5 Types Of Residential Loans

Mortgage and Lending with HomeSmart

There are many different types of residential loans available to potential homebuyers. The type of loan that is right for you will depend on your individual financial situation and goals. Some common types of residential loans include:

Conventional Loans

A conventional loan is a mortgage that is not backed by the government. These loans are typically available with either a fixed or adjustable interest rate and can be used to purchase a primary residence, second home, or investment property.

There are several requirements for conventional loans:

  1. A minimum credit score of 620 is required for most conventional loans. Those with a credit score below 620 may still qualify, but they will need to put down a larger down payment.
  2. A minimum down payment of 3% is required for most conventional loans. However, borrowers with a credit score of at least 780 may qualify for a conventional loan with a down payment as low as 3%.
  3. Private mortgage insurance (PMI) is required for all conventional loans with a down payment of less than 20%. PMI is an insurance policy that protects the lender in case the borrower defaults on the loan.
  4. All borrowers must have a debt-to-income ratio (DTI) of 36% or less to qualify for a conventional loan. This means that no more than 36% of your gross monthly income can be used to pay your debts, including your mortgage payment.
  5. Conventional loans are available in 15-, 20-, 25-, and 30-year terms. The shorter the term of the loan, the lower the interest rate will be. However, the monthly payments will be higher.
  6. Fixed-rate and adjustable-rate mortgages are both available with a conventional loan. A fixed-rate mortgage has an interest rate that remains the same for the entire term of the loan, while an adjustable-rate mortgage (ARM) has an interest rate that can change over time.

FHA Loans

A Federal Housing Administration (FHA) loan is a mortgage that is insured by the government. These loans are available to both first-time homebuyers and repeat buyers with a low down payment option and flexible credit requirements.

To qualify for an FHA loan, borrowers must meet certain credit and income requirements. Credit requirements are generally less stringent than for conventional loans. Borrowers must have steady employment history and demonstrate the ability to pay their debts on time. They must also have a down payment of at least 3.5%, as well as adequate reserves to cover any monthly mortgage payments and other associated costs.

Income requirements vary depending on the size of the loan being sought, but generally speaking, borrowers must have a total household income that is less than 115% of the median income for their area. They may also be required to provide documentation of their ability to pay their debts, such as tax returns and bank statements.

VA Loans

A VA loan is a mortgage loan available to eligible veterans and active-duty service members. These loans are backed by the Department of Veterans Affairs and offer competitive interest rates and terms.  

One of the great things about VA loans is that they offer competitive interest rates and flexible repayment terms. But before you apply for a VA loan, there are a few things you should know. Here are the VA loan requirements: 

  • You must have satisfactory credit
  • You must have a Certificate of Eligibility (COE)
  • You must have sufficient income 
  • You must have a valid Social Security number
  • You must intend to occupy the home as your primary residence 

If you're ready to apply for a VA loan, the first step is to get pre-qualified by a lender. Once you've been pre-qualified, you'll need to obtain a Certificate of Eligibility from the Veterans Administration. The COE verifies to the lender that you meet the service requirements for a VA loan. 

In order to obtain a COE, you'll need to provide proof of service and discharge documents. If you don't have access to your military records, you can request them from the National Archives. 

Once you have your COE, you'll need to provide the lender with your financial information so they can determine if you qualify for the loan. VA loans typically have more lenient income and credit requirements than other types of loans, but it's still important to show that you have a steady income and good credit history. 

NON-Qm Loans

Non-Qualified Loans are types of loans that people can qualify for if they cannot get any above loans. The main common types of non-QM loans are: DSCR loans, 1-year out of bankruptcy loans, No-Doc loans, Asset Depletion, W2 Only Mortgage, and many more. 

If you're looking for a Non-QM loan, there are a few things you'll need to know in order to qualify. In this blog post, we'll go over some of the key requirements for these types of loans so that you can be better prepared when applying.

One of the most important requirements for Non-QM loans is that the borrower has a minimum credit score of 620. This is generally the minimum score required for most conventional loans, so if you're looking for a Non-QM loan, you'll need to make sure your credit score is up to par.

In addition to a strong credit score, borrowers will also need to have a down payment of at least 20%. This is higher than the minimum 3,5% down payment required for most FHA loans, so if you're looking for a Non-QM loan, you'll need to be prepared to make a larger down payment.

Finally, borrowers will also need to provide income documentation in order to qualify for a Non-QM loan. This includes things like tax returns, pay stubs, and bank statements. This is necessary in order to prove that you have the ability to repay the loan.

If you're looking for a Non-QM loan, these are some of the key requirements you'll need to meet in order to qualify. Make sure you have a strong credit score, a sizable down payment, and income documentation before applying for a loan.

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Comments (3)

Endre Barath, Jr.
Berkshire Hathaway HomeServices California Properties - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Great information, what a shame you do not interact with the community you might get referrals just sayin, Endre

May 20, 2022 11:50 PM
Pete Beeda

I would love to interact and contribute with more content like this, thanks Endre

Jun 13, 2022 01:28 PM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning Pete. Sometimes for good reasons, people need a Non-QM loan. A good mortgage broker knows how to guide a borrower. Enjoy your day.

May 21, 2022 05:48 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Pete and thanks for sharing this great information with us here in he rain.  Make it a great Saturday!

May 21, 2022 11:13 AM
Pete Beeda

Thanks Will

Jun 13, 2022 01:28 PM