2 different loan options

[Anonymous]

Thanks a ton for the input.  I have some very good arguments on both sides to mull over.  Good thing I still have a bit to decide (that in itself may make the decision for me).  I think the deciding factor may be the 0 down.  While 2% is not a big deal at all, cash is king, especially right now so I may have to take the chance on the ARM.  At least it seems to be fairly stable and not one of those "blow-up in yourface and lose your house" type ARMs.

[Anonymous]

Here is my 2 cents.

In 2 years your rate will be up to almost the fixed amount.

After 4 years you will be on the loosing side of this.

with the markets dropping, 0 down loan is a bad option right now.  Unless you are going to over pay your payments, you will probably need 5+ years or more to pay off enough that you can really refi the house to get out from your ARM if need be.

Banks will have little sympathy down the road for a refi on an ARM at this stage given all the negative publicity on ARMS.  We are well beyond anyone using the "I didn't know" excuse.

Unless you plan on selling within the next 4 years there is no GOOD reason to do the ARM. 

If you are planning on selling in the next 2 years you will take a big loss due to realtors fees and the current state of the market, particularly with a 0 % down loan.  Be prepared to pay out of pocket to settle the loan.

So, why are you considering the variable?  If you can not afford the fixed paymetns now, then you can not aford the house in general. 

Floating the variable (especially with 0 down) for a couple years is only a smart move in a upward moving market, and then only if you have the cash to cover the difference if you need to sell the property.  If you are planning on keeping the property, the fixed long term loan is much better.

[Anonymous]

Thanks Mickie.  It wasn't about if I could afford one or the other.  It was about if keeping the 2% cash in the bank and saving a few bucks for the short term were worth the risks of taking the ARM.  I know it would be pretty risky long term, and honestly who knows what will happen with the market in the next 2-4 years? Currently my broker is trying to push me in to a CalHFA loan which is a fixed 6.75 currently.  I may just need a new broker or LO because getting info on the FHA loans is like pulling teeth from him.  That being said however I understand that right now the interest rate on an FHA loan is a decent amount lower than 6.75%?

Anyhow, that is what I have been debating about, if the short term gain was worth the long term risk.  Right now there are alot of variables that could swing either way.