2/28 Programs

Adjustment Period: This loan has a fixed interest rate for the first 2 years. Adjusts every six months thereafter.

Caps: Varies by lender. Typical, Ceiling Rate is an additional 7% on the interest rate after the two 2yrs. 1.5% on interest rate maximum every 6 months; 3% total per year.

This loan is intended to be used for the first two years then refinanced if interest rates make sense. The program allows for lower credit scores, 0% DOWN, Credit problems, and no private mortgage insurance.

Life Cap: Seven percent (7%) over the initial interest rate. Minimum or “Floor” Rate = Start rate

The index: Typically uses the London Interbank Offering Rate (LIBOR).

The margin: This is a set percentage that is added to the index to calculate the current interest rate. Margins will vary from ARM to ARM.

Down Payment Requirements: Depends on credit score, but allows for 0% down payment.

Income and employment There are no limitations placed upon income requirements. As for employment, there are no limitations on a specific length of time at a particular job. However, a 2-year history is required, preferably in the same line of work (education can be counted towards this 2 year history if it is for the same profession the borrower is currently in).

Eligible properties and occupancy requirements: Single family attached and detached homes, 2 to 4 unit properties, planned urban developments (PUDs), non-owner and approved condominiums.

While the 2/28 will allow the borrower to escrow money for future real estate taxes and hazard insurance, it is not required and there is no penalty for doing so. The benefit of this to your client is that it requires them to bring less money to the closing table; however, they will be required to pay the hazard insurance and taxes themselves when these items come due.

Assumability: Yes, with the approval of the lender. The buyer must qualify to assume the existing loan.

Pre-payment Penalty: Yes, the pre-pay penalty is 6 months of unpaid interest on the loan. This is required regardless if the borrower sells their home or refinances before the two-year anniversary date.

Cash Reserves: Varies by lender, 2 month PITI in account

Gift Funds: Allowed. Not verified.

Credit Scoring: As low as 580

Qualifying Ratios: A borrower's total debt (proposed monthly payment plus monthly payments towards credit cards, student loans, car payments, and other installment and revolving credit) cannot exceed 50% of their gross monthly income.  Stated income is an option

Mortgage Insurance: No private mortgage insurance

The above guidelines are subject to change and should not be considered as exact rules for qualification.  Other factors may allow a borrower to compensate for deficiencies or to exceed the stated guideline.  You should talk with your loan officer about your specific situation to see if you qualify.