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:

  • Borrowers typically put down 5-25%. However, eligible first-time home buyers can put down as little as 3%
  • Non-mortgage 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. These loans are government-backed, which protects lenders from default. Often, FHA loans are more lenient when it comes to debt-ratios and borrowers can put as little as 3.5% down. 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 maintain mortgage insurance either up-front or for the life of the loan

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

Jumbo

A jumbo loan or mortgage is a loan that exceeds county lending limits. A jumbo loan typically has much stricter requirements as it is considered a higher risk loan and is not backed by Fannie or Freddie. Borrowers need to have exceptional credit and larger down payments. Jumbo loan requirements are dependent on the lender or bank.

VA

VA loans, like FHA loans, are backed by the Federal Government. However, these are loan programs strictly offered to military service members and their families. 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 will fluctuate over the life of the loan. This means the monthly payment will vary throughout the life of the loan, as well.

  • ARMs are expressed using two numbers, such as 5/1 or 7/1.
  • The first number, indicates the number of years of the borrower will have their initial interest rate locked for, while the second number indicates how often the rate can adjust.
  • For example, with a 5/1 ARM, the initial interest rate will be locked for the first 5 years of the loan. After these 5 years, the rate can adjust every year.

USDA

USDA loans are offered from through Rural Housing Services (RHS) and are intended for rural borrowers who meet certain income requirements. It is a government-backed loan which, like VA loans, does not require a down payment. Like FHA loans, borrowers are required to have mortgage insurance for the life of the loan.

  • USDA loans can only be used for primary residences.