A Conventional loan is a mortgage that is not backed by a government agency. Conforming conventional loans follow the lending guidelines set by the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac).
You can get a conventional loan with as little as 3% – 5% down, however, if you don’t put at least 20% down, you will be required to pay private mortgage insurance which insures the lender for the equivalent of a 20% down payment in case of default.
It’s possible to get approved for a conventional loan with a credit score as low as 620, many lenders require a credit score of 660-680 or higher.
The interest rate and private mortgage insurance varies based on your credit score. The higher your credit score, the better your interest rate and private mortgage insurance rate.
Conventional loan limits vary by the county in which the property is located. In California, the maximum conventional loan limits range from $647,200 up to $970,300 in the “high cost” counties which include Alameda, Contra Costa, Los Angeles, Marin, Orange, San Benito, San Francisco, Santa Clara and Santa Cruz. The conventional loan limits for every county in the U.S. can be found using this link.
A jumbo loan is typically a mortgage that exceeds the county conventional loan limits.
Jumbo loans are generally offered by large banks and financial institutions and are kept in their loan portfolio. Each individual bank and financial institution can set their own set of approval guidelines according to their investment goals for their portfolio. For this reason, it can be complicated for a buyer/borrower to know which lender is likely to offer the best approval guidelines for their individual situation.
Jumbo loans are generally more conservative as far as minimum credit scores, down payment, debt-to-income and funds in the bank after closing.
Many Jumbo lenders allow 3rd party lenders such as mortgage banks and mortgage brokers to originate loans on their behalf as long as their approval guidelines are met in their entirety. This can be very helpful to a buyer/borrower as a one-stop entity to compare approval guidelines between various lenders and find the right fit.
An FHA loan is issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). It was designed to accommodate buyers/borrowers with lower minimum down payments and credit scores than required on many conventional loans.
A FHA loan has two levels of mortgage insurance:
- Upfront mortgage insurance premium (UFMIP) is 1.75% of the loan amount. This can be financed into the loan amount or paid in cash at closing
- Monthly mortgage insurance varies from .45% of the loan amount (annual cost) to 1.05% of the loan amount (annual cost) depending on the down payment and loan amount
Consider this loan if:
– You are purchasing a primary residence.
– You don’t have a long history of established credit or little established credit which often means a lower credit score
– You need income from a non-occupying co-borrower to qualify
FHA loan limits vary by the county in which the home is located. In California, the FHA loan limits range from $356,362 up to $822,375 in the “high cost” counties which include Alameda, Contra Costa, Los Angeles, Marin, Orange, San Benito, San Francisco, Santa Clara and Santa Cruz.
A VA home loan is specifically for Servicemembers, Veterans and eligible surviving spouses to purchase or refinance a primary home. VA loans are provided by private lenders such as banks and mortgage companies with a portion guaranteed by the Veteran’s Administration (VA).
VA loans generally require:
- $0 down payment
- VA Funding Fee: The Funding Fee varies whether you are using a VA loan as a first-time buyer or subsequent use and down payment. The VA Funding Fee may be paid in cash or financed into the loan amount
A VA loan requires a Certificate of Eligibility issued by the Veteran’s Administration.
There is no shortage of highly qualified buyers/borrowers who don’t fit “inside the box” of standard approval guidelines. As a result, there is a subset of lending that is dedicated to this niche. Some options include:
- Bank statement programs for self-employed
- Asset Depletion (using assets as income)
- Real Estate Investor Cash-Flow program
- Cross-Collateralized financing
- More!
Unsure which is the best loan option for your personal situation?
We’re here to help!