Conforming Adjustable Rate Loans (ARM)

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These loans are amortized over a 30 year period, but the introductory interest rate is fixed for a specified period (indicated in the name – 5/6 ARM has the introductory rate fixed for 5 years) and then it becomes a variable rate depending on the market at that time. Our products include the 5/6, 7/6 and 10/6 Adjustable Rate Mortgages (ARMs).

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Loan Amounts $75,000 to $726,200 (1-unit)

Up to $929,850 (2-unit)

Up to $1,123,900 (3-unit)

Up to $1,396,800 (4-unit)

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Minimum credit score 620. If there is more than one borrower, we will use the lowest middle score among all borrowers.

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Single Family Home

Condominium

2-4 Unit Properties

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Why Conforming Adjustable Rate?

Normally they have the lowest rates available in the market, you can get a rate that is lower than a 30 Year Fixed Rate loan, keeping your monthly payment low.

Tips

• We would suggest this loan product group for someone who is planning on refinancing this loan or selling the home within 5 years or less. So they can avoid getting into the adjusted rate period. We have clients who refinance into new ARMs or just move it into a fixed rate loan, should rates be favorable in that product group.
• Once the introductory interest rate period is over (either 5, 7 or 10 years), this loan will adjust. Let’s go over how that works. You would reference the 30 day SOFR index and add that number to the margin (3.000%). That will create your new interest rate in which the monthly payment will be calculated. You would want to plan on getting out of the loan before that occurs, so you aren’t subject to an unknown adjustment.
• There are limits how large the adjustment can be, those limits are called Caps. All of our ARM loans have the Caps; the first CAP indicates how much the interest rate can move on the first adjustment, the subsequent CAP indicates how much the rate can move on each adjustment after the first (and thereafter), the last CAP is the maximum the loan interest rate can increase over the life of the loan.

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Home Purchase

Down Payments

Minimum Down Payments vary depending on several parameters including occupancy type (primary, second home or investment), property type, & credit score. Generally, these rules follow for minimum down payment and a 620 credit score:

• Primary Residence: 5%, 15% for two units, 20% for 3-4 units.
• Investment Property: 15%, 25% if two to four units.
• Second Home: 10%

Mortgage Insurance (MI)

If you are putting down less than 20%, you will have mortgage insurance added to the loan. There are two options available to you on how to add it:

*Note, the better your credit score and the more down payment, the less expensive MI is.*

• PMI: Private Mortgage Insurance, a monthly amount charged to you in addition to your principle & interest mortgage payment.
• LPMI: Lender Paid Mortgage Insurance, you have zero additional monthly payment, but your interest rate pricing will be a bit worse than doing PMI. This pricing is not available on our website, so please call or email us for a quote.

While PMI may give you a higher monthly liability than LPMI. For PMI, once you reach 80% loan to value, you can cancel the PMI and keep your lower interest rate.

Qualifications

For ARMs, you are not qualified on the interest rate you locked in at, but rather the greater of that rate or the margin (always 3.00) plus the current value of the 30 day SOFR index for the 7/6 & 10/6 ARMs. Or by the interest rate you locked in at plus 2% for the 5/6 ARM. At times, depending if the market is higher, this can make these loans a bit harder to qualify for.

Debt-to-Income ratio maximum 50%, although other scenarios may require a lower ratio, this is the absolute limit for most transactions.

Gift Funds May be used for primary or second home transactions only. Gifts can be from a relative, fiancé or domestic partner only. Minimum borrower contributions may apply on certain scenarios.

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Refinance Your Home

Loan to Value (LTV)

The loan to value is the loan divided by the value of the home, represented as a percentage. Loan pricing for interest rates depends on what that percentage is. With more equity, pricing improves as the risk for the loan decreases.

Maximum LTVs change depending on the occupancy type and type of property:

• Primary Residence:
  • Rate/term refinance (No cash-out): 95% max, 85% two unit, 75% three-four units.
  • Cash-out refinance: 80% max, 75% two to four units.
• Second Home:
  • Rate/term refinance (No cash-out): 90% max
  • Cash-out refinance: 75% max
• Investment Property:
  • Rate/term refinance (No cash-out): 85% max
  • Cash-out refinance: 75% max, 70% for two to four units.

Cash-Out

Cash-out interest rates will be more expensive than rate/term interest rates. The trick is to keep the LTV under 60% if possible, and then under 75%. You will see big improvements to pricing if you keep these markers in mind.

Qualifications

Debt-to-Income ratio maximum 50%, although other scenarios may require a lower ratio, this is the absolute limit for most transactions.

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