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Conventional Loans                                                                                                                               

Conventional loans fall into several categories:

  • Fixed- Term is for 15, 30, or 40 years. Interest rate will not change for the life of the mortgage.
  • Balloons- The fixed term is for 5 or 7 years with the rate changing once  at the end of the fixed period to another fixed  for the remainder of the term. Expressed as  5/25 or 7/23, balloon loans are useful in arising  rate market as rates are often  below the 30 year rate. Balloons can also be a good choice if you expect to remain in a property for less than the fixed period. Balloons have been restricted to conforming limit but some lenders are making balloons available for higher amounts.
  • ARMs- Adjustable Rate Mortgages have a fixed rate for a period usually 1, 3, 5, 7, or 10 years with an annual rate adjustment. They are usually expressed as 1/1, 3/1, 5/1, etc. Following the initial fixed period, the new rate is determined by adding a margin to an index. For example, a common index is the 1 year Treasury Weekly Index. If your ARM has a margin of 2.750 (margins can vary from 2.500 to 3.000 depending on lender and product) and the index was at 5.33 your new rate will be 8.080%. ARMS, like balloons, can be a viable option if you select a term appropriate for your plans. Also, I have several clients who have adopted a strategy  where they determined that the low rate associated with a 1 year ARM saves them more money than the cost of an annual refinance. It may be worth looking at to see if it works for you. New is our ARM Alternative conventional loans. Low start rates with the security of a fixed rate.

Conforming vs. Jumbo

The conventional loans conforming limit is an amount set by Congress and is the maximum loan size eligible for purchase by either Fannie Mae or Freddie Mac, two Federally chartered organizations who purchase the underlying securities from mortgage originators. Those funds are reinvested in new mortgages completing the flow of funds cycle.

The current conforming limit is set at $417,000. Any loan amount above that figure is considered a Jumbo loan and is often subject to an interest rate pricing premium as well as to some additional underwriting restrictions. A common strategy to lower overall interest costs if your purchase or refinance balance is above $417,000 is to use a combination of both first and second trust money, referred to as an 80/10/10 conventional loans, 80/15/5 conventional loans or 80/20. Every situation is different, but it is one more option to consider.

 

We offer you the ability to qualify and close into several unique programs which accommodate borrowers with non traditional income or asset situations. Please visit my No Documentation loans page.

Many of my clients are converting from fully amortizing payments to an interest only conventional mortgage loan approach with a significantly lower monthly payment. I have some extensive information available. Read more to see if this powerful tool could work for you.

I have included a page on how to calculate your conventional loans qualification ratios.

I have included a page on conventional loans documentation requirements.

Read more about Conventional Loans Closing Costs

I also have a report "Buying your First Home" available by email.

I have an article "Buying your home in 2008" by email explaining negotiating strategy in today's market.

* I have included a section on the new Cash Flow ARM. A LIBOR based product which gives you complete flexibility in managing your mortgage.

As a Certified Mortgage Planning Specialist, I offer an analysis of your situation today can make suggestions on how small changes in how your consumer and mortgage debt is structured today can have a life changing effect in the years to come.  Read more about this free, no obligation service.