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Conventional Mortgages                                                                                                                               

Conventional  mortgages fall into several categories:

  • Fixed conventional mortgages- Term is for 15 or 30 years although it is common to set another term. Interest rate will not change for the life of the mortgage.
  • Balloon conventional mortgages- 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 a rising  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. If your plans change and you do stay in the property, there is a "conditional right to refinance" at the end of the fixed period. As your cost is usually $250 to "reset" the loan, far less that the typical  $1500 for a refinance. 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 are our ARM Alternative conventional mortgages. Email me with questions on conventional mortgages

Conventional Mortgages vs. Jumbo Mortgages

The conforming limit is a mortgage 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, 80/15/5 or 80/20. Every situation is different, but it is one more option to consider.

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

I have included a page on conventional mortgages documentation requirements.

Read more about Conventional Mortgages Closing Costs

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.

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 debt is structured today can have a life changing effect in the years to come.  Read more about this free, no obligation service.

Conventional Mortgages Prequalify for your Conventional Mortgages.

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