Financing a Co-op Purchase with an ARM Mortgage in NYC
Can I Use an Adjustable Rate Mortgage When Buying a Co-op in NYC: https://www.hauseit.com/adjustable-rate-mortgage-arm-co-op-nyc/
Calculate Your Buyer Closing Costs: https://www.hauseit.com/closing-cost-calculator-for-buyer-nyc/
Many co-op buildings in NYC have restrictions on using an adjustable rate mortgage. Some co-ops prohibit adjustable rate mortgages altogether, while others allow them subject to certain guidelines.
Co-ops which permit the use of ARMs often require a higher down payment in addition to a stress test of your debt-to-income ratio based on the lifetime interest rate cap of your loan.
If you’re thinking of buying an apartment, you can estimate your buyer closing costs in NYC using Hauseit’s interactive closing cost calculator available at www.hauseit.com.
You can also save money on your purchase by requesting a Hauseit Buyer Closing Credit.
What Is an Adjustable Rate Mortgage?
An adjustable rate mortgage is a loan with an interest rate which periodically adjusts based on a particular index or benchmark. Adjustable rate mortgages, also known as ARMs, are a popular option for buyers since the initial interest rate is typically lower than the fixed rate on a 30-year mortgage.
Most adjustable rate mortgages today are hybrid ARMs with an initial fixed interest rate period. Two popular examples are the 5/1 ARM and the 7/1 ARM, under which the initial interest rate remains fixed for 5 or 7 years respectively before adjusting every year thereafter.
It’s typical for an Adjustable Rate Mortgage to have a cap on how much the interest rate may increase between each period and a cap on the maximum lifetime interest rate increase over the life of the loan.
How Does an ARM Mortgage Affect Your Co-op Debt to Income Ratio?
An ARM is risker for a co-op building. This is because rising rates increase your monthly payment and thereby raise the amount of your income which goes towards housing expenses. In other words, rising rates reduce your debt-to-income ratio. Co-ops do not like this, as a higher debt-to-income ratio increases the risk that you might not be able to afford your co-op monthly maintenance payment.
As a result, many co-op buildings in NYC prohibit the use of adjustable rate mortgages. Those which permit the use of ARMs will often ‘stress test’ your debt-to-income ratio by requiring you to calculate it under the maximum interest rate allowable under the ARM.
This conservative calculation methodology makes it all but impossible for an average income buyer to meet the co-op’s debt-to-income requirements. This co-op essentially prohibits ARMs in all cases except for someone whose income is stratospheric, and if that were the case the buyer would probably be looking at a much larger apartment in a different co-op.
Save Money with a Hauseit Buyer Closing Credit: https://www.hauseit.com/hauseit-buyer-closing-credit-nyc/
#hauseit #hauseitnyc
https://www.hauseit.com
Calculate Your Buyer Closing Costs: https://www.hauseit.com/closing-cost-calculator-for-buyer-nyc/
Many co-op buildings in NYC have restrictions on using an adjustable rate mortgage. Some co-ops prohibit adjustable rate mortgages altogether, while others allow them subject to certain guidelines.
Co-ops which permit the use of ARMs often require a higher down payment in addition to a stress test of your debt-to-income ratio based on the lifetime interest rate cap of your loan.
If you’re thinking of buying an apartment, you can estimate your buyer closing costs in NYC using Hauseit’s interactive closing cost calculator available at www.hauseit.com.
You can also save money on your purchase by requesting a Hauseit Buyer Closing Credit.
What Is an Adjustable Rate Mortgage?
An adjustable rate mortgage is a loan with an interest rate which periodically adjusts based on a particular index or benchmark. Adjustable rate mortgages, also known as ARMs, are a popular option for buyers since the initial interest rate is typically lower than the fixed rate on a 30-year mortgage.
Most adjustable rate mortgages today are hybrid ARMs with an initial fixed interest rate period. Two popular examples are the 5/1 ARM and the 7/1 ARM, under which the initial interest rate remains fixed for 5 or 7 years respectively before adjusting every year thereafter.
It’s typical for an Adjustable Rate Mortgage to have a cap on how much the interest rate may increase between each period and a cap on the maximum lifetime interest rate increase over the life of the loan.
How Does an ARM Mortgage Affect Your Co-op Debt to Income Ratio?
An ARM is risker for a co-op building. This is because rising rates increase your monthly payment and thereby raise the amount of your income which goes towards housing expenses. In other words, rising rates reduce your debt-to-income ratio. Co-ops do not like this, as a higher debt-to-income ratio increases the risk that you might not be able to afford your co-op monthly maintenance payment.
As a result, many co-op buildings in NYC prohibit the use of adjustable rate mortgages. Those which permit the use of ARMs will often ‘stress test’ your debt-to-income ratio by requiring you to calculate it under the maximum interest rate allowable under the ARM.
This conservative calculation methodology makes it all but impossible for an average income buyer to meet the co-op’s debt-to-income requirements. This co-op essentially prohibits ARMs in all cases except for someone whose income is stratospheric, and if that were the case the buyer would probably be looking at a much larger apartment in a different co-op.
Save Money with a Hauseit Buyer Closing Credit: https://www.hauseit.com/hauseit-buyer-closing-credit-nyc/
#hauseit #hauseitnyc
https://www.hauseit.com
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