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Loan Products

Jumbo loans: 

Jumbo loans are loan amounts which exceed the limits set by the Federal Housing Finance Agency (FHFA) for Conforming loan limits.  This conforming limit often changes each year, depending on whether national average U.S. home prices increase.  Also known as non-conforming, or non-agency loans, because they aren’t backed by Fannie Mae or Freddie Mac, the two government agencies which purchase or securitize Conventional loans. Jumbo loans often have more restrictive requirements for borrower qualifications with regards to debt-to-income ratio, loan-to-value ratio, housing payment history, credit score and requirements for borrowers to maintain additional savings in reserve. Jumbo loans allow the borrower to choose whether they roll-in property taxes and homeowners insurance premiums into their monthly mortgage payments (this is called mortgage-escrows or impounds). 

VA loans: 

VA Loans are loans made to active and former members of the armed forces, and in certain instances to their surviving spouses. VA loans are guaranteed by the Department of Veterans Affairs and are only available for the purchase or refinance of a primary residence, with the one exception being that an existing VA loan on a primary residence which has been converted to a rental property might be eligible for a VA IRRRL. VA borrowers are charged a Funding Fee, unless Exempt. Condos must be on the VA approved property list to be eligible for VA financing. VA loans require the borrower to roll-in property taxes and homeowners insurance premiums into their monthly mortgage payments (this is called mortgage-escrows or impounds). 

There are many benefits of using your VA Loan Eligibility, include the following… 

  • No requirement for any down payment 

  • No mortgage insurance, regardless of down payment percentage or amount 

  • Generally lower interest rates and/or fees compared to other loan products 

  • Ability to use your VA home loan benefits more than once 

  • VA IRRRL allows the refinance of an existing VA Loan to lower the rate and payment without needing any appraisal or income documentation, and with a significantly lower VA Funding Fee for a VA borrower who is not already exempt from paying the funding fee.       

Conventional loans: 

A Conventional loan is any loan not insured or guaranteed by the government. Typically, Conventional loans refer to loans that meet the guidelines of Fannie Mae or Freddie Mac, although technically a Jumbo loan is a Conventional loan that will not be delivered to Fannie Mae or Freddie Mac. The maximum loan limit for a loan to be eligible for delivery to Fannie Mae or Freddie Mac varies by county. The Federal Housing Finance agency sets the conforming loan limit, and then certain areas deemed as high-cost counties will have high-balance or super-conforming limits. These higher limits allow a borrower to take a loan amount above the conforming limit in a higher cost area, while qualifying within the underwriting guidelines set forth by Fannie/Freddie. Generally Conventional loan guidelines are more flexible than Jumbo loan guidelines, but still more restrictive than Government loan guidelines (ie. FHA, USDA, or VA loans). Conventional loans allow the borrower to choose whether they roll-in property taxes and homeowners insurance premiums into their monthly mortgage payments (this is called mortgage-escrows or impounds). 

There is a misconception that 20% down is required to qualify for a conventional loan, but this is simply not true. Conventional loans allow qualified borrowers to finance all the way up to 95%, and even as high as 97% loan-to-value in certain circumstances. 

FHA loans: 

FHA loans insured by the government. FHA loans are often made to borrowers with less than perfect credit, at higher loan-to-value ratios. FHA loans require only a 3.5% down-payment. However, FHA loans come with higher costs to the borrower. FHA loans charge both an Up-Front Mortgage Insurance Premium (UFMIP) as well as a monthly mortgage insurance premium, often for the life of the loan! This usually negates the benefit of the fact that FHA loans generally come with slightly better interest rates than do Conventional loans. FHA loans usually have looser requirements for a borrower’s debt-ratio and credit score, but they have greater restrictions on the property compared to conventional loans. As with VA loans, condos must be on the FHA approved condominium list, and issues like chipping and peeling paint, stairs without handrails, and minor safety issues will be required to be addressed and cured prior to approval. In general, all government loans (FHA, VA, USDA) require more detailed appraisal reporting, to address these types of issues. Appraisers of property which will be mortgaged by a government insured or guaranteed loan will check crawl spaces, and ensure all utilities are functioning properly, including outlets and light-switches. These types of additional details aren’t usually required to be addressed on Conventional or Jumbo appraisals. FHA loans require the borrower to roll-in property taxes and homeowners insurance premiums into their monthly mortgage payments (this is called mortgage-escrows or impounds). 

 

USDA Loans: 

USDA loans are low cost, zero down payment loans made to lower income families on properties in designated rural areas. USDA loans are generally more flexible on credit score requirements vs Conventional loans, but they generally have more restrictive credit score and debt-to-income requirements vs. FHA loans. Borrowers of USDA loans must meet Income Limits, and the property must be checked against USDA’s Property Eligibility Map. Like VA loans, the USDA loan is a government guaranteed loan, vs FHA as a government insured loan, but the Guarantee Fee is a smaller amount vs VA, and is paid both as an up-front fee, as well as an annual fee which is added to the monthly payments. USDA loans require the borrower to roll-in property taxes and homeowners insurance premiums into their monthly mortgage payments (this is called mortgage-escrows or impounds). 

Non-QM: 

Non-Qualified Mortgages are mortgages that allow a borrower to qualify off alternative methods of income verification.  For a loan to be called a Qualified Mortgage, the lender must use standards set by the Consumer Financial Protection Bureau’s “Ability to Repay” rule to prove a borrower is able to repay the loan. Qualified mortgages calculate income based on review of things like pay stubs, income tax returns, W2’s forms, and 1099 income statements. Non-QM loans will allow for alternative income calculations. For example, an investment property purchase may be qualified based on the potential cash-flow of the subject property alone.  Another example would be a Self-Employed borrower who may not show enough income reporting on their latest filed income tax return, but who has been in business for at least 2-years, and alternatively can provide their most recent 12 months of business depository statements to show the businesses most recent and current cash flow. There are also loans high net worth individuals who may qualify off an asset depletion income calculation.  Non-QM loans are offered at greater risk to the lender, therefore they come with higher fees or rates, and some Non-QM loans may even contain pre-payment penalties. Non-QM loans may offer interest-only payment features, terms which exceed 30 years, or allow a borrower to purchase or refinance shortly after a major derogatory credit event, where traditional QM products may require a longer waiting period after such an event.  Non-QM loans are not subprime loans however, because lenders still must make a good faith effort to verify the borrower’s ability to repay the loan, even if by using alternative calculations. 

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