Conforming Conventional

Conventional loans are the most common loan type. They are also referred to as “conforming” loans as they must meet requirements set by Fannie Mae and Freddie Mac. The loan amount is crucial when considering a conforming loan as the loan amount must comply with your county’s loan limits. For most areas in California, the loan limits range from $453,100 to $679,650. Here are a few of the highlights for qualifying for a conventional loan:

  • Down payment amounts vary
  • Recurring monthly debt payments combined with your monthly mortgage payments may not exceed 36% of your monthly gross income
  • Have a “good” credit score (usually around 620 or higher)

Conventional loans may be used for primary, secondary, and investment homes.

FHA

FHA loans are loans that are insured by the Federal Housing Administration. Often, FHA loans are more lenient when it comes to debt-ratios and down payment requirements are low. FHA loans also require a much lower credit score than conventional loans. While FHA loans are more flexible in their requirements, borrowers are required to pay an up-front mortgage insurance premium and pay monthly mortgage insurance for the life of the loan

  • FHA loans may only be used for primary residences.
  • Condos must be FHA approved.

Jumbo

A jumbo loan or mortgage is a loan that exceeds the conforming loan amounts set by FHFA. A jumbo loan typically has much stricter requirements as it is considered a higher risk loan.

VA

VA loans are insured by the Veterans Administration. These loans are offered to military service members or veterans and some spouses of veterans. Those that qualify can get 100% financing when purchasing a home; no down payment is required. VA loans are very flexible and typically have lower interest rates.

  • VA loans can only be used for primary residences. Condos must be VA-approved.

Refinance

Rate/Term Refinance

The purpose of a rate and term refinance is to lower the interest rate or change the term of an existing loan without increasing the loan amount. It is important to consider the costs associated with a refinance. As a good rule of thumb, if you can make up the cost of your closing costs within 4 years, a refinance makes economic sense. Borrowers may also consider a refinance to eliminate mortgage insurance.

Cash-out Refinance

A cash-out refinance is the refinancing of an existing home loan for a larger loan amount with the intent of the borrower getting the cash difference between the two loans. Most borrowers do a cash-out refinance when they are looking to make home improvements or to consolidate debt. Homeowners do cash-out refinances so they can turn some of the equity they’ve built up directly into cash. Equity in the home must be sufficient to pursue a cash-out refinance.

  • This type of refinance has much stricter debt and credit requirements and borrowers must also factor in the cost of closing the new loan.

FHA/VA Streamline Refinancing

This is a refinancing program reserved for those with eligible existing FHA or VA loans. It provides borrowers with an opportunity to lower their mortgage rate as painlessly as possible. This streamline refinance does not require an appraisal, verification requirements, or a minimum credit score.

ARM

Adjustable Rate Mortgages (ARMs) are home loans that have interest rates that can fluctuate over the life of the loan. This means the monthly payment can vary throughout the life of the loan, as well.

  • ARMs are fixed for a short term and then adjust annually after that fixed period.

USDA

USDA loans are guaranteed by the Rural Housing Services and are intended for low to moderate income households in eligible rural areas. Like VA loans, it does not require a down payment. Like FHA loans, the borrower is required to pay a monthly guarantee fee for the life of the loan.

  • USDA loans can only be used for primary residences.