ARM or fixed for a foreign purchaser? (loan, fixed rate, credit)

[Norwegianfamily]

Hello guys. We are really having difficulties choosing what type of loan to choose for our new purchased house in Florida...

As we are from Norway, the "deals" we get are not as good as for the regular American, thus the choice of program may be even more important.

The ARM seems most appealing to us, as we believe interest-rates are on the decrease.

For arguments-sake, let´s say that we are 100% sure that interest-rates will drop the coming years when arguing the various solutions.

The problem with the ARM is that they follow these different indexes. The one we have been offered follows Wachovias internal index as far as we understood from the loan-officer, which is not necessarily on par with the federal reserve and the market as such. Also, the loan is indexed based on the interest-rates from this index the last 12 months...

The problem with the fixed rate is that the offers we get are rather high, above 7% when "regular" Americans get them for about 5,5% (for example 30-year-fixed).

The 1-year ARM is offered at 6,5%, and the 3-year ARM at 6,3%, both with a 1-year pre-pay penalty, thus we may choose to re-finance after a year, although this will cost quite a lot (4-6000USD).

I hope this is not getting to technically for you guys, but any advice here would be greatly appreciated!

[TimtheGuy]

How long do you plan on owning this home?
If you plan on owning it for any length of time I would take the fixed for sure.
Rates could go down a little bit, BUT they could go up a lot!

[renriq02]

why wouldnt you get these rates?

do you have the necessary requirements to qualify for a regular loan?

If not, I would get a loan with no discount points....and very low fees.

In 2yrs....you may qualify for the regular program..and you can refinance then. Just try to get the lowest cost....because you should be able to get a loan with 2yrs residency. 2yrs of credit...2yrs of US employment.

Whether this will be an ARM or Fixed...just look for the lowest rate.

[Daddys///M3]

Without more details regarding your immigration status, it is impossible to determine why the rate would be higher than what "regular Americans" could get. If this is the Foreign National program that Wachovia offers than that may be the answer why. Basically the borrower must have 30% down, a passport, and a United States bank account. The program itself is inherently riskier, hence the higher rates. How long have you been in the country? What is your immigration status? What are your short and long term goals regarding the property as well as your immigration status? The answers to these questions would make it a little easier to advise.

[Norwegianfamily]

Hello again and thanks for the inquires.

We will be using this house as our second-home, and we are not planning on becoming US citizens. We will rent the house to Americans in season (November to May) and stay there for a month or so each year ourselves.

We seem to have to try to figure out;

1. As we do not plan to become US citizens; will be ever be able to apply for the same rates as normal US citizens? We have been advised to get a lot of US credit-cards, use these and pay the bills promptly to increase our credit-rating (weird system you have over here... ), but as we will remain foreign the question is if this will have any implication whatsoever.

2. As for the fixed vs. the floating rent - as this is a new purchase made quite on impulse, we may want to reallocate the house within some years... Thus, the pre-pay penalty should not be longer than a year, but that is the case on most programs anyhow it seems. However - we still do not understand what the index used on setting the interest-rate on the ARM will mean to our calculated interest after the first year... As the interest-rates provided from the federal reserve are on their way down, one should generally think that this index will be influenced by this within some time and thus save us money from year 2-3 and onwards (until the rents increase again, of course).

We have a firm economy, and can handle an increase in rents risk from the ARMs, but we are still uncertain on the the implication of the index used on these loans from Wachovia...

Thanks again, it really is a jungle of possibilities and potential wrong decision-making over here when it comes to mortgage, thus ALL advice is HIGHLY appreciated!

[Daddys///M3]

As a foreign national purchasing a second home you will not be able to get the same rates that citizens, permanent resident aliens, and non-permanent resident aliens get. Wachovia is the only lender I know of that is doing foreign national loans, but that doesn't mean that there aren't others. The COSI (cost of savings index) is actually pretty stable when compared to others such as the CMT (constant maturity treasury). The peaks are lower and the troughs are similar. Also, I don't know if this is what's being offered, but don't go with the Pick-A-Pay plan unless you understand exactly what it is.

[TimtheGuy]

Judging from the rates you were quoted, there is little/no incentive to opt for the ARM.