The Most Common Types Of Residential Lending
The Most Common Types Of Residential Lending Mortgage Guide Was Written By Gustan Cho NMLS 873293
Most folks will need to know with types of residential lending when shopping for a home. There are many types of residential lending when it comes to home mortgages. Home Loans are not all the same. There are various types of residential lending when it comes for home buyers shopping for mortgage loans. Residential mortgages has gone through many ups and downs after the 2008 real estate and mortgage meltdown and countless of regulations were created and launched with the various types of residential lending. On this blog, I will cover the various types of residential lending programs out there and hopefully after reading this article, you can decide which types of residential lending is best for you and will best suit your needs.
What Are Government Loans?
Government Loans are residential mortgages that are guaranteed and insured by the federal government against borrower defaulting on their government loan programs.
Here are the types of residential lending programs that are classified as government loans:
- FHA Loans: FHA Loans is insured and guaranteed by the United States Department of Housing and Urban Development, HUD.
- HUD is the parent of the Federal Housing Administration, or FHA, and insures banks and mortgage lenders who are FHA approved mortgage lenders against borrowers who default on their FHA insured mortgage loans.
- Home buyers can qualify for a 3.5% down payment home purchase FHA Loan with a 580 FICO credit score.
- HUD will allow you to have non-occupant co-borrowers to be added on your FHA Loan if you do not qualify for your FHA Loan on your own.
- However, non-occupant co-borrowers need to be related to the borrowers by either law, blood, and/or marriage.
- HUD will allow up to 6% in sellers concessions to be offered by the home seller which can be used for closing costs but not for the down payment on a FHA Loan.
- The Gustan Cho Team business model is originating and funding FHA Loans with no overlays.
- VA Loans: VA Loans is insured and guaranteed by the United States Department of Veteran Affairs against VA borrowers who default on their VA Loans.
- Banks and private mortgage lenders who originate VA Loans and follow VA Lending Guidelines are insured by the Department of Veteran Affairs if the VA borrower were to default on their VA mortgages.
- VA Loans is only for active and/or retired members of the United States Armed Services with a valid VA Certificate of Eligibility Certificate .
- There are no down payment requirement with VA Loans and there is no mortgage insurance premium required.
- There is a VA upfront funding fee required where it can be rolled into the VA Loan.
- VA Loan Programs is the best mortgage loan program available, however, borrowers need to be veterans with a VA Certificate of Eligibility to be eligible for a VA Loan.
- You can add your working spouse to your VA Loan, however, VA will only add your spouse as a co-borrower and you cannot add any other family member which is related to the veteran by blood, marriage, or law like FHA allows you to.
- VA will allow you to get a 4% sellers concession from the home sellers to use it for your closing costs.
- Most investors of Gustan Cho Associates has no overlays on VA Loans but does require a 580 Credit Score.
- USDA Loans: The United States Department of Agriculture is the parent of Rural Housing and Urban Development, USDA, and USDA will insure and guarantee mortgage lenders who originate and fund USDA Loans where USDA Borrowers were to default on their USDA Loans.
- USDA Loans does not require home buyers to put any money down on a home purchase.
- However, USDA Loans are only eligible for properties that is located in a USDA designated area.
- USDA also requires that a borrower cannot exceed a certain household income limit depending on the area.
- Maximum debt to income ratios capped on USDA Loans is 41% DTI and most mortgage lenders require that USDA borrowers have a minimum of a 640 FICO credit score.
- Most of our lenders have no overlays on USDA Loans and the minimum credit score requirements is 580 FICO.
Government Loans are for only owner occupant homes only. Any property from one to four units that has been zoned residential can qualify for government loans. Second homes and investment properties are not eligible for government loans. Fannie Mae and Freddie Mac are the only conforming loan programs that offer second home loans and investment property loans.
Conventional Loans are different than government insured mortgages. Conventional Loans need to follow the lending guidelines of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are called government sponsored enterprises, also known as GSE. Fannie Mae and Freddie Mac are not owned by the federal government. Fannie Mae and Freddie Mac are both private mortgage corporations owned by private stockholders but is considered government sponsored enterprises, or GSEs.
