Fixed vs "first responder" Adjustable rate mortgage.

[Nate Jenks]

Hello all. This is my first post on Bigger Pockets as I get going into my real estate journey. I'm currently in the market to purchase my first home (currently in an apartment). I'm looking to acquire my first BRRR. I'm a firefighter, and a family member recently showed me a "First responder loan" offered by a local credit union. I wanted to see if I could get some input on it since I had assumed a 30-year fixed would be the way to go. I posted the loan details from the CU's website below.

Are there any pros or cons when looking to pull out equity in a year or so to go on to the next project? It seems the initial APR may be lower than fixed, is that correct? The major pros that I note is a 1% downpayment with no PMI. any insight would be greatly appreciated.

Summary: Portfolio product with 1% minimum down payment and no PMI requirement designed to benefit those heroes who serve and protect our communities. Financing provided through this program is only available for properties located in Michigan or Florida.

Available Product Type: SOFR 7/6 ARM, SOFR 10/6 ARM

Loan Amount: $766,550 Maximum

LTV: Purchase and No Cash Out Refinance - Maximum 99%

Prepayment Penalty: None

Loan Assumption: None

Eligible Properties: 1-unit dwellings, attached and detached condominiums, PUDs

Escrow: An escrow account must be established for property taxes, and flood insurance, if required

Underwriting

• No Private Mortgage Insurance
• Occupancy – Primary residences
• Minimum Credit Score - 700
• DTI – Max 43% (UW/Mgmt exceptions up to 50% with minimum 3 documented compensating factors)
• Student Loans – If in deferment, no qualifying payment required
• Down payment of 1% must be borrower’s own funds, while closing costs and prepaids may be gift funds
• Attached condominiums require a 10% down payment
• Eligible Borrowers – Protect and serve heroes are defined as employees of public or private education institutions, employees of medical and healthcare organizations, all first responders, and active or former military personnel.

Servicing: Retained

[Andrew Postell]

@Nate Jenks no problem, here to help and clarify.

When we speak to "cash out" loans in lending the maximum loan amount is usually 80% LTV on a primary home. Meaning, 80% of the total value.

So, if the value of your home is $775,000, then 80% = $620,000.

That's first.

That $620,000 represents the MAXIMUM mortgage amount.  So, if you owe $725,000...then you owe more than the MAXIMUM possible loan is that you could get on a "cash out" mortgage.

In order to do a cash out loan...you would need to owe LESS than 80% of the value of your primary home.  And that will be hard in short amount of time.

Hope that makes more sense...but certainly feel free to just call me if you want to talk anything through.  Thanks!