Conforming Loan

CREDIT SCORE: Generally speaking: In order to get a conforming loan from Fannie Mae or Freddie Mac, a person must be in good credit standing with a tri-merged credit score of about 620 and above. Sometimes there are minor exceptions to this as we have gotten people with 610 scores normal conforming loans. If you believe your credit is not up to where it should be, you may still be able to get a conforming loan but do to the circumstances, you may get a higher rate or have to pay more closing costs. If you think your score needs improvement, please take a close look at our section on (Credit Information)

DEBT RATIO: To get a normal conforming loan, a person should not be spending more than 38% of their available gross monthly income on their fixed expenses. However, sometimes these rules can often be bent if the loan still looks good. Many times a person with a 55% debt ratio can be accepted for a conforming loan depending on other factors. Debt Ratio expenses include credit cards, auto payments, other mortgages, student loans, and/or any other type of installment or credit line with a promise to pay. Often it does not include cell phone payments, other phone bills, cable, food, water, utilities, or any other debts the the borrower did not sign a promise to pay for. If you believe your debt ratio is too high, you may still be able to get a conforming loan but do to the circumstances, you may get a higher rate or have to pay more closing costs. If you would like to improve your debt ratio, please Contact our VIP service at 248-505-6926 or at Info@mortgages-mi.com and we'll take a look at some ways to get your debt down. You may be pleasantly surprised how much money you can save by paying off credit cards and other expenses with the equity in your home. The greatest part is the interest payments from your conforming loan are tax deductible, unlike credit cards and other expenses, so most of the time it is the best financial move to consolidate by using some of the equity in your home.

INCOME: In order to get a normal conforming loan, a person needs to prove income. This can be done in several ways: Providing last 2 years W-2 forms(the best way for the typical employee), Providing last 2 years tax returns (A must if self employed, bonus income, commission income, or a person's business income is needed), Providing a Verification of Employment (VOE), and or the last 2 pay stubs for the borrower. Since income is used in calculating debt ratio, it is extremely important that this information be as accurate as possible from the start.

LOAN TO VALUE(LTV): For a normal conforming loan, a borrower can borrow up to 95% LTV for a purchase and 95% LTV for a refinance. The higher LTV amounts require higher credit scores ie (90% 640score, 95%, 660score) and so on. However, anytime you borrow a single 1st mortgage loan greater than 80% of the value of the home, you will be required to pay Private Mortgage Insurance or (PMI). The percentage that you are charged for PMI is based on the LTV of the first loan. PMI is not tax deducible and unless necessary, should be avoided if possible. The good news is that we can often keep our clients from paying PMI insurance by doing a 1st mortgage loan at 80% LTV and a second loan for the remainder. The bad news is that second loans cost money and since we keep our margins tight, they are often passed off to the borrower. Nonetheless, if you paid an extra $900 and you save $100 a month, it would only take you 9 months to get your money back. Therefore doing a conforming 1st and 2nd loan makes perfect sense. Keep in mind if your conforming loan amount is higher, we may be able to cover most or all of these extra costs. In addition, there are a few lenders who have some excellent rates at 100% financing with no PMI, but these programs require a good credit score of about 720 and a debt ratio of no more than 50%.

