Given the recent increase in the Prime Rate, we want to provide clarification regarding the application of the minimum qualifying rate on Adjustable Rate Mortgages (“ARM”), insured and conventional. All ARM loans must now be qualified using a rate of contract plus 2%, which is now greater than the 5.25% Qualifying Rate.
Existing First National Commitments for Adjustable Rate Mortgages (“ARM”) do not have to be requalified using a rate of contract plus 2%, unless there is a material change to the deal.
Existing preapprovals for Adjustable Rate Mortgages (“ARM”) must be requalified at the current qualifying rate when the deal is converted to a live deal, and a commitment is issued.
Example: Borrower has a preapproval committed which was qualified using 5.25% which was greater than the contract plus 2% when issued. The borrower has now found a property and the transaction is scheduled to close within the rate hold period. Due to the Prime Rate change, the borrower will now be qualifying off their adjusted contract rate plus 2% using the new Prime Rate of 4.70%
All adjustable rate submissions will be qualified using the new prime rate of 4.70%, effective immediately.
(This article is from the First National Financial LP. newsletter)
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