 3-5 year ownership or just leaving one. I'm surprised some people think its so obviously a bad choice or a rarity. Every couple i know is going to be vacated form their apartment within one or two years time once another human arrives. I will agree tho, that if I wasnt getting the deal that I'm getting, I could potentially suffer a sales loss when we flip. But we've only settled on the unit and transaction because we consider it a bargain that will likely result in a break even or minor profit in a few years.... unless the world totally falls apart, which i cant live my life around.

truthseeker, i wish i could take your wager. ;) tho the comments/feedback are pushing me towards a 30 year fixed (rather be safe than sorry). that said, i actually agree with you -- I think we'd pass easily.

funny thing is (bobjunior is a girl) I am the mrs. ;)
its just a nickname for my insatiable appetite and man-like ability to put away the food.

btw, i should also add that a 3/1 is not even a consideration. 5 years at the least. but again, we'll likely settle on the 30 year fixed.

Isn't the monthly payment difference negligible in this interest-rate environment?

Assuming 600k mortgage the difference between 4 & 5% is $350 per month...

matt why the fk would there be litigation for playing w/ the financials of a prospective "owner"?

As a DA, that kind of discrimination from a NYC co-op would be almost welcomed.

FLMAO

"Because the applicant simply does not meet our criteria. Why do some buildings require only 10% down, while others require 100% down? Why do some buildings require more post-liquidity than others?"

The issue here is not about post-liquidity or % down. I have no problem with buildings requiring liquid assets in even multiples of the purchase price.

The issue is that if you allow financing, and you do not explicitly prohibit ARMs, then who exactly is being served by rejecting a 100% qualified applicant who is financing with an ARM.

My only question here is do you care to provide justification for that course of action? If not that's fine - that's your prerogative - but it is unusual as Ali, etc. have noted.

There are certain personality types that anticipate ruination and crises around every corner. It is exactly these personalities that gravitate to board membership -- to protect their investment from the inevitable ruin that is certain to come if they are not excessively, obsessively vigilant. If there is the slightest chance that an ARM is a problem to pass a board, you can be certain that there will be at least one board member that will lobby for your rejection due to the hell-bent wrath your reckless finances will certainly wreak on all the judicious citizens of their fair co-op.

Apt23. That is not necessarily a bad thing..

Bobjunior, a 3-5 year ownership timeframe is not a rarity at all. You just hit a couple of conservative board posters whose family situations are already gelled.

In my opinion -- not just as a real estate agent but as a personal finance expert, which is another hat I wear -- the rest of the story is *everything.*

1) the renting/buying equation is very very different depending on family income;
2) the amount of risk is very very different depending on reserves outside the purchase, involving both cash held by the buyer and intergenerational wealth transfers to the expected new grandkids; and
3) ability to tolerate risk is very very different depending on occupation, which speaks to both ability to emotionally withstand changing circumstances and ability to freelance.

It's not a one-size-fits-all.

ali r.
DG Neary Realty

RS: That is not the point. My experience with boards is that even if OP has plenty of reserves and it is obvious that an ARM is a sound financial decision for his particular circumstances, there will be one loud, whining board member to try an derail the process. (Can you tell that my experience with boards has not always been pleasant?) If OP wants to be certain of his acceptance, he should take the fixed mortgage and not give any one the opportunity to undermine him. Rates are going to be low for a long time, is it possible that he could refinance after his acceptance -- say a year from now-- if he could find something with no points.

Oh allah help us, you are a personal financial advisor? I'm gonna peeeeeeeee

So ms. oracle can you tell me whether I should rent or buy in a deflating bubble? I've got a 1-5yr horizon unless I get pregnant or my girlfriend preggers first... or we buy a largish dog....

which hat will win... the 6% hat or "fiduciary duty hat" which hat to wear on my broom today?

Apt23, The reserves are illusory. He could go out and buy a car. And sometimes the resereves are there because a relative has temporarily deposited some money in a bank account.

So, you underscored my point. If he wants the apt, he should only consider a fixed.

Absolutely!

so we're going with a 30yr largely because of the (subset of) helpful comments on this board. the couple hundred or so a month isnt worth the possible rejection.

one extremist on the board and we'll be up the river over not a whole lot of savings. and if its easy to find a couple here within an hour or so, then odds are....

thanks!!

good luck bJr. money is (relatively) cheap for the fixed, the arm can seem dodgy to some folks - specially if they haven't had a mortgage since the year gimmel.