30 YEAR FIXED- (360 months)The most common conforming loan program designed to keep your payments relatively low by amortizing them over 30 years. Throughout the life of the loan there is a slightly increasing amount of principal dollars each month put in with each an every payment. This means slowly over time your principal portion of your payment grows while your interest portion decreases. Because it is amortized over 30 years this process is very slow. Therefore we recommend this loan only when finances are limited, qualification is difficult, or when the borrower knows they will stay in the home for a long time and desires a low fixed payment. We do not recommend this loan for persons staying in the home for 5 years or less.
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20 YEAR FIXED- (240 months) Not common amongst all lenders but an increasingly important conforming loan as many borrowers desire the perfect match between a low payment and paying down more principal. The rate is usually only about .125% better than the 30 year fixed rate so there is not much gain there. However, anytime you can decrease your term on a loan it will be a huge savings in the long run on interest.
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15 YEAR FIXED - (180 months) The second most common type of conforming loan. This is the number one loan that we recommend, if affordable, as it is usually the perfect balance between principal and interest payments. Often you will get a rate of about .50% or more better than the 30 year fixed. Therefore many times if you can afford it, the drop in rate helps to offset the increase in principal payment. This conforming loan will save you hundreds of thousands of dollars so if you know your going to be in the home and can afford this higher payment, it will serve you very well come time to sell
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10 YEAR FIXED - (120 months) The lowest of the fixed rate terms. This conforming loan is beneficial for the borrower with extra capital to put down. The rate is usually only .125% better than the 15 year loan but if you can afford the payment, it makes perfect sense. If you going to consider a 10 year loan, There may be an option of getting a 10 year arm for slightly less and then just paying more principal on your own. However, the 10 years arm programs don't always make sense in this case as the rates vary from time to time.
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7 YEAR ARM - (360 months) This is basically the next in line available conforming loan program designed for the borrower who knows that they are going to move or pay off this loan within about 8 years. The reason that we say 8 years instead of 7 is the loan can and probably will start to move up in interest rate after the 7th year. Since arms generally can only move up a maximum amount of about 2.0% per year, it can often make sense for a person who is on an 8 year plan. The rate for the 7 year arm is usually around the same as the 15 year but gives the borrower the flexibility of being able to make a much lower payment since it is amortized over 30 years. Please keep in mind that the wholesale lenders don't pay the brokers quite as much compensation for this type of loan. Therefore you may have to pay more closing costs for this program.
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5 YEAR ARM - (360 months) Much like the conforming 7 year arm but usually about .25% better in rate. We usually only recommend this loan for the individual who knows they are moving in less than 5 years or by some chance plan on paying it off. Just like the 7 year arm there may be more closing costs associated with this loan due to a decreased margin of revenue for the broker.
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3 YEAR ARM - (360 months) Just like any arm but usually .25% to .375% better in rate than the 5 year arm. We only recommend this conforming loan for individuals who are going to move in the near future or know there finances are going to improve substantially and need the extra cash flow right now. Keep in mind that the revenue paid to the broker by the wholesale lender on these 3 year arms may dictate that more money will be needed from the borrower to cover closing costs
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5 YEAR INTEREST ONLY ARM - (360 months) Interest only loans are the new craze. They just came out recently and everyone just loves them. The truth is these loans are best suited for the person who has plenty of capital to work with. However, most of the time the person who has little capital to work with is the one requesting them. After the term expires on these loans they turn into a normal principal paying arm. Therefore should you get near the expiration, you could be facing a significant jump in monthly payment. In addition, since the borrower has made no dent in the principal of the loan, it could be disastrous. Therefore we recommend these loans with caution for persons who know there cash flow will get much better or know they are going to move within the specified period of time. Again arms don't pay the brokers well, so the borrower could face increased closing costs.
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3 YEAR INTEREST ONLY ARM - (360 months) Same as the 5 year interest only conforming arm but usually .25% to .375% better in rate. This is about as low as a person could get their payment. If you wish to calculate your interest only payment here is the formula (Loan Amount multiplied by Interest Rate divided by 12 months). Keep in mind that this will not be your actual payment if your property taxes and home owners insurance need to be escrowed. As you can imagine this loan is one of the the worst revenue providers to the broker so plan on paying some closing costs unless you have a large loan amount of about $250,000 or more.
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5 AND 7 YEAR BALLOON LOANS - These loans are somewhat of a dying breed. The reason is nobody wants to be under the pressure of paying back the entire loan at the expiration of the term. In addition, the rates and wholesale lender payback to the broker do no dictate much if any benefit to the borrower. Therefore we don't really recommend these loans. In particular situations at particular times, they can be beneficial if you catch them on the right day. However, all too often it just makes sense to get an 5 or 7 year arm instead. Should you be interested in one, plan on paying some closing costs unless your loan amount is large.
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OTHER PROGRAMS - There are literally thousands and thousands of other types of programs to choose from. Most of them are designed for specific needs such as: No credit score, Bankruptcy ,Stated Income, Investment Properties, and much more. If you need to take a look at one of these unique programs you may contact us anytime at the address below.
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CONTACT US: info@mortgages-mi.com

MORTGAGES - MICHIGAN - CONFORMING LOAN

CONFORMING LOAN AMOUNT $359,650 AND UNDER

CONFORMING LOAN GUIDELINES AND LIMITS

CONFORMING LOAN PROGRAMS