Fannie Mae and Freddie Mac have announced some changes in interest only amortization loans.
These changes are being made to 5 year and 3 year fixed adjustable rate mortgages (ARM).
The following interest only products are no longer eligible for delivery to Fannie Mae:
Cash out refinances
Investment properties
2 to 4 unit properties
The following transactions are still eligible:
1 unit purchases
Rate and term refinances (no cash out)
New Requirements:
Must be a primary residence or second home
Maximum loan to value and combined loan to value of 70%
Minimum credit score of 720
The borrower(s) must have a minimum of 24 months payments saved in liquid assets (Reserves)
Contact us before you start the home buying process because many loan programs are modified with little notice.
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It's not that the 'interest only' product was a bad idea . . .it was only bad when the market lost home values across the board. When the ARM was/is up, how can people re-finance?! That's where a lot of the propblem lays (lies, lay?) And if someone how 24 months liquid, why don't they just by down the interest rate, and not even deal with an ARM?
Great information for those with interest only homes Nevin. It's time to act people. Call Nevin today! He'll get you a loan!
And the rules and regulations just a keep on changin'. "The times they are a-changing."
My hat's off to you good lenders out there (and there are a lot of you) who keep up with the changing environment day to day -- or is it hour by hour?
My brother had done an interest only loan a few years ago. He was one that should have NEVER got it!!! He went through hell in the end. With that said, I think the loan program was GREAT for consumers that were EDUCATED on what they were getting into and had a gameplan in place! See???? If people would just come to you it would alleviate so many headaches!
Carla - The interest only ARM is used for specific circumstances to save money. Some of these include a home owner who will move in a short period of time. A homeowner that will be receiving a large sum of money within a few years allowing them to pay off their mortgage. People who relocate every few years by their employer and people who buy investment homes with the intent to sell them after 12 months to avoid capital gains taxes.
Most ARM loan products have CAPS, meaning the maximum an interest rate can rise. The most traditional have a 1% per year cap and interestingly enough if you are in an ARM from years ago your rate would be at its lowest point.
Craig - If they want an interest only cash out refinance then yes, thwey need to get moving!
Jim - You got that right. I read up on all new changes. Maybe I should have been an attorney!
Lottie - Hour by hour! LOL At least it feels like it : )
Leesa - Thanks for the kudos. The home owner will ultimately decide their loan program. I would always advise them of the benefits and pitfalls. Now under the new laws we are required to know if a home owner can afford to make their payments. There is a lot more responsibility and liability in our jobs to make sure people can afford their payments.
Nevin - I had read about this. I was rarely a fan of the program, though it was/can be good for a select few with specific circumstances.
Jason - I have used the interest only loans in the past and saved over $30,000 in mortgage interest. I love it when it is used correctly!
When used properly this is a great product! I am sure that Fannie/Freddie are minimizing risk here!
Time to call Nevin today to see if you can qualify :)