Friday, September 1, 2017

Conventional ARM down payments cut in half to 5%

The down payment requirement for Adjustable Rate Mortgages (ARMs) dropped today to 5% from the previous 10% requirement.  This is great news for many homebuyers.  ARMs currently make up 7% of loan applications.  This figure should increase now that Fannie Mae allows for 5% down with this product. 

Low down payment mortgages, classified as less than 10% down, currently account for nearly 40% of all purchase loan originations.  With this adjustment, conventional ARMs are now in play for “low down payment mortgages.” 

I think this will be a great option for many first-time homebuyers or repeat homebuyers.  When I bought my first house, it was with an FHA 5/1 ARM loan as I knew it wouldn’t be my “forever home.” After 3 years I refinanced to a fixed rate once I had enough equity to drop mortgage insurance. 

The average mortgage is only kept in place for 9 years, before it is either refinanced or the property is sold.  Therefore, a 10/1 ARM can be a great option for many homebuyers to cut interest rate cost.  A 10/1 ARM may save a 0.25% in interest rate for the first 10 years of the mortgage.  Assuming a $300K mortgage held for 9 years, this equates to nearly $6,500 in interest savings.  

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