LOAN TYPES

There are lots of different possible combinations, from purchasing a home to of using your home to achieve your desires. Below are some of the loan types and a description of purpose and funciton.

Home Loan Types

Conventional Mortgages
Fixed-Rate Mortgages
Adjustable-Rate Mortgages
FHA (Government Loan)
VA (Government Loan)
USDA (Government Loan)
Jumbo Loans

Purpose of Loans

New Home Loans
Second Mortgages
Refiance Home Loans
Reverse Mortgages
Equity Lines of Credit
HELOC

Understanding The 5 Different Types Of Mortgage Loans

A variety of mortgage options exist, including conventional, fixed-rate and adjustable-rate mortgages, as well as government-backed and jumbo loans. The loan that will best suit your needs will depend on the type of mortgage applicant you are, whether you’re a first-time home buyer or you’re looking to downsize or refinance.

Conventional Mortgages

Conventional mortgages are the most common type of mortgage. Conventional loans may have different requirements for a borrower’s minimum credit score and debt-to-income (DTI) ratio than other loan options. Generally, you can qualify for a conventional mortgage with a minimum credit score of 620 and a DTI of up to 50%.

With a conventional mortgage, you can buy a home with as little as 3% down if you’re a first-time home buyer or 5% down if you already own a home. You’ll also need a minimum credit score of at least 620 to qualify. You can skip buying private mortgage insurance (PMI) if you have a down payment of at least 20%.

The gotcha is if you make a down payment of less than 20%, it means you’ll need to pay for Mortgage insurance. The good news is these rates are usually lower for conventional loans than other types of loans (like FHA loans).

A fixed-rate mortgage has the same interest rate and principal/interest payment throughout the duration of the loan. The amount you pay per month may fluctuate due to changes in property tax and insurance rates, but for the most part, fixed-rate mortgages offer you a very predictable monthly payment.

A fixed-rate mortgage might be a better choice, if you’re currently living in your present home for a significant period of time (10+ years) or consider it your life time residence. A fixed interest rate loan, gives you the perk of knowing how much you’ll pay each month for your mortgage payment.

You may want to avoid fixed-rate mortgages if interest rates in your area are high. Once you lock in, you’re stuck with your interest rate for the duration of your mortgage unless you refinance. If rates are high and you lock in, you could overpay thousands of dollars in interest.

Executive Home Loan staff, will make every attempt to get you the lowest possible fix-rate, but may recommend another solution, if the rates are high. At least on the short term.

The opposite of a fixed-rate mortgage is an adjustable-rate mortgage (ARM). ARMs are 30-year loans with interest rates that change depending on how market rates move.

You first agree to an introductory period of fixed interest when you sign onto an ARM. Your introductory period is typically 5, 7 or 10 years. If you sign on for a 5/1 ARM loan, for example, you’ll have a fixed interest rate for the first 5 years. During this introductory period, you pay a fixed interest rate that’s usually lower than 30-year fixed rates.

After your introductory period ends, your interest rate changes depending on market interest rates. Your lender will look at a predetermined index to calculate how rates are changing. Your rate will go up if the index’s market rates go up. If they go down, your rate goes down.

ARMs include rate caps that dictate how much your interest rate can change in a given period and over the lifetime of your loan. Rate caps protect you from rapidly rising interest rates. For instance, interest rates might keep rising year after year, but when your loan hits its rate cap, your rate won’t continue to climb. These rate caps also go in the opposite direction and limit the amount that your interest rate can go down as well.

Adjustable-rate loans can be a good choice if you plan to buy a starter home before moving to your forever home. You can easily take advantage and save money if you don’t plan to live in your home throughout the loan’s full term.

These can also be especially beneficial if you plan on paying extra toward your loan early on. ARMs can give you some extra cash to put toward your principal. Paying extra on your loan early can save you thousands of dollars later on.

Government-backed loans are insured by government agencies, such as the Federal Housing Administration (FHA), Veterans Affairs (VA) or the United States Department of Agriculture (USDA). When lenders talk about government-backed loans, they’re referring to three types of loans: FHA, VA and USDA loans. Government-backed loans may offer more options for qualification.

