Types Of Residential Lending For Borrowers With Bad Credit

This BLOG On Types Of Residential Lending For Borrowers With Bad Credit Was UPDATED And PUBLISHED On February 14th, 2020

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 homebuyers shopping for mortgage loans
• Residential mortgages have gone through many ups and downs after the 2008 real estate and mortgage meltdown
• Countless 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
• Hopefully, after reading this article, borrowers can decide which types of residential lending are best and will best suit their needs

In this blog, we will discuss and cover Types Of Residential Lending For Borrowers With Bad Credit.

What Are Government Loans?

Government Loans are residential mortgages that are guaranteed and insured by the federal government. FHA, VA, USDA will insure lenders if borrowers default on their government loans:

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
• FHA insures lenders who are HUD-approved lenders against borrowers who default on their FHA Loans

Homebuyers can qualify for a 3.5% down payment home purchase FHA Loan with 580 FICO credit scores:

• HUD will allow non-occupant co-borrowers to be added for borrowers who do not qualify due to higher debt to income ratios
• However, non-occupant co-borrowers need to be related to the borrowers by either law, blood, and/or marriage for 3.5% down payment
• HUD will allow up to 6% in sellers concessions to be offered by the home seller
• Sellers concessions can be used for closing costs but not for the down payment on a home purchase

Gustan Cho Associates’ business model is originating and funding government and conventional loans with no overlays.

VA Mortgage Guidelines

VA Loans:

• VA Loans is insured and guaranteed by the United States Department of Veteran Affairs
• VA insures lenders against borrowers who default on their VA Loans
• Lenders who originate VA Loans and follow VA Lending Guidelines are insured by the Department of Veteran Affairs if the 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 is no down payment requirement with VA Loans
• There is no mortgage insurance premium required.
• There is a VA upfront funding fee required where it can be rolled into the loan balance
• 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
• Can add a working spouse to VA Loan
• However, VA allows spouse as a co-borrower
• Cannot add any other family member which is related to the veteran by blood, marriage, or law like FHA allows
• VA will allow you to get a 4% sellers concession from the home sellers to use for closing costs

Most investors of Gustan Cho Associates has no overlays on VA Loans.

USDA Mortgage Guidelines

USDA Loans:

• The United States Department of Agriculture is the parent of Rural Housing and Urban Development, USDA
• USDA will insure and guarantee lenders who originate and fund USDA Loans if 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 are 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 29% front end and 41% DTI back end
• USDA borrowers need a minimum of a 580 credit score
• Gustan Cho Associates has no overlays on USDA Loans
• Our minimum credit score requirements are 580 FICO

Government Loans are for only owner occupant homes only.

• Any property from one to four units that have 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

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 $453,100
• Conventional Loans are called conforming loans
• This is 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.

Jumbo Mortgages 

Any mortgage loans that are higher than the $453,100 loan limit is called non-conforming mortgages:

• This is because they do not conform to Fannie Mae and/or Freddie Mac’s maximum conforming loan limit of $510,400 and is classified as Jumbo Mortgages
• Mortgages that are higher than $510,400 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 $510,400 up to $5,000,000 are called Jumbo Loans
• Jumbo Mortgages larger than $1,000,000 are often called Super Jumbo Loans
• Require a larger down payment

Gustan Cho Associates does have special Jumbo Loan Programs that only require 5% down payment or 95% LTV, Loan To Value and NON-QM Loans for borrowers of higher-end homes.

NON-QM Loans

Non-QM Loans are out of the box mortgage loan programs offered by Gustan Cho Associates. Non-QM Loans are often called out-of-the-box mortgage loans. This is because it does not fit to traditional lending guidelines.

Types Of Residential Lending: Non-QM Loans

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
• No private mortgage insurance required

Exemption with deferred student loans:

• Non-QM Loans do not require a fully amortized monthly student loan payment on an extended payment plan
• Deferred student loans deferred longer than 12 months are exempt from debt to income ratio calculations

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

Bank Statements:

• Self-employed borrowers 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 depend 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 USDA Loans with no overlays
• No minimum credit score requirements on VA Home Loans
• Minimum credit scores of 620 FICO on Conventional Loans

For more information, please contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.