can we please discuss this?

advantages and disdvantages.

Also would like to know which payment shows up on the bureaus

its just another tool in the toolbox. If you can pay now get a regular loan, if you'd rather pay later neg am is ok. I never advise anyone to get one of these on their personal residence unless they are an investor and know what they are doing. I give them a little 'I'm handing you a loaded gun' speech.

As for the payment on the credit report, I'm pretty sure the full payment is on there.

By full payment you mean the 30 yr am?

Yeah normally they have the fully indexed rate payment on the credit report.

Personally, I say if you cant afford the house with out going neg am, dont buy it. It's a good option to have if you're keeping the house for a "short" period of time.

As Aaron mentioned, if used correctly it's a good tool for investors as well.

But like I said, if you cant afford a $400,000 house paying regular payments, dont get the Option ARM to qualify. Remember that the loan recasts and the neg am option is removed once you owe 115% of your initial loan amount. Then you're really screwed if you've been depending on it the whole time.

These are awesome tools for your investors, especially in an area set for appreciation.

Some aggressive clients will hold all of their properties with this type of loan in order to buy as much property as possible and free up cash flow.

This type of loan is great in an up-market, however, because the borrower's mortgage balance is increasing each month, it can also be scary for borrowers that are not seeing appreciation in a property.

Take for example a property purchased for $100K in an area that is appreciating 10% a year. Regardless of what the payments are, the owner is makes $10K in appreciation for owning the property. Let's assume that the pay rate on the loan is 1% and the note is for the entire $100k (let's just do this for easy calculation purposes). The monthly holding cost for the property (1% pay rate) would be $322. Let's assume that that property can rent for $500 per month, with $100 monthly for taxes and insurances. This still leaves a positive each month of $88. Add in the $10K appreciation and the owner is doing well.

Let's say the owner does this with 10 properties. He is up $880 on a monthly basis and $100K in appreciation each month for a total of $110,560.

Not Bad!!!!

If the market is not appreciating, the story can be very different though.

Good luck,

I hardly offer these at all. But, investors yes. It is an amazing opportunity for someone in a rapid appreciation area like fast trax says. The minimum payment negative am sometimes is at a lesser rate than the appreciation! That allows the investor to afford more acquisitions. Even if it is just to afford more property it is a great program.

Primary residence... Well I try to only offer it to self employed, 1099, commission only, or salary + commission.. Fixed income and Salary are very tricky. Only if they qualify fully amortized. It takes a disciplined borrower too. I like to see no late pays at all. Or they better have a very good explanation supported by documentation.

I just try to make a judgment using my underwriting background.

So many times a lender who pushes this on TV, not mentioning any names, leads people in who want to buy a house for 2x what they truly can afford. Foreclosure rates are not that high amazingly and these products seem to perform quite well on the market.

But, 100% on a purchase is stupid. They should have money down and at least 2 months reserves.

But yes there are 2nds that will go 100%.

And sub-prime is bringing these loans out (Southstar) and that is going to be a big loser if you ask me.