Traditional Mortgage Loan Options
Of all the mortgage loan options, the conventional mortgage is the most popular. Most conventional loans are known as “conforming” loans. This means that they “conform” to the requirements needed to be sold to Fannie Mae or Freddie Mac. Freddie Mac and Fannie Mae are government-sponsored enterprises that purchase mortgages from lenders to sell to investors. Conventional loans can be non-conforming, though. For example, jumbo loans exceed conforming loan limits. These loans are not insured or guaranteed by the federal government (unlike FHA loans). Sellers like to work with buyers who use conventional loans.
FHA (Federal Housing Administration)
This is a government-backed loan. FHA loans have less-strict requirements which make it possible to qualify for a loan even if you have a lower credit score and debt. In some cases, it’s possible to obtain an FHA loan even with a bankruptcy or foreclosure on your record. FHA loans are popular among first-time home buyers because the requirements are less strict than conventional loans.
USDA (United State Department of Agriculture)
USDA loans are another type of government-backed loan. These loans make it possible for low-income individuals in designated rural areas (geographic eligible areas) to purchase a home. In many cases, the interest rates are lower on these loans. They also offer home improvement loans. There are maximum income limits to be eligible for USDA loans. One of the advantages of USDA loans is 100% financing (no down payment) for those who qualify.
VA (Veteran Administration)
VA loans are a great benefit and option for veterans, active-duty service members, and qualifying spouses. These loans are backed by the government. It’s easier to qualify for a VA loan. In many cases, 100% financing is available with lower interest rates than a conventional loans.
Specialty Loan Options
These are loans that exceed the limits set by the Federal Housing Finance Agency. As mentioned before, these are nonconforming loans. In certain markets and areas with higher costs of living, a jumbo loan may be required to even purchase a home. They aren’t backed by the government, so the requirements are more strict. Typically you’ll make a higher down payment.
Self-employed or Non-Qualifying Mortgage (Non-QM)
These loans are designed to help homebuyers who don’t meet the strict criteria of a qualifying or conventional mortgage. It’s a good option for self-employed borrowers who can’t provide the income documentation needed for a conventional loan. Non-QM loans aren’t backed by the government which means the interest rates and fees may be higher. They offer loan options to borrowers who can’t take advantage of traditional loans.
If it’s time to make those home improvements, a cash-out refinance can help. As equity in your home increases, you can refinance your mortgage. Equity increases by paying down the principal of the loan or by the home increasing in value. When you’ve built up at least 20% equity, you can borrow more than you owe on the house and receive cash (the difference), That cash can go towards home improvements and repairs, pay off student loans, or get rid of other debt. This is a new mortgage, not a second mortgage.
Are you retired or headed toward retirement? You can “borrow” against the equity in your home and receive monthly payments to cover expenses that may not be covered by Medicare and your Social Security payments. Reverse mortgages require that you are at least 62 years old and use your primary residence.
Investment or Investor Loans
These are loans for purchasing investment properties including rentals and houses or commercial properties to flip. An investment loan may fund a property purchase that will bring a return on investment in a short amount of time. They are more difficult to obtain because they involve greater risk for the lender.
Down Payment Assistance (DPA)
DPA helps first time home buyers (FTHB) cover their down payment. Government and some non-profit organizations will offer DPA programs in the form of grants, loans, and other assistance, but they have strict guidelines. You can’t own rental or investment property nor have owned a home in the last three years. It also helps to have good credit.
Rehab or Renovation Loans
This is financing that allows you to combine real estate costs and renovation expenses into one loan. Buy a fixer-upper and finance the improvements with one loan. Homeowners can also refinance their property with a rehab loan.
Each of these mortgage loan options have their own set of borrower requirements and lender guidelines. You can compare traditional mortgage loan options and jumbo loan requirements. When you apply for a loan and go through the preapproval process, your broker will help you identify the programs that are the best fit for you.