Bobjunior, I usually try to be polite on this board, but I'm not going to mince my words. From the things you've said here, you don't seem to understand the risks to which you're exposing yourself with different financial options, and I suspect you have a poor understanding of the value of capital adjusted for horizon and / or risk. That said, you're not alone: most people do not understand these issues. The coop's "guidance" is attempting to save you from your own misunderstandings.

Regardless of the unminced word above, congrats, and I hope you enjoy your new purchase.

apt23
"Can you tell that my experience with boards has not always been pleasant?"

Did you call the police and falsely (and illegally) report a non-existent felony crime in order to get your way?

Nada, that's a little condescending. As a generalization, people in finance and law tend to be conservative with their money, because they never count on making more of it, while people in other fields (entertainment and technology come to mind) tend to be more liberal with their money, because they think the marketplace is going to keep paying them for their skills.

Maybe both sides are right, and that accounts for their different risk perceptions.

The risk-adjusted value of capital might always be the same, but the context of how easy it is to acquire more capital matters -- greatly.

ali r.
DG Neary Realty

inonada (or others):

If you're still reading, how would you evaluate this hypothetical situation. This example is more excetion than the rule but I'm trying to present a sufficiently "conservative" case and see what you think the correct conservative decision would be. Say a buyer with $600k liquid asssets wants to buy a $500k apartment. Further, buyer has another $150k "illiquid assets" in the form of FDIC-insured CDs, or vested restricted stock, or whatever. Buyer has a long-term buying horizon but seeks to pay down any mortgage sooner than 30 years. How would you finance this purchase?

A) Pay all cash. You make an implicit return on capital by avoiding any interest. Liquidity post-close is adequate, but not outstanding.

B) Take a 5/1 at 1.50% lower rate than the 30-year fixed. Now you have A+ liquidity, you plan to pay the mortgage down with employment earnings and as your CDs mature, and you minimize interest costs for first 5yrs (with risk therefter).

C) Take the 30yr at the higer rate. Liquidity same as B, certainty of P&I for life of loan, but pay higher interest.

What is the right decision? And what is the right size of the mortgage? Curious what people would say here and why.

From whose POV?

As a board member, C. And isn't that what this whole post is about?

I want to chime in a bit on both issues being tossed around.

First Ali, I take issue with a broker telling people that 3-5 year home ownership is normal and good. The only people it is good for are the brokers who fix their fees at 6%, no matter how much the apartment is worth. It is the most rigged industry out there. And before you argue, think carefully about why for a 500k apartment you get $30k to show it and get everythign done and you are happy, but then if you sell a $1 million apartment and get $60k to do everything you feel you deserve it. Please explain in detail how your underlying time and expense change to justify the larger fee. Lets not get into the multi million dollar homes.

I am making this point for a reason. If you buy a $500k home for 3-5 years in this market, you have to assume the value is pretty much not going to move until the economy picks up. Then even after that there will most likely be a lag as people can start saving to buy again. So lets be conservative and say your home increases in value every year at 2%. After 3 years that is $530k, 4 years is $540k and 5 years is $550k. So a broker in all these situations would get roughly $30k.

Now remember there are transfer taxes that are around 2%, which would in all of the years be around $10k.

If someone was to sell after year 3, the whole profit would go to a broker prior to then paying the $10k for transfer taxes and then other miscellaneous costs, such as a lawyer. In year 4, they probably lose a bit. In year 5, maybe just maybe they eke out a slight gain, but probably not.

Now of course this assumes the market actually continues to stay steady and slighlty increases.

As to the mortgage question, why can you not arrange for the 5 year arm and say you have a $500k mortage you save probably at least 1% per year, so $5000, for 5 years is $25,000. even if you interest rate jumped 2-3% and had to pay that for a year, you would still be ahead.

Also if you qualify either way, arrange the 5 year arm and if the board has an issue then change to the fixed. Why avoid it in the beginnign when all you would need to do assuming you qualified in all other ways was switch mortgage type to make the board happy, do that after they make it an issue?

this is why i avoid coop's. Why should a few people on the board who know nothing about you at all dictate that they want you to spend an additional 1 - 1.5% in interest every year. How do they know how you spend your money and your reasons for wanting to do the arm.