Here are some bullet points on Conventional Loans:
- Minimum credit scores required to qualify for Conventional Loans is 620 FICO.
- Maximum debt to income ratios allowed for Fannie Mae is 45% DTI to get an approve/eligible per Automated Underwriting System.
- Maximum debt to income ratios permitted for Freddie Mac is 50% DTI to get an approve/eligible per Automated Underwriting System.
- W-2 Income Only with no need for tax returns is permissible with Fannie Mae Conventional Loan Programs, however, Freddie Mac does not allow W-2 Income Only Conventional Loan Programs.
- Conventional Loans are for one to four unit properties. Owner occupant, second homes, and investment properties are eligible for Conventional Loans.
- Maximum Conventional Loan Limits, excluding high cost areas, are capped at $424,100. Conventional Loans are called conforming loans because they need to conform to Fannie Mae and/or Freddie Mac Conforming Guidelines.
- Most of our Fannie/Freddie wholesale lenders do not have any overlays on Conventional Loans.
Any mortgage loans that is higher than the $424,100 loan limit is called non-conforming mortgages because they do not conform to Fannie Mae and/or Freddie Mac’s maximum conforming loan limit of $424,100 and is classified as Jumbo Mortgages. Mortgages that is higher than $424,100 loan limits unless the property is located in high cost areas are called Jumbo Mortgages and higher lending standards apply.
Here are some key points on Jumbo Mortgages:
- Most Jumbo Lenders will require a minimum credit score of 700 FICO.
- Most Jumbo Lenders will require 80% LTV, Loan To Value.
- Maximum debt to income ratios on Jumbo Mortgages are capped at 43% DTI.
- Jumbo Mortgages from $424,100 up to $1,000,000 are called Jumbo Loans and normally require Jumbo Mortgages. Jumbo Mortgages larger than $1,000,000 are often called Super Jumbo Loans and require larger down payment.
- The Gustan Cho Team at Nationwide Mortgage and Realty does have special Jumbo Loan Programs that only require 10% down payment or 90% LTV, Loan To Value and NON-QM Loans for borrowers of higher end homes.
Non-QM Loans are out of the box mortgage loan programs offered by The Gustan Cho Team. Non-QM Loans are often called out-of-the-box mortgage loans because it does not fit to traditional lending guidelines.
Here are some examples of Non-QM Loans:
- No waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale to qualify for a home loan.
- No loan limits.
- Exemption with deferred student loans: Non-QM Loans do not require that you get a fully amortized monthly student loan payment on an extended payment plan.
- No Income Verification: Investment Non-QM Loans do not require income tax returns or income verification if the borrower puts 30% down payment and has a 640 FICO credit score.
- Bank Statements: You can qualify for Non-QM Loans without tax returns or income verification and can go off bank statements.
Terms And Types Of Residential Lending
Most Terms And Types Of Residential Lending Programs are based on 30 year mortgages. However, below are the terms and types of residential lending programs available today.
- 30 year amortized loan programs.
- Options of adjustable rate mortgages and 30 year fixed rate mortgage loans.
- 10 year, 15 year, 20 year, 25 year, and 30 year fixed rate mortgages are available for all loan programs.
- Fully amortized and interest only mortgages available.
- Mortgage rates are based on loan to value, credit scores, and the type of property.
Qualification Requirements On The Various Types Of Residential Lending
Qualification requirements depends on the types of residential lending programs. Here are the basic qualification requirements on the various type of residential lending programs we have to offer:
- Minimum credit scores of 580 FICO on FHA Loans, VA Loans, and USDA Loans with no overlays.
- Minimum credit scores of 620 FICO on Conventional Loans.
For more information, please call Gustan Cho of The Gustan Cho Team at 262-878-1965 or text for faster response on Gustan’s cell at 262-716-8151. You can email us at email@example.com. We are available 7 days a week, evenings, weekends, and holidays.