Is There A Current Program That Will Quickly Enable Us To Buy a Bigger, Better Home? Is an Adjustable Rate Mortgage a Smart And A Safe Solution At This Moment?

Mortgage interest rates have been declining for a while now, so you may not even think about an adjustable-rate mortgage (ARM). There are a few reasons an ARM might make good sense for you financially even with today’s low 30-year fixed mortgage interest rates. ARM interest rates can be up to half a percentage point (or more) lower than a fixed-rate mortgage, especially when it comes to Jumbo ARMs and Super Jumbo ARMs. In high housing cost markets like Los Angeles and Orange County, along with many other high-cost counties in the State of California, a half-point difference in mortgage interest rate could help you to buy a bigger, better house.

What are the advantages of an Adjustable Rate Mortgage (ARM)?

As long as ARMs offer lower interest rates than fixed-rate 30-year mortgages, you may be able to qualify for a larger loan and therefore, a bigger, better house.

For example, if you wanted to buy a $1 million home, put 20% down, and apply for a 5/1 ARM at 3.35% interest, your monthly payments (excluding taxes and insurance) would be about $3,540. At 3.99% interest and a fixed-rate 30-year mortgage, your monthly principal and interest payments would be more than $3,800.

If there is no difference in interest rate between a 30-year fixed-rate mortgage and a 5/1 ARM, then the ARM won’t help you to qualify for a higher loan amount and a bigger house.

What are some pitfalls of an ARM?

ARMs come with different terms. Common ARM terms are 3/1, 5/1, 7/1, and even 10/1. The first number indicates the number of years you’ll have your initial interest rate locked in. So, a 5/1 ARM will have the same interest rate and monthly payment for five years. The second number indicates how often the rate can change after the initial rate period. You’ll notice all the common ARMs can have their interest rate change every year after the initial fixed-rate term. By “change”, you’re right — the biggest pitfall with an ARM is the potential for the interest rate, and monthly payment, to go up every year after the initial fixed-rate term.  Watch our short video clip below that explains the 3 Reasons why you should consider an Adjustable Rate Mortgage.

If you’re interested in an ARM so you can buy the home you want, and save on the compounding effect of interest, you should work with an experienced mortgage professional to locate an ARM that has terms you can understand and live with. ARMs can have caps on the amount their interest rate can go up when the fixed-rate term ends. They can also have a cap on the total interest rate increase over the lifetime of the loan.

Sources

https://www.realtor.com/advice/finance/i-got-an-adjustable-rate-mortgage/

https://www.nerdwallet.com/blog/mortgages/pros-cons-adjustable-rate-mortgages/

https://www.cnbc.com/2019/08/23/why-you-might-want-to-rethink-getting-an-adjustable-rate-mortgage.html

https://www.mortgagecalculator.org/calcs/5-1-arm.php

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Jumbo Mortgages Demystified: The Top 10 Must-Knows

 

Deciphering the Jumbo Lexicon

For the uninitiated, a jumbo mortgage stands apart for its size, typically exceeding standard loan limits. But the exact threshold varies. In many U.S. counties, it’s any mortgage over $484,350. However, in high-end markets like LA and Orange counties, the jumbo cut-off rises to over $726,525, with ‘super jumbo mortgages’ soaring even higher, sometimes into the $10M to $20M range.

10 Vital Insights into Jumbo Mortgage

  1. Nonconforming Nature: Jumbo loans are termed nonconforming because they surpass the loan limits set for entities like Fannie Mae and Freddie Mac.
  2. Conventional Yet Nonconforming: Despite being nonconforming, jumbo loans are still conventional mortgages, which means they aren’t government-insured.
  3. Versatile Interest Rates: Interest rates on these loans can be either fixed or come with an adjustable APR.
  4. Sturdy Credit is Crucial: The credit score prerequisites for jumbo loans are stringent, often demanding scores of 700-720 or even higher.
  5. Low DTI Ratio: Ideally, your debt-to-income (DTI) ratio should be below 45%. While there are options with higher DTIs, they come with a higher interest rate.
  6. Cash Reserves: Lenders often expect proof of sufficient cash reserves covering up to a year’s mortgage payments.
  7. Paperwork Galore: The documentation for jumbo mortgages is comprehensive, encompassing tax returns, bank statements, investment accounts, and sometimes more.
  8. Double Appraisals: Given the risk they represent, lenders might seek two appraisals to ascertain the property’s value.
  9. Hefty Down Payments: A significant down payment, ranging from the values of 10% to 20% of the purchase price, is a given with jumbo loans.
  10. Competitive Interest Rates: Interestingly, in markets like California, jumbo mortgage rates can be as competitive as, or even lower than, those for standard loans.

Beyond Borders: Jumbo Loans for Non-US Citizens

A noteworthy mention is that these oversized loans aren’t exclusive to U.S. citizens. Permanent residents and even foreign nationals can venture into the jumbo or super jumbo mortgage realm, opening doors to opulent properties and luxury dwellings.

Jumbo mortgages might seem daunting with their voluminous nature and intricate requirements. However, they pave the way to prestigious properties and upscale residences. So, if a luxurious home in LA, Orange County, or any premium locale is on your horizon, arm yourself with this knowledge, collaborate with a jumbo mortgage expert, and make that dream a reality.

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Higher LTV ratios may lead to higher rates and larger down payments. Understanding how they impact your mortgage is key to making informed decisions.

impact of mortgage

A higher LTV ratio can result in increased rates and larger down payments. Understanding how this impacts your mortgage is crucial to make informed decisions.

Comprehending the loan-to-value (LTV) ratio is vital when purchasing a home and obtaining a mortgage. It influences not only mortgage qualification but also interest rates, down payment requirements, and the necessity for mortgage insurance. We’ll explore how your LTV ratio affects mortgage rates and down payments and offer tips on managing it to your benefit. Let’s begin!

Your loan-to-value (LTV) ratio plays a significant role in determining your mortgage interest rate. Lenders use the LTV ratio to evaluate risk; a higher LTV ratio implies a greater risk for the lender. Consequently, borrowers with higher LTV ratios may face higher interest rates. For instance, if your LTV ratio is 90%, you might receive a higher interest rate than if your LTV ratio were 75%. This is because a 90% LTV ratio represents a higher lender risk, as they may not recover the property’s total value in case of foreclosure. On the other hand, a lower LTV ratio may qualify you for a reduced interest rate. A lower LTV ratio signals a lower default risk, as you have more equity in the property and are more likely to continue payments despite financial challenges.

LTV and Down Payments

Your LTV ratio also affects down payment requirements. A higher LTV ratio poses a greater risk for the lender since they might not recover the property’s full value in case of foreclosure. As a result, borrowers with higher LTV ratios might need to make larger down payments. For example, a 90% LTV ratio may require a larger down payment than a 75% LTV ratio. The lender wants to ensure you have more equity in the property, reducing their risk. In contrast, a lower LTV ratio may not necessitate as large of a down payment. For example, with an 80% LTV ratio, you can put down as little as 10% of the purchase price and still qualify for the mortgage.

Mortgage Insurance and LTV Ratio

Another aspect influenced by your LTV ratio is the need for mortgage insurance. Typically, borrowers with LTV ratios above 80% require mortgage insurance, as it offers a layer of lender protection in case of default.

However, with a lower LTV ratio, you may not need mortgage insurance. This can save you money on monthly mortgage payments and help you qualify for a more considerable loan amount.

Understanding how your LTV ratio affects mortgage rates and down payments is essential for obtaining a mortgage. Making a larger down payment or exploring different mortgage programs can lower your LTV ratio and save money in the long run.

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