My issue is they do not care whether you could carry it or not, they care about themselves and using this authority to tell you how to live your life.

I rmember years ago I was moving into my brothers coop at lincoln towers and it really was a formaility, there was no mortgage, it was simply a name change. They made us go through hoops, dragged it out longer then necessary, to the point that my brother had alreayd moved to californai and i had to take over payments, but was not allowed to move in. When i was interviewed and one of the women said oh you know we have a gym, I said i know, i already am paying for it. she was shocked and said how could you be paying we have not approved you. So i told her that my brother left, i had to pay whether or not they wanted to take their time. Needless to say i was approved of course but it left a bitter taste in my mouth for how what are supposed to be my peers take such advantage of other owners/shareholders.

It would be nice to think that most people who get a 5/1 ARM would direct the savings towards the mtge or buffer in anticipation of rates going up. That isn't reality, and as a board member whose fiduciary duty is to the current shareholders, I would prefer a 30-fixed. It is my business as to whether someone is more likely to default by having a 5/1 with exposure to higher rates vs. 30-yr-fixed. I would not like it if an applicant was already giving me hassle at the beginning whether to go with 5/1 or 30-year to save a few hundred dollars/month.

yes but that is crap. You would rather someone have less savings and do a 30 year fixed to make you feel better?

So if i have a $500k loan and am saving 1.5% so $7500 a year, you think it is a great practice to tell a prospective buyer that you would rather them have less savings?

I would think your fiduciary duty is to look at the whole financial package, their savings they have, etc and make a judgement.

First a coop package from what i remember is cumbersome and ridiculous. so you have 3 months of bank and investment statements. This should more or less help you figure out whether or not someone is playing games with their money to make themselves look better qualified.

I do not know the history of the person who started this thread, but lets talk in general. If someone has a solid financial history and they feel comfortable based on their ownership timeframe and income level to take out an arm knowing that they can afford it even if they had to let it reset or fix it in 5 years, why should you have a say in that?

Don't give me the fiduciary duty crap. It is pure superiority at that point, knowing that you have control over whether the buyer can close or not. because you are saying that you feel "hassled" because someone wants to pay less interest every month.

Why don't you pay the difference between the payments for the buyer so that you can sleep better at night knowing that their mortgage is fixed.

Board members need to get off the high horse of thinking they know what people are going to do and what is good for them, and look at the whole picture and actually speak to people to get a feeling for them.

Once again this is why i will never ever buy a coop again.

Remember you chose to be a board member and spend your time reviewing these things, so if you don't like feeling hassled because of how someone wants to pay for a home, then resign.

Mikev: you are clouded by negative emotions from your Lincoln Towers board tangle. I am not a board member, and I've had my fair share of board craziness. But I can well imagine what is going through a board member's mind when reviewing a package. Why would I trust my instincts and guide the board by "feel" - as in whether I like the person in the flesh.

It's all about numbers. People don't tend to save the extra $ they get in their pocket, and use those 5/1 savings towards a buffer for higher interest rates. Remember the mess we're in. I believe the OP when he said that he had a plan, but if I were a board member, I'd be stupid to do so. Different hats, Mikev.

sorry misunderstood and thought you said you were a board member.

But honestly at the end of the day, yes they have a duty to the other shareholders/owners, however if someone has the assets to back up their mortgage and they are liquid enough for all to be happy, then they are entitled to take out a 5 year arm.

YOu are I believe looking at it that they barely qualify to buy and are concerned then the money they are saving in interest are going elsewhere. I am looking at it the other way that they more then qualify and would rather pay less interest, especially knowing they are not living there for the long term.

But i also say again that i think buying in this environment for a 3-5 year horizon is a bad idea and maybe if you are getting the 5 year arm you are maybe ahead of renting, but not so sure if you really are doing better, especially in this environment and the fact that most likely you will lose money on the sale.

nyc10023: I was asking that particular question from the perspective of the Buyer, not the Board. Apologies if this changed or hijack the thread, but the example seems generally line line with the spirit of this thread and explored why a buyer MIGHT want to go with an ARM in some situations.

I would not dismiss several hundred dollars a month. The difference of 1.5% on a $400k mortgage is $4,338 per year.

