Conventional Interest-Only and Adjustable Loans Now Harder to Qualify for In California

Adjustable mortgages and interest-only loans were extremely popular from 2002-2007 when values in California went through the roof.  Fannie Mae and Freddie Mac have now made it difficult to qualify for these loans.    And remember, FHA loans and VA loans are ALL fully amortizing loans.  Interest-only is not available with FHA or VA.

Here are some of the changes:

Changes to interest-only loans:

  • Interest only loans not available AT ALL on cash-out refinances, investment properties and 2-4 unit properties
  • Only available on primary residences and 2nd homes if you loan balance is 70% or less of your property value
  • 720 min credit score required

Changes to 3 and 5 year fixed ARM’s:

  • You must qualify using the start rate + 2% – this makes it much more difficult to qualify, especially since conventional loans now have a max debt ratio of 50%

So those are some changes raising the bar significantly for interest-only loans and 3 and 5 year ARM loan qualification.  Please contact me if you have any questions, 858-922-7899.

Here are some very current benefits of conventional and FHA loans:

FHA loans:

  • FHA loan interest rates have recently dropped again and are even lower than former historic lows!
  • Maximum FHA loan if California can get all the way up to $729,750 in many counties of California.  FHA loans in Los Angeles, San Diego, Orange County, San Jose and San Francisco can have very high loan limits.
  • FHA loan down payment is only 3.5% and that can be a gift from a relative
  • FHA home loan requirements allow a very lenient debt-to-income ratio of 56.9% where conventional loans are 41%-45% with less than 20% down.
  • FHA loans do come with up front mortgage insurance that is rolled into the loan balance and monthly mortgage insurance for the first five years.


  • 5% down available if you have a 720 credit score with 41% debt-to-income ratio
  • Conventional loan limits in California up to $729,750
  • Homepath mortgage available on Homepath properties with 3% down and 10% down for 2nd home buyers and investors
  • Homepath financing available on Fannie Mae owner condos without any condo checks

For more FHA, conventional or VA loan information in California feel free to send me an email at or call at 858-922-7899.

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