Find The Best Mortgage That Meets Your Needs
Your Loan Type
By understanding the various financing types and their advantages, you’ll have the knowledge and confidence to choose the most appropriate home loan for your situation and future goals.
Your Future Goals
The type of loan you obtain will depend on your goals for the property. If you have a shorter term horizon (intend to sell the home in three years, for example) then a 5/1 ARM is advisable. These ARMs come with rates between ½ of a percent to a full 1 percent lower than 30 year fixed rates loans. If your horizon is longer term or if you are uncertain, we recommend 30 year fixed rate financing, especially when rates are near historical lows.
What are “Conventional” or “Conforming” loans?
Conventional loans “conform” to Fannie Mae or Freddie Mac guidelines. They have the lowest rates for two reasons: (1) they are for the most qualified borrowers; and (2) they are subsidized by the Government. Conventional Loans can be broken into two sub-categories: “Standard Conforming” for loan amounts up to $417,000 and “High Balance Conforming” for loans from $417,000 to $625,500. Interest rates for loans below $417,000 tend to be about 1/4 of a percent lower than high balance rates.
The vast majority of Conforming Loans are 30 year fixed rate mortgages, although there are some very competitive 5/1 and 10/1 ARMs available. A 5/1 ARM is an adjustable Rate mortgage that is fixed for the first five years before rolling over to an adjustable rate. When 30 year fixed rates are below 6%, near historical lows, it is highly advisable to permanently lock in such low rates. We therefore do not often recommend ARM loans.
What Can I Afford?
The appropriate loan type will depend on a variety of factors, such as purchase price, down payment, expected length of time in the property, and what you can comfortably afford. JVM loan specialists have access to a comprehensive list of loan programs for over 50 lenders to help you determine the best program for your situation.
Your Down Payment
Conforming Loans require a down payment of at least 3% of the purchase price if the loan amount is $417,000 or less in most areas (that 3% must consist of seasoned funds or savings). If a loan is in excess of $417,000, at least 10% of the purchase price will be required for a down payment.
FHA financing requires 3.5% of the purchase price for a down payment, but the entire down payment can be a “gift” from a relative. You do not need to have “seasoned funds” or savings for an FHA down payment.
There is also a 1% down payment loan known as a CHDAP Loan. These loans have an FHA first mortgage equal to 96% of the purchase price, a second mortgage equal to 3% of the purchase price, and a 1% down payment requirement. There are no payments due for the 2nd mortgage; it only accrues interest. This loan program has income limits and the first mortgage cannot exceed $417,000.
Please Note that Conforming Loan financing that involves less than a 20% down payment will require “mortgage insurance”. This insurance is equal to about 0.32% (for 15% down) to 1.10% (for 3% down) of the loan amount and it is usually paid on a monthly basis. The mortgage insurance rate is determined primarily by the loan-to-value ratio and your credit score. FHA financing almost always requires mortgage insurance, irrespective of down payment size.
“Documentable” income is essential to qualify for a competitive rate in today’s lending environment. In assessing your qualification, lenders evaluate your “debt ratio”. Your debt ratio is the total of your monthly debt obligations divided by your monthly gross income. Depending on your credit and other factors, allowable debt ratios range from 42%- 57%. With respect to income documentation, our loan specialists will help determine what you qualify for. There are still some loans that do not require income documentation, but such loans are either “hard money loans” (requiring 30% to 35% down and substantial fees) or “high net worth loans” (requiring seven figures or more in liquid assets).
Real Estate Broker, CA Dept of Real Estate, DRE# 01524255, NMLS# 335646