Nothing is more foreign to the average native New Yorker than the concept of home ownership. The vast majority of people in the five boroughs rent their small living space from a landlord, and deal with superintendents, noisy neighbors, roaches, shared laundry machines, trash disposal rooms, and alternate side of the street parking. I spent the first 31 years of my life living in rented spaces. The apartment in Queens that I grew up in, where I experienced my childhood, where my youthful memories reside, is now being rented by some other family who probably also lives two year leases at a time, just like my family did.
A few years ago, at the ripe old age of 32, I decided it was time to start looking at home ownership. Seemed to be a popular choice at the time, and I figured out that over my lifetime, I had paid over $60,000 in rent. Not a king's ransom by any means, but certainly I'd have been better off if at least some of that money went to equity I owned. And with rents in the NYC area rivaling the monthly cost of a mortgage, it was worth doing without for a while in order to get that down payment saved up.
I remember the massive effort involved in working out the specifics of getting a home loan. The paperwork, working on my credit score, buckling down on needless expenses. The government was kind enough to have a program called FHA that enables first time home buyers the opportunity to get into the game without plunking down the full 20% down payment. In the New York tri-state area, considering a meager home price of $300,000, 20% is $60,000 - no small sum for even the most disciplined to amass over a reasonable period of time. And although my credit rating was higher than sub-prime, it was not stellar by any stretch, I assure you.
While I was new to all of the requirements of home buying, and while this whole thing was an exploration for me, I remember distinctly when my mortgage broker suggested using an ARM (adjustable rate mortgage) rather than a fixed rate mortgage. I immediately said no. My mortgage guy let me know that I could probably save money over the short term by going with an ARM. And while that may be the case, in terms of home buying, variability just didn't seem like a smart feature to have in terms of monthly payments. This is basic common sense. Would you go for variable rent? I don't think so. I declined and went with a higher 6% fixed interest rate. It might be more than what others might have been getting — this was during 2004/2005, when rates were as low as 4% for some ARM folks. But I didn't care, I was more interested in ensuring that I could keep my home rather than save a few hundred bucks here and there for who knows how long, only to get squeezed out when the payments grew. Besides, isn't one of the benefits of home ownership that over time, by virtue of inflation, that the payments decrease (at least in terms of dollar value)?