Types of Mortgages Available

Conventional

What are Conventional Mortgages? Conventional mortgages are loans that are not backed by any government agency. They are typically offered by private lenders such as banks, credit unions, and mortgage companies. These loans are divided into two categories: conforming and non-conforming.

Key Features:

• Credit Score Requirements: Generally, a minimum credit score of 620 is required.
• Down Payment: While a 20% down payment is often recommended to avoid private mortgage insurance (PMI), some conventional loans allow for as little as 3% down.
• Loan Limits: Conforming loans must adhere to guidelines set by Fannie Mae and Freddie Mac, including loan limits. For 2024, the maximum loan limit for a single-family home in most U.S. counties is $766,550.
• Interest Rates: Typically lower than government-backed loans if you have good credit and a stable financial profile.

Best For: Borrowers with good credit, a stable income, and the ability to make a substantial down payment.

 

Government-backed

What are Government-Backed Mortgages? Government-backed loans are designed to make homeownership more accessible and affordable. These loans are insured by federal agencies, reducing the risk for lenders and offering more flexible terms for borrowers.

Types of Government-Backed Loans:

• FHA Loans:
  • Backed By: Federal Housing Administration.
  • Ideal For: First-time buyers or those with lower credit scores.
  • Benefits: Lower down payment options (as low as 3.5%) and more flexible credit requirements.
• VA Loans:
  • Backed By: Department of Veterans Affairs.
  • Ideal For: Veterans, active-duty service members, and eligible surviving spouses.
  • Benefits: Zero down payment, no PMI, and competitive interest rates.
• USDA Loans:
  • Backed By: U.S. Department of Agriculture.
  • Ideal For: Low- to moderate-income borrowers in rural areas.
  • Benefits: Zero down payment options and competitive interest rates.

Best For: First-time homebuyers, veterans, and those looking to purchase homes in rural areas or with lower credit scores.

Non-QM

What are Non-QM Mortgages? Non-QM loans are designed for borrowers who might not fit the traditional criteria for conventional or government-backed loans. These loans offer more flexible qualification criteria, making them accessible to a broader range of borrowers.

Key Features:

• Flexible Income Verification: Ideal for self-employed borrowers or those with non-traditional income streams.
• Credit Flexibility: More lenient on credit scores and financial history.
• High DTI Ratios: Can accommodate higher debt-to-income ratios than conventional loans.

Types of Non-QM Loans:

• Bank Statement Loans:
  • Ideal For: Self-employed individuals, gig workers, freelancers, and entrepreneurs.
  • Income Documentation: Rather than traditional pay stubs or tax returns, borrowers can use personal or business bank statements to demonstrate their income.
    • Options: Business bank statements, personal bank statements, or a combination of W-2s with bank statements.
    • P&L Statements: Not required for this program.
  • Benefits: Allows borrowers to qualify based on actual cash flow, making it easier for those with fluctuating incomes to secure a mortgage.
• Profit & Loss (P&L) Loans:
  • Ideal For: Self-employed borrowers, business owners with seasonal income, or those running cash businesses.
  • Income Documentation: Qualification based on a Profit and Loss statement.
    • Requirements: The P&L must cover the most recent 12 months and be dated within 60 days of the closing date.
    • Verification: Borrower must have been self-employed in the same business for at least 2 years, verified by a business license, letter from a tax preparer, Secretary of State filing, or equivalent.
    • Ownership: Borrower must own at least 50% of the business.
    • Preparation: The P&L must be prepared by a CPA, IRS Enrolled Agent, or a qualified professional.
  • Benefits: Offers a way to qualify for a mortgage based on the profitability of the business rather than traditional income documents.
• Asset Depletion Loans:
  • Ideal For: Retirees or individuals with substantial assets but low or no regular income.
  • Income Documentation: Uses the borrower’s liquid assets to calculate income potential.
    • Calculation: The lender will divide the total value of the assets by a set number of months (typically 360 months for a 30-year loan) to determine a monthly income figure.
  • Benefits: Allows borrowers with significant savings, investments, or other liquid assets to qualify for a loan even if they don’t have a steady income stream.
• 1099 Income Loans:
  • Ideal For: Independent contractors and freelancers who receive 1099 forms instead of W-2s.
  • Income Documentation: Uses the borrower’s 1099 forms for the past 12 or 24 months to verify income.
  • Benefits: Provides a more straightforward qualification process for those who receive irregular or variable payment amounts.
• DSCR Loans (Debt Service Coverage Ratio Loans):
  • Ideal For: Real estate investors.
  • Income Documentation: Allows borrowers to qualify based on the rental income of the property rather than personal income.
    • DSCR Ratio: Measures a property’s current rental income compared to its debt obligations. A DSCR above 1.0 indicates positive cash flow, making it easier to qualify for such loans.
  • Benefits: Particularly useful for investors who own multiple properties and want to expand their portfolios.

Best For: Self-employed individuals, borrowers with credit issues, those with high debt-to-income ratios, and real estate investors who want to use rental income to qualify for a loan.