My Newbie Qs

[Jeff Lee]

About Me
Hello, everyone! I'm Jeff, a 29 (soon-to-be thirty) year old looking to explore the world of real estate. Specifically, I'm looking to buy, renovate, and rent out property. I have no experience, but I'm taking advice from my cousin and his father.

The two of them currently operate half-a-dozen or so rent homes. I'll definitely ask them for advice, but I also want to hear what the BP community thinks. After all, it never hurts to take in more opinions.

The Purpose of this Thread
I don't want to create a thread for every question I've got for which I'm sure there will be many. Therefore, I'll rather condense it to a single thread and not spam the forums.

Questions

Situation: I'm looking to purchase a house for $50k. I'm pondering how I should finance the mortgage. A 5/1 ARM looks real enticing with its interest rate under 5%.

#1. Should I go with an 5/1 ARM? I literally began reading about them within 24 hours. Are there better options out there?

#2. I have enough capital to buy the house outright, but I'd rather finance the house with a $50k loan and put down 50% (if possible). This would allow me to have enough money in the bank should I go after another rental property sometime down the road (2-3 years). Opinions?

#3. Can I pay back the (ARM) loan back after 2-4 years before it goes into 'variable interest rate mode' without paying any additional fees? I ask this because the rate seems too good to be true. Is there a catch?

#4. Are there any minimum/maximums with ARMs? I'm using the search at Bankrate and based on where I live (Bossier City, Louisiana), it seems I get no results unless I use 20% down or less. (I'd much rather put 40% or more down. I hate paying interest.)

[Eric Black]

Hi Jeff and welcome to BP,

It sounds like you have some great resources with your cousin and uncle. And of course you now have BP as well!

Here are my responses to your questions and these are just my opinions:

#1) If you have the money to pay off the loan if necessary, ARM's can be a good avenue. You just don't want to get stuck in one once interest rates start to rise, which is a whole other discussion/debate.

#2) This is a matter of opinion. Some would say, use as little of your own money as possible, and there is some truth to that. Others will say, pay all cash and then refinance after you've fixed the place up and rented it out once you have another place to buy. There is no right or wrong way.

#3) This will vary based on each bank. Some may charge you a "pre-payment penalty" meaning that if you pay it off early you'll be charged a fee. Others will not. You will need to check with different banks. The rate will also vary by bank.

#4) Again, this is something that will vary by bank. Some banks have different minimums and limits. Bankrate is a useful site however they give general information. Rates and minimums will vary based on the bank and the borrower.

Best of luck!

Eric