Each government-backed loan has specific criteria you need to meet in order to qualify along with unique benefits, but you may be able to save on interest or down payment requirements, depending on your eligibility.

FHA Loans

FHA loans are insured by the Federal Housing Administration. An FHA loan can allow you to buy a home with a credit score as low as 580 and a down payment of 3.5%. With an FHA loan, you may be able to buy a home with a credit score as low as 500, if you pay at least 10% down. Rocket Mortgage^® requires a minimum credit score of 580.

USDA Loans

USDA loans are insured by the United States Department of Agriculture. USDA loans have lower mortgage insurance requirements than FHA loans and can allow you to buy a home with no money down. You must meet income requirements and buy a home in an eligible suburban or rural area in order to qualify for a USDA loan.

VA Loans

VA loans are insured by the Department of Veterans Affairs. A VA loan can allow you to buy a home with $0 down and lower interest rates than most other types of loans. You must meet service requirements in the Armed Forces or National Guard to qualify for a VA loan.

A jumbo loan is one that’s worth more than conforming loan standards in your area. You usually need a jumbo loan if you want to buy a high-value property. For example, you can get up to $2 million in a jumbo loan if you choose Rocket Mortgage. The conforming loan limit in most parts of the country is $726,200.

Jumbo loan interest rates are usually similar to conforming interest rates, but they’re more difficult to qualify for than other types of loans. You’ll need to have a higher credit score and a lower DTI to qualify for a jumbo loan.

The Differences Between Conforming And Nonconforming Loans

The matter of loans can get more confusing when you learn there is another category : Conforming Loans vs Non-conforming Loans. Don’t get concerned, as the difference is just a another classification of what type of loan it is and whether the loan is to be sold. – Fannie Mae or Freddie Mac

The Two Types

CONFORMING LOANS

Conventional mortgages
Fixed-rate mortgages
Adjustable-rate mortgages

NONCONFORMING LOANS

FHA Loans
USDA Loans
VA Loans
Jumbo Loans

A conforming loan refers to a conventional mortgage that can be purchased by Fannie Mae or Freddie Mac. For one of these institutions to purchase the mortgage from your lender, the loan must meet basic qualifications set by the Federal Housing Finance Agency (FHFA). These loan requirements include the following:

Below the maximum dollar limit: The maximum dollar limit in most parts of the contiguous United States is $726,200 in 2023. In Alaska, Hawaii and certain high-cost areas, the limit is $1,089,300. Higher limits also apply if you buy a multifamily unit. Your lender can’t sell your loan to Fannie or Freddie and you can’t get a conforming mortgage if your loan is more than the maximum amount, unless you qualify for a super conforming loan.
Not a federally backed loan: The loan can’t already have backing from a federal government entity. Some government bodies (including the Department of Veterans Affairs and the Federal Housing Administration) offer insurance on home loans. If you have a government-backed loan, Fannie and Freddie may not buy your mortgage.
Meets lender-specific criteria: Your loan must meet the lender’s specific criteria to qualify for a conforming mortgage. For example, you must have a credit score of at least 620 to qualify for a conforming loan. You may also need to take property guidelines and income limits into account when you apply for a conforming loan. A Home Loan Expert can help determine if you qualify based on your unique financial situation.

Conforming loans have well-defined guidelines and there’s less variation in who qualifies for a loan. This means that you may be able to get a lower interest rate when you choose a conforming loan.

If your loan doesn’t meet conforming standards, it’s considered a nonconforming loan. Nonconforming loans may have wider qualification criteria than conforming loans. These loans can allow you to borrow with a lower credit score, take out a larger loan or get a loan with no money down.

You may even be able to get a nonconforming loan if you have a negative item on your credit report, like a bankruptcy. Most nonconforming loans will be government-backed loans or jumbo mortgages.

EXECUTIVE HOME LOAN WILL GUIDE YOU

These outlines are meant to give you an idea of what can be available. All loans and mortgages are not necessarily to the desires of all clients and some may have conditions that would disqualify or not allow the selection to be the best choice for them. Executive Home Loan staff, can work with you, to figure out what is the right solution for you.

Contact Executive Home Loan

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