CONVENTIONAL
A conventional loan through Fannie Mae and Freddie Mac refers to a type of mortgage that is not insured or guaranteed by the government but conforms to specific guidelines set by these two government-sponsored enterprises (GSEs).
Key Features:
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Loan Limits: These loans typically adhere to conforming loan limits, which are updated annually. As of 2024, the limit for a single-family home is $1,089,300 in most areas, though it can be higher in certain high-cost regions.
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Credit Requirements: Conventional loans usually require a higher credit score than government-backed loans. Borrowers generally need a minimum score of around 620, although better rates and terms are available for those with higher scores.
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Down Payment: Borrowers can secure these loans with as little as 3% down for first-time homebuyers, though a higher down payment may be needed to avoid private mortgage insurance (PMI).
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Loan Types: Fannie Mae and Freddie Mac offer various loan types, including fixed-rate and adjustable-rate mortgages.
Benefits:
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Competitive Interest Rates: Because they adhere to strict guidelines and are viewed as lower risk, these loans often come with competitive interest rates.
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Flexibility: Borrowers have options for both term lengths and payment structures.
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Easier Access to Financing: Conventional loans can be more accessible for borrowers with strong credit and financial profiles, providing a pathway to homeownership without the need for government insurance.
Overall, conventional loans through Fannie Mae and Freddie Mac are a popular choice for many homebuyers due to their favorable terms and flexibility.
FHA LOANS
An FHA (Federal Housing Administration) loan is a government-backed mortgage designed to help lower-income and first-time homebuyers secure financing. The FHA insures the loan, reducing the risk for lenders and making it easier for borrowers to qualify.
Benefits of an FHA loan include:
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Lower down payment: As low as 3.5% of the home’s purchase price.
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Easier qualification: More lenient credit score requirements, allowing borrowers with lower credit scores to qualify.
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Competitive interest rates: FHA loans often offer favorable interest rates.
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Higher debt-to-income (DTI) ratio: Borrowers may qualify with a higher DTI, making it easier to afford the loan.
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Assumable loans: In certain cases, the loan can be assumed by a future buyer, which could be a selling advantage.
These features make FHA loans an attractive option for those who may have difficulty qualifying for conventional loans.
VA LOANS
A VA loan is a mortgage loan backed by the U.S. Department of Veterans Affairs (VA) and is available to active-duty service members, veterans, and certain members of the National Guard and Reserves. It is designed to help military families purchase homes with favorable terms.
Benefits of a VA loan include:
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No down payment: Eligible borrowers can purchase a home with 0% down, making it easier to buy.
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No private mortgage insurance (PMI): Unlike many other loans, VA loans don't require PMI, saving money on monthly payments.
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Competitive interest rates: VA loans typically offer lower interest rates than conventional loans.
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Lower closing costs: The VA limits the closing costs lenders can charge.
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Flexible qualification requirements: VA loans often have more lenient credit and income requirements.
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Assumable loans: VA loans can be transferred to a future buyer, which may be an advantage when selling.
These benefits make VA loans an excellent option for eligible military service members looking to purchase a home.
BANK STATEMENT LOANS
A bank statement loan is a type of mortgage designed for self-employed individuals or those with irregular income who may have difficulty providing traditional proof of income, such as W-2 forms or tax returns. Instead, lenders use the borrower’s personal or business bank statements (usually 12 to 24 months) to verify income and financial stability.
Benefits of a bank statement loan include:
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Easier qualification for self-employed borrowers: It allows self-employed individuals or those with non-traditional income to qualify without traditional income documentation.
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Flexible income verification: Lenders look at bank statements to assess cash flow, making it easier for those with fluctuating or non-salaried incomes to qualify.
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Faster approval process: With less documentation required, the approval process can be quicker.
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Higher loan limits: Some bank statement loans may offer higher loan amounts compared to conventional loans.
These loans are ideal for individuals who may not have standard paychecks but have consistent income reflected in their bank statements.
DSCR LOANS
A DSCR (Debt Service Coverage Ratio) loan is a type of mortgage primarily used for investment properties, where the borrower’s ability to repay the loan is evaluated based on the property's income-generating potential, rather than the borrower’s personal income. The DSCR is a ratio that compares the property’s net operating income (NOI) to the loan’s debt service (monthly mortgage payments).
Benefits of a DSCR loan include:
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No personal income verification: The loan is approved based on the property’s rental income, making it ideal for real estate investors.
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Easier qualification for investors: Borrowers with non-traditional or limited personal income documentation can still qualify.
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Flexible financing: DSCR loans can be used for purchasing, refinancing, or cash-out refinancing of investment properties.
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Simplified approval process: Since the focus is on the property’s cash flow rather than the borrower’s personal finances, approval may be faster and more straightforward.
This type of loan is popular with real estate investors looking to finance multiple properties or grow their portfolios without relying on personal income details.
JUMBO LOANS
A jumbo loan is a type of mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Because these loans are not eligible for purchase by these government-sponsored enterprises, they are considered non-conforming loans.
Key Features:
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Loan Amount: Jumbo loans typically exceed the conforming loan limit, which is $726,200 in most areas (as of 2023). In high-cost regions, the limit can be even higher.
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Higher Credit Requirements: Borrowers generally need a strong credit score (often 700 or higher) to qualify, along with a low debt-to-income (DTI) ratio.
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Larger Down Payments: Jumbo loans often require a larger down payment, typically ranging from 10% to 20% or more, depending on the lender's requirements.
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Interest Rates: While jumbo loans can have higher interest rates compared to conforming loans, they can still be competitive depending on market conditions.
Benefits:
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Access to High-Value Properties: Jumbo loans enable borrowers to finance luxury homes or properties in high-cost areas that exceed conventional loan limits.
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Flexibility in Terms: Lenders may offer various term lengths and adjustable-rate options for jumbo loans.
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No PMI Requirements: Many jumbo loans do not require private mortgage insurance (PMI), even with lower down payments.
Overall, jumbo loans are a valuable financing option for borrowers seeking to purchase higher-priced properties, albeit with stricter qualification criteria.