In terms of their size, mortgages fall into two major classes, conforming and jumbo.
Conventional loans may be conforming and non-conforming. Conforming loans have terms and size limits that follow the guidelines set forth by Fannie Mae and Freddie Mac. These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, like Ginnie Mae, provide a continuous flow of affordable funds for home financing that results in the availability of mortgage credit for Americans.
Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties. Fannie Mae and Freddie Mac announces new loan limits every year.
Conforming loan limits may change yearly. Conforming loan limits are uniform across the country except that they are 50% higher for Alaska, Guam, Hawaii, and the Virgin Islands. The new conforming jumbo limits vary by county throughout the country and are 125% of the median sale price in a county. The conforming jumbo limits below apply to the King-Snohomish-Pierce County area of Washington.
| Units | Conforming Limits | Conforming Jumbo Limits |
| Single Family | $417,000 | $567,500 |
| Duplex | $533,850 | $726,500 |
| Triplex | $645,300 | $878,150 |
| Four-Plex | $801,950 | $1,091,350 |
These limits apply to Fannie Mae (FNMA), Freddie Mac (FHLMC) and Federal Housing Administration (FHA) loans, however, each entity treats them differently.
Regarding Fannie and Freddie, if you stay within conforming limits, you can buy a home with 3.0% down. The minimum down payment is actually zero for Fannie and Freddie, but mortgage insurance companies now refuse to guarantee mortgages over 97% of property value.
However, if you go into conforming jumbo territory on an owner-occupied purchase, expect to pay 10% down. If your FICO score is below 700, expect to pay 20% down. To buy a second home or a rental property, down payments jump to 40%, and FICO scores must be at least 660. Debt-to-income ratios cannot exceed 45%. Interest rates are higher in declining markets.
Higher loan-to-value (LTV) ratios are required for cash-out refinances on conforming jumbo loans.
By far the best down payment terms are available for FHA loans, although rates are higher than with Fannie and Freddie loans. A buyer can pay as little as 3.0% down up to a $567,500 purchase price in the Seattle area.
Interest rates are significantly higher when you exceed $417,000. I advise clients to try to stay out of conforming jumbo land by taking a combo loan. For example, a person who is buying a $550,000 home and paying $50,000 down, should get a $417,000 first loan and an $83,000 second loan. This keeps the interest rate down on the first.
We have another alternative for conforming jumbo and jumbo buyers. It is an adjustable rate mortgage, BUT the index and margin are so low that rates can be up to two points below those on ordinary jumbo or conforming jumbo loans. A person with a 720 credit score and 6 months reserves who can pay at least 10% down can get a $650,000 loan. The debt-to-income ratio cannot exceed 45%. A borrower with at least a 680 credit score can pay 10% down and get up to a $500,000 loan. A borrower with at least at 720 credit score can pay 20% down and get up to a $1 million loan. Similar loans are available for second homes, but with different limits. Stated income loans are available for self-employed borrowers only, and limits different.
Call me at 425-774-6611 or 888-999-2022 for further information. Or e-mail me. The fax number is 425-776-8081. Click here to sign up for our e-mail messages, our printed mailings, or to request a call back.
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Copyright © 2008 James Robert Deal. All rights reserved.