question about interest only loans

do boards frown on ARMS? Say 7-10 yr?

Usually not an issue w/ condos. Co-ops vary but in general, while ARMs are undesirable to boards, IOs are extremely undesirable. Having said that, i must afmit that i was recently approved by my board, a co-op on UWS, with a 7year ARM financing. But that is not the norm. Both the Seller's Agent & lawyer were very concerned during the time my package was being reviewed by the board, expecting some kind of a hiccup because of the ARM. Some co-ops will clearly state on application that IO &/or ARM is not permitted.

I/O = no-go

I didn't try to get an I/O past my board but they didn't bat an eye at a 10yr ARM.

Depends on the building, depends on the applicant. If you're just barely meeting the DTI and post-closing reserves requirements, I would err on the side of caution.

Ok but does this mean all or almost all coop boards will say no? How about 5 or 7 year arms? More info if anyone can provide would be appreciated
Thanks

Because of Dodd-Frank rules on qualified mortgages, I/O and I/O ARMS may soon become a thing of the past. I called a handful of lenders recently and none of them offered I/Os. One of the bankers told me that his bank may stop offering I/O ARMs as well as early as next year. For the time being, the lenders actively discourage I/O ARMs by offering them on less attractive terms (e.g., larger down payment) or with fewer options. I still found the I/O ARM worth getting, but it took some extra work and time.

This is amazing. Can anyone just please answer the question?

YES. That's your answer.

Guy, certain co-ops NEVER accepted interest only loans. Never have, never will. Co-ops where you want to invest hundreds of thousands of your hard-earned dollars don't take them.

Of course, if you're doing interest-only, then you're not really investing anything. You're a renter with debt.

Co-ops worth living in on the UWS that accept interest only loans: 0%

I visited a co-op on Sunday (not UWS but nice area) that is clearly in a big fiancial mess. They would probably take anything at this point, the lemmings are jumping off the cliff.

It varies entirely from building to building.

CONDOs: Many have a 10% down payment rule that is enforced.

The reason: Your defaulting on your loan hurts the building, whether it's a co-op or a condo. They want to make sure you have some skin in the game.

what does interest only have to do with skin in the game? are you really saying with a straight face that a building would reject an i/o loan with 50% down vs. a 30 yr fixed with 20% down?

in 2006, you would get maybe 20% of buildings allowing IO loans. today you'll be lucky if you find 2%.

"renter with debt" ... minus all that down payment non-sense

AB-11218 THANK YOU. HOw about 5 or 7 year ARMs? Any idea what percentage of buildings take those? Also, do condos prohibit Interest Only loans? We will be doing 20% -30% downpayment or can go higher if requireed by building or bank

Hey Guy & Cat - I/Os are an ABSOLUTE no-go. So don't even waste your time with that product if you're applying to a co-op.

5/7 or 10 year ARMs are acceptable in perhaps 30% of co-ops. Also, some application packages explicitly state that only a 30-year Fixed is acceptable, but if it is not stated, you should check with the Seller's Agent & the building's Managing Agent, before applying.

i can't say, but 7-10 yr will be more palatable then 5 yr. given the small spread, i'd go for safety as a buyer.

How about condos -- do any of them prohibit any of these instruments or with a condo am I pretty free and clear as long as i meet minimum downpayment requirements?

We're in a small co-op. We have allowed I/O loans in the past with mixed results. We continue to allow them on a case-by-case basis.

My own loan is I/O for 10 years, but with a fixed interest rate for 30 years - got it from Citi Private Bank last year. The co-op had no issue because we have 50% LTV and employment histories that make it clear we could easily pay principal if we wanted to. With interest rates where they are and so much equity already in the apartment, we just don't see any reason to pay principal v. build up other savings.

Guy: In condos you don't need approval per se. If you are putting down 30% it won't be a problem.