Conventional
Conventional mortgages are the most common loan type. They are perfect for first time home buyers, or investors. They are one of the only loan types that allow for multiple types of occupancy. You can use a Conventional mortgage to purchase a primary residence, a second/vacation home, or an investment property!
Conventional mortgages require between a 3% and 5% down payment. This is based on the purchase price of your home.
Example: $100,000 home x 3% = $3,000 down payment
While the minimum credit score for a conventional mortgage is 620, they are usually best for buyers with average or above average credit scores.
Conventional mortgages do not require PMI (Private Mortgage Insurance) with 20% or more down payment. Even if you put less than 20% down, the PMI will fall off automatically once your loan to value ratio reaches 78%.
Conventional appraisals are some of the most common. They are more lenient than other types of appraisals when it comes to the condition of the property.
The largest Conventional loan you can get is $647,200 for a 1-unit single family home. Some counties across the US are labeled as “High Balance” areas and will allow for a conventional mortgage of up to $970,800!
FHA mortgages are specifically usually used by First Time Home Buyers. Like VA mortgages, these loans are only for primary residences. They offer very low down payments and rates, but do usually require Private Mortgage Insurance for the life of the loan. Many buyers use this program for multiple unit properties as it allows you to purchase up to a 4-unit home with just 3.5% down!
FHA mortgages will allow for a down payment of as little as 3.5% of your purchase price up to 4-units!
Example: $100,000 X 3.5% = $3,500
Buyers utilizing an FHA mortgage can purchase with credit scores down to 500!
If your credit score is below 580, they do require a down payment of 10%.
FHA mortgages do require an up-front funding fee. This fee is equal to 1.75% of your loan amount. This fee can be paid up front OR rolled into your mortgage.
Example: Purchase price of $100,000
Down Payment of 3.5% ($3,500)
Loan Amount = $96,500
Funding Fee = 1.75% X $96,500 ($1,688.75)
While FHA appraisals are much like Conventional appraisals, there are a few differences. FHA has some extra condition requirements for the home.
Some of these requirements are:
- Operational/functioning appliances
- No chipped paint inside or outside of the home
- Clean, continuous water supply with sanitary facilities
- Free of lead-based paint
FHA appraisals are essentially covering “The Three S’”
- Safety: The home should protect the health and safety of the occupants.
- Security: The home should protect the security of the property.
- Soundness: The property should not have physical deficiencies or conditions affecting its structural integrity.
FHA loan limits for 2022 are as follows:
Standard:
1 Unit – $420,680
2 Units – $538,650
3 Units – $651,050
4 Units – $809,150
Like Conventional loans, FHA also has certain counties across the US designated as “High Balance”. These limits are as follows:
1 Unit – $970,800
2 Units – $1,243,050
3 Units – $1,502,475
4 Units – $1,867,275
FHA
VA
VA mortgages are specifically for U.S. Veterans and their spouses. These mortgages are for primary residences only. They offer some of the absolute lowest interest rates across all loan types and never require Private Mortgage Insurance!
With a VA mortgage, you are able to finance 100% of the home’s appraised value! They do not require a down payment at all.
You can purchase a home using a VA mortgage with a credit score as low as 500.
While VA mortgages do not require Private Mortgage Insurance, they do often times have an up-front funding fee. This fee varies from 0.5% of your loan amount to 3.6%, depending on a few factors and how many times you have had a VA mortgage. This fee can be paid up front OR rolled into your mortgage.
While VA appraisals are much like Conventional appraisals, there are a few differences. VA has some extra condition requirements for the home.
Some of these requirements are:
- Working electric, heating and cooling systems
- Adequate roofing that will last the foreseeable future
- Sufficient in size for basic living necessities
- Clean, continuous water supply with sanitary facilities
- Free of lead-based paint
- Free of wood destroying insects, fungus and dry rot
- Safe and sanitary sewage disposal
- Accessible from an all-weather public or private street
- Attics and crawl spaces must be accessible and properly vented
While VA loans technically have no limit, the veteran must be able to realistically afford the mortgage payment and have the necessary entitlement from the VA to qualify for the loan.
Non-QM mortgages span a wide-variety of lending programs. These programs are made for people that may not qualify for traditional lending. They are primarily used by investors, but there are some products designed for primary residences as well, such as bank statement loans for self employed buyers.
This loan product allows investors to use a property’s projected or average market rent to qualify, rather than their own finances.
Bank statement loans are primarily used by self employed buyers when buying or refinancing a home. Rather than using their full tax returns to calculate income, this program allows lenders to use 12 to 24 months of bank statements to qualify.
While standard mortgage products do not usually lend to Foreign Nationals or home buyers with only an ITIN number, there are quite a few Non-QM products that help these buyers become homeowners!
While condos can sometimes pose a challenge for home buyers from time to time when using standard financing options, Non-QM mortgages do not have any extra requirements and are often a fantastic choice for buyers that cannot find financing otherwise.
Bridge loans are most commonly used when a homeowner wants to buy a new house before selling their current property. A borrower can use a portion of their bridge loan to pay off their current mortgage while using the rest as a down payment on a new home. Likewise, a homeowner can use a bridge loan as a second mortgage that covers the down payment for their new house.