And another point, despite what some have said, it is FAR from certain that ARM interest rates will be higher in 5 years than are today. Most ARMs are set at L + 2.25% post year 5. Who here is smart enough to say whether in 5 years, LIBOR be at 4% or 6% or remain at 0.5%? A financially sound buyer may validly decide to take on that risk that his rate could be higher (or lower) in years 5-30 for the benefit of locking in lower rates for years 1-5. I have a colleague with an L + .875% purely floating rate mortage. Could his rate jump to 7% in 6 months? Theoretically, sure, but he is capable of managing the risk.

Bottom line - If I were an owner in a Coop, then I would want neighbors with overall stronger financial position who could make these decisions for themselves. I would prefer this than neighbors with relatively weaker financials who conformed to a certain type or mortgage.

We did a 5/1 ARM even though we could afford the 30-yr fixed because we did not want to throw $ away when we know that we will outgrow the apt after 5 yrs. Show that you can afford the 30-yr fixed but are choosing the ARM to save $ and that you can afford the payment increase if the ARM jumps to the maximum. Also, show that you could afford to pay down the loan so if values went down, you could still refinance.

"I would not dismiss several hundred dollars a month. The difference of 1.5% on a $400k mortgage is $4,338 per year."

That was based on a comparison of 5.5% to 4.0%, I should have clarified...

i still don't understand caring about $4,300 per year in extra interest costs yet blithely assuming that flipping in three to five years carries no risk of loss of principal. No doubt Ali can explain how people in different lines of work view the difference between these two out of pocket costs.

And don't forget the huge tax deduction that brings that extra $4,300 per year down to practically zero!

seg - you are correct, there seems to be an awful lot of assumptions being made re long term risk wrt mortgage rate when everything I have been reading suggests a prolonged period of low rates. The fed itself isn't expecting normal growth to return for 5 or 6 years.

There are a lot of ARM's out there that are appealing to many people for many different reasons. If one was to save 1.5% on a 3/3 ARM over a 30yr fixed and the increase at the end of each 3 year term was limited to 2% then one ought to balance the risk of having to refi, paying more each month, time horizon, and interest rate projections. All ARM's are not created equal, nor are personal circumstances as Ali has pointed out.

This is not to say that a coop board is not correct to weigh heavily against such an animal when a fixed rate is an approved option for the buyer. And a 30yr fixed at under 5% seems like a slam dunk, all things considered.

CC- I have been all over the place with my various comments. Let me try to clarify:

Re. the OP: IMO - made the right decision to go with the 30-yr fixed. Why risk getting rejected by the Board? On the other hand, we don't have enough information to know whether the 30-yr fixed or ARM would be better for OP.

Re. Flipping in 3-5 years: I agree with everyone here that it is almost always a bad decision to buy if your time horizon is 3-5 years.

Re. ARM's generally: Here I am not talking about flipping the apartment in 3-5 years. My point is that if a buyer has reasonable grounds for believing he can pay down the mortgage in a ~5-year timeframe, then it may in some cases be a good decision to take an ARM to lower his interest costs. That's all I"m saying.

If people have disagreement on my last point, I'd love to hear it.

"Re. ARM's generally: Here I am not talking about flipping the apartment in 3-5 years. My point is that if a buyer has reasonable grounds for believing he can pay down the mortgage in a ~5-year timeframe, then it may in some cases be a good decision to take an ARM to lower his interest costs. That's all I"m saying."

You can pay down a mortgage in five years on a 30-year fixed just as easily as you could with an ARM.

@mike, leaving aside the fact that brokerage fees are not the topic of this thread, do I really have to justify my fees to someone who didn't use me and didn't get an apartment that they targeted?

And @seg and @Matt, we have two 5/1 ARMs on two different properties. While it may not be human nature to make prepayments on both, we do. In the meantime, our monthly costs are indeed lower than they would be if we'd taken two 30-year-fixeds.

And, while I don't count it happening in the future, the ARM that is seven years old has reset down twice.

ali r.
DG Neary Realty

Ali I will give you that you did not sell my apartment and your fees if they are not 6% aside, they are very much a part of this thread.

Here is what you said:

"Bobjunior, a 3-5 year ownership timeframe is not a rarity at all. You just hit a couple of conservative board posters whose family situations are already gelled.

