Exploring Different Types of Home Loans

Finding the right home financing to purchase a home can be a daunting task, especially for a first-time homebuyer. There are many types of home loans, each of which has different pros and cons to consider. In this week’s blog from CalStar Mortgage Inc., our lending professionals will introduce common home financing options to help you prepare as you start on your journey. As mortgage professionals, we pride ourselves on giving people information on all of their financing options so they can make informed decisions and be successful as homeowners. If you live in La Canada Flintridge, CA, please contact us if you have any questions and to get a free quote.

Conventional Loans

There are two main types of mortgages: conventional and nonconventional. Conventional loans are fully funded and insured through private lenders – that is, they are not insured or funded by government agencies in any way. Conventional loans have competitive interest rates and a full range of terms (length of the repayment plan), so they’re adaptable to different buyers’ needs. Private lenders have different eligibility requirements to determine who is and is not approved for each loan, and these requirements are typically harsher than those of nonconventional loans, which we’ll discuss shortly. To get approved for a conventional loan, you will need to have good or better credit, proof of stable income for the past few years, and a substantial down payment – usually of at least 5-20%. The higher the loan, the stricter the approval requirements and down payment requirement.

There are two types of conventional loans: conforming and nonconforming. Conforming conventional loans are “conform” to limits set forth by Fannie Mae and Freddie Mac, which purchase mortgages in bulk from private lenders. Fannie Mae and Freddie Mac repackage loans for sale on the public market, and they’re only willing to take a certain amount of risk. This means they only purchase loans up to a certain limit, which varies by county. In Los Angeles County, that limit varies from $679,650 for a one-unit home to $1,307,175 for a four-unit home. If the home you wish to purchase exceeds the conforming loan limit, you’ll need a nonconforming loan, sometimes also known as a jumbo loan. Jumbo loans have more strict approval requirements and a larger down payment requirement.

Nonconventional Loans

Nonconventional loans are a popular type of financing among borrowers with less-than-great credit or who cannot raise the funds for a substantial down payment. Nonconventional loans are backed by various government agencies, like the Federal Housing Administration, U.S. Department of Agriculture, and the Department of Veterans Affairs. They have low down payment requirements (ranging from 0-10%) and are available to borrowers with credit scores as low as 500. Nonconventional loans are fully funded by lenders, which are approved by each agency. Some have income limits and are only available for homes purchased in certain areas. Nonconventional loans often have higher interest rates than conventional loans, and in may cases, mortgage insurance must be paid for the life of the loan. While they may cost more than conventional loans over time, nonconventional loans are a great option to consider if you may not qualify for conventional financing.

Get Started Today

When you’re ready to learn more about the different types of home loans, contact CalStar Mortgage Inc. Our lending professionals have the local experience in La Cañada, Flintridge, CA, and we’re here to find a home financing solution for you. We offer free quotes and are happy to answer your questions, so reach out today.