When it comes to getting a mortgage, there are a number of different loan types that may best suit your personal financial situation and goals. Here are a few of the most common home loan types, their pros and cons, and the type of borrower that they’re best suited for.
Conventional
Conventional Loans, as their name suggests, are the typical loan that one thinks of when they hear the word, “mortgage.” Conventional mortgages are home loans that aren’t insured by the federal government and fall into either two types: conforming and non-conforming loans. A conforming loan simply means that the loan falls within the limits of Fannie Mae or Freddie Mac: the government-sponsored enterprises (GSEs) that back most U.S. mortgages. These limits vary by state and county but tend to be upwards of $600,000 or more. Any loan that falls outside of these limits is referred to as a non-conforming loan.
There are many pros of opting for a conventional loan, such as lower borrowing costs and no private mortgage insurance (PMI) required if putting down 20%. On the flip side, conventional loans have more stringent guidelines, usually requiring a FICO score of 620 or higher to qualify and more documentation to very your income, assets, down payment, employment, etc. If you are a borrower with a great to excellent credit score, consistent income, and a sizeable down payment, a conventional loan might be the right option for you.
Bank statement program
We all know that self-employed buyers must meet stringent guidelines to qualify for a mortgage. It’s often challenging to show a self-employed borrower’s actual income due to numerous tax write-offs. A bank statement program uses bank statements to show a borrower’s ability to pay back a loan.
Our exclusive profit & loss program offers streamlined income verification via a 12-month borrower-prepared P&L, with no tax returns or W2s required. We can also verify assets with only a 1-month bank statement, and gifts are allowed for down payments, closing costs, and reserves.*
Conventional Elite Program
Think conventional loans, but with better benefits. The Conventional Elite Program is similar to a conventional loan but with up to 80% loan to value. It is available at a fixed or adjustable-rate with choices on loan terms. This is a great option for individuals with a higher credit score.
Fix and Flip
Fix and flip loans are usually short-term loans that last about 12 to 24 months. There is no penalty for repaying the loans early and are used by individuals looking to purchase and then sell for profit. The properties are bought and then improved through minor to drastic renovations that are paid for often through the loan. These types of loans are for residential real estate properties exclusively. The real estate purchased serves as collateral for your loans and may allow the lender to seize the property.
FHA
Even though the U.S. government does not lend any money towards home loans, they do play a large part in assisting Americans with qualifying for a mortgage when their financial situation isn’t pristine. Enter the FHA Loan, which is backed by the Federal Housing Administration. These types of loans are common for borrowers who do cannot make a large down payment and don’t have fantastic credit.
A large portion of borrowers are a great fit for an FHA loan due to the less stringent guidelines. FHA loans accept lower FICO scores (sometimes as low as 580) and down payments (sometimes as low as 3.5%). With that being said, FHA loans do require PMI due to the low down payment, which adds an additional cost to the mortgage. However, this PMI can be removed when the borrower reaches 20% equity in the home.
At Petra Cephas, we specialize in FHA loans and provide an exclusive closing cost credit to offset the higher costs of the FHA loan. This closing cost credit can be upwards of $5,000 or more and is possible through strategic partnerships and relationships with our lenders.
VA Loans
VA Loans are less common than FHA and Conventional loans because they are only available for members of the U.S military (both active duty and veterans). On top of having flexible terms and low rates, VA loans also do not require a down payment or PMI, and the closing costs associated with the home purchase are generally capped and may be paid by the seller. If you are an active-duty military member or a veteran, VA loans are the perfect option to provide you with the best possible rate and monthly payment, regardless of your financial situation.
Summary
The world of mortgages is complex and can be daunting at first. So instead of trying to find the best loan type, why not call a team of experts who you know have your best interest at heart? At Petra Cephas, we take away the guess-work and match you with the best home loan for your individual financial situation. Call us today at 732-873-1365 to get started!