In my opinion -- not just as a real estate agent but as a personal finance expert, which is another hat I wear -- the rest of the story is *everything.*

Now i will give you prior to this downturn it was not a rarity and people did not get hurt. But if you want to switch hats and become say the personal finance expert, would you really advise people that in the current environment with prices unstable and possibly going down, but with all projections out there saying no real growth in home value, that someone should buy for the short term?

Are you telling me that it is not irresponsible when advising someone that they should also factor in what it will cost to get out? you are the "finance expert" are you saying that your focus on giving real estate advice would be to say hey others do it, so that timeframe is fine and not run scenarios of what it would cost them to get out and what it may do to the cash they believe they will have to buy that next apartment?

And sure if you want i can start another thread and ask people to weigh in on why broker fees are so high. But i have to say i am an accountant and while fees may be higher for more complex audits and taxes, i certainly could never get away with taking a percentage, when it is not really justified. Real estate brokers are a service provider, i think the day should come when I pay you per hour and you justify the hours you really worked. Or set a flat fee, but really percentages are just plain wrong. I hope that 15 years in the future when i am ready to sell, the whole model has changed and no one is talking a percentage of sale when i am ready to sell.

"And @seg and @Matt, we have two 5/1 ARMs on two different properties. While it may not be human nature to make prepayments on both, we do. In the meantime, our monthly costs are indeed lower than they would be if we'd taken two 30-year-fixeds."

Good for you.

But you won't be doing it in MY building.

Don't like it -- buy a CONDO.

You guyz are like the excited little girl wondering if the 'lover' of your dreams with oliver ppl glasses and drinking single malt whiskey wants a girl or a boy, and the dude is gay and just happened to look your way to note 'thank god I'm gay, cause that chick is fugly!'

Io, 3yr, 5yr,10yr, stay forever?, gonna get knocked up?, this hood, stainless steel refridge, what about Reno?, nice board?, can I get a wd hookup? - WHO the f'k cares? Will the prospects for NYC re improve by next qtr, or should we wait one qtr to see where actual trades happen post lemming juice?

And the guy trying to save $400/month, you remind me of a couple we vacationed with in Hawaii. Would drive out of the resort every nite to eat a pizza hut. Maybe they should have vacationed in Pensacola? Or at least a more modest resort cause if the vaca is gonna break your bank that much..... Maybe time to reevaluate pulling the trigger.

"Don't give me the fiduciary duty crap. It is pure superiority at that point, knowing that you have control over whether the buyer can close or not. because you are saying that you feel "hassled" because someone wants to pay less interest every month."

Actually, it's not "crap" -- we are on the board of directors of a state-chartered corporation. Our chief responsibility is our fiduciary duty to our shareholders. That's how it works. Try boning up on your elementary civics.

***

"Board members need to get off the high horse of thinking they know what people are going to do and what is good for them, and look at the whole picture and actually speak to people to get a feeling for them."

Based on experience after experience after experience, we DO know what people are going to do and what is good for them -- that's why we're here. That's also why CO-OPs have largely been insulated from the mortgage and foreclosure meltdown; because collectively as boards, we've managed to largely save people from themselves.

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"Once again this is why i will never ever buy a coop again."

And as a board member, let me be the first for thanking you for not wasting my time.

No argument from me that oyu have a fiduciary responsibility. And guess what i know you are a corporation also. That is why i kept saying shareholders.

Now while i agree you have a duty to shareholders, part of that would be aproving qualified buyers into your corportation. Now if someone shows that they are savers, carry little if no debt and can more then carry a 5/1 arm without a concern, why do you feel that you are working in anyones best interest to reject?

What if this is just the product they want and they can afford it and it does not harm you or your corporation. If you reject them you are not being responsible to the shareholder who wants to sell out of the corportation, as you are placing your "feelings" ahead of your fiduciary duty.

And don't give me the crap about you knowing what is best for everyone and that is why you are there. And if you really believe you are saving people from themselves you have a complex that you may want to deal with.

And the reason that coops are insulated is because a lot of them have people putting down 30%. Now this is an area that we an all agree on. See while i feel it is wrong to tell people the type of mortgage they are allowed to have, based on them trying to keep payments low and pay down as they please, I do not disagree with having people put more money down. I think it is crazy that people buy something with 10% down.

So i do not believe you not letting someone take out an arm is saving you from foreclosure it is because you have lower debt.

"Now while i agree you have a duty to shareholders, part of that would be aproving qualified buyers into your corportation. Now if someone shows that they are savers, carry little if no debt and can more then carry a 5/1 arm without a concern, why do you feel that you are working in anyones best interest to reject?"

Your definition of "qualified" my differ from our definition of a board as "qualified".

If we don't want ARMs, we have our reasons. We don't have to explain them to you. The same way many boards require 40% down, 50% down, or even 100% down -- they have THEIR reasons. I'm sure there are many "qualified" buyers of a $1,000,000 co-op on Park Avenue that can easily swing the 20% down payment, their monthly carrying costs, and still have a healthy reserve in savings. But if they can't put 100% down in a no-finance building, they are NOT "qualified" for that building.

We have set our criteria. If you don't meet our criteria, you are not "qualified". Period.

I totally agree, everyone STFU and pay 100% cash... this does several things...
1) closes inheritance loopholes;
2) eliminates fannie/freddie;
3) eliminates asset bubbles (well at least ones that bite taxpayers in the azz);
4) would really decrease dual/triple/quad home "owners" and resultant house hoarding;
5) eliminates a ton of wasted lives, mortgage brokers/bankers,asset secur/ibankers, brokers, etc etc etc.....

MY I AM FORMING MY OWN POLITICAL TEA PARTY!

We are looking to buy a second home a co op. We were thinking of a 5/1 arm because of the lower interest rates and also because we plan to sell our home before the ARM adjusts. There will be more than enough proceeds to pay off the loan. It sounds like we might be rejected by a co op board because it's an ARM. for the boards members here,are you saying I should forget this plan and go for a 30 fixed even though we will pay it off in the loan before five years when rates readjust?

Never was on my old coop board but I know they got more strict over the years. Thats the only way anything makes sense. Groups, companies, coops, etc if they don't strengthen over time then they head the other way. So good for this board to support the old shareholders and not cave to the new shareholders.

seg, I would personally pick option B because I am getting better return in other investments. I was leaning toward option A not too long ago, because I don't like being in debt in general, but I got over it. In your scenario, I would never pick C, because it's a waste of money. However, if buying a co-op, I would do whatever the board wants. w67th's Hawaii/pizza example made a lot of sense.

As for the couple who were fond of pizza in a 5-star resort, some habits are hard to break.

Putting on my conservative board member hat, and bearing in mind that the applicant is an unknown quantity. I would be concerned that the OP is fretting about 400/month when it's 10% off in and out transaction costs alone.

Penny-wise, pound-foolish.

Why do you say fretting? it is just a poor word choice. First they qualify for both and if there time horizon is really less then 5 years why not take the lower payments and interest rate?

Why you keep thinking it is foolish to want to save money is questionable. On the one hand you are talking about being conseritive with your money, on the other you are telling us that it is great to pay additional interest to a bank that is not necessary.

I knwo you are going to tell me again that they are not going to save the money.

I will say this. I would go with the arm. I personally have always kept at least 6 months if not more in liquid funds for the what if situations. Who says that the others are not the same way.

The issue is you are assuming everyone does not know how to save and from the sound of it if you were on a board you would ignore what the financial information is telling you and decided to the contrary.

Bobj, apologies if you felt I was being condescending to you as front_porch thought.

Seg, you give the choices of:

A) Pay all cash. You make an implicit return on capital by avoiding any interest. Liquidity post-close is adequate, but not outstanding.
B) Take a 5/1 at 1.50% lower rate than the 30-year fixed. Now you have A+ liquidity, you plan to pay the mortgage down with employment earnings and as your CDs mature, and you minimize interest costs for first 5yrs (with risk therefter).
C) Take the 30yr at the higer rate. Liquidity same as B, certainty of P&I for life of loan, but pay higher interest.

I don't think any of them necessarily always makes more or less sense than the others. For the most part, it depends on the risk profile. What I think is a mistake, and this is what I was getting at with bobjunior, is if you ignore risks you don't necessarily understand and dismiss them when someone is pointing them out to you in an implicit manner, as the board is to bobjunior.

If I had roughly net worth equal to purchase price, I may very well decide to take the ARM. However, I would not do so thinking "I'm saving $300 a month.". Rather, I'd think "in the average case, I'll save $100 a month: $200 is insurance. In all likelihood, I'll save more than that, but under certain cases I'll end up losing $1000 a month. My risk appetite can handle that level of risk to save $100 